Business Combinations - IFRS Canadian GAAP Differences Series

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If the difference between (a) and (b) is negative,this is termed a bargain purchase. When abargain purchase arises, an acquirer mustreassess whether it has correctly identified andmeasured all of the components of the businesscombination. If it truly is a bargain purchase thegoodwill is reduced to zero and any gainremaining is recognized in the income statement.Under Canadian GAAP, the timeframe foradjustments to the purchase equation subsequentto the acquisition date is consistent with the 12-month window provided in IFRS. However,Canadian GAAP does allow for a window beyond12 months in very unusual circumstances. Suchadjustments do not require retrospectiveapplication with restatement of comparativefigures, unless the adjustment is for the correctionof an error.Under Canadian GAAP, the non-controllinginterest is calculated as the portion of ownershipinterest of the carrying amount of net assets of theacquiree that are not acquired by the acquiree.Adjustments to the measurement of the businesscombination can be made within themeasurement period, which cannot exceed 12months from the date of acquisition. Adjustmentsare limited to better knowledge about facts andcircumstances that existed at the acquisition date.Such adjustments are made retrospectively andcomparative information is revised.Adjustments that are made based on conditionsthat exist after the acquisition date should beregarded as subsequent transactions that are notpart of the business combination and should betreated separately.Under IFRS, the non-controlling interest ismeasured using either:- The fair value of the non-controlling interest;or- The proportionate interest of the fair value ofnet identifiable assets of the entity acquired.Cost of Acquisition in a Business CombinationCanadian GAAPUnder Canadian GAAP, consideration in abusiness combination is the aggregate of the fairvalue of the assets obtained, liabilities assumed,and equity interests issued.The fair value of any equity securities issued bythe acquirer is determined by the market price fora reasonable period before and after the terms ofthe acquisition are agreed to and announced.In Canadian GAAP, there are very strict criteria forrecognizing contingent consideration at theacquisition date.Contingent consideration is recognized only whenthe amount can be reasonably estimated at thedate of acquisition and the outcome of thecontingency can be determined beyondreasonable doubt. When the amount ofcontingent consideration cannot be reasonablyIFRSUnder IFRS, consideration in a businesscombination includes: the fair value of the assetsobtained, liabilities assumed, equity interestsissued and any contingent consideration.The fair value of any equity securities issued bythe acquirer is determined by the market prices atthe date of acquisition.Under IFRS 3 (Revised 2008), contingentconsideration is recognized as part of theconsideration transferred at fair value. There is norequirement for the contingent consideration tomeet the probability and reliably measurablecriteria.Subsequent changes in the amount of contingentconsideration are accounted for as follows:BDO Dunwoody LLP is a Member Firm of BDO International. BDO International is a world wide network ofpublic accounting firms, called BDO Member Firms, serving international clients. Each BDO Member Firm is anindependent legal entity in its own country.
estimated or the outcome of the contingencycannot be determined without reasonable doubt,details of the contingency should be disclosed.Neither a liability nor outstanding equityinstruments are recognized until the contingencyis resolved and consideration is issued orbecomes issuable.Subsequent changes in the amount of contingentconsideration are recognized as an adjustment togoodwill.Under Canadian GAAP, the cost of the purchaseincludes the direct costs of the businesscombination.(a) Contingent consideration classified as equityshall not be remeasured and its subsequentsettlement shall be accounted for withinequity.(b) Contingent consideration classified as anasset or a liability that:(i) Is a financial instrument and is within thescope of IAS 39 Financial Instruments:Recognition and Measurement shall bemeasured at fair value, with any resultinggain or loss recognized either in profit orloss or in other comprehensive incomeappropriately. (See Canadian GAAP – IFRSComparison Series - Issue 4 – FinancialInstruments); and(ii) Is not within the scope of IAS 39 shall beaccounted for in accordance with otherIFRSs as appropriate.Under IFRS, transaction costs of the businesscombination are expensed as incurred.Step AcquisitionsUnder Canadian GAAP, when a stage acquisitionis done, the carrying amount of the previouslyheld equity interest in the acquiree is notremeasured to fair value and no gain or loss isrecognized when control is obtained. Instead, foreach step acquisition, assets and liabilities areadjusted to reflect the additional proportionateamount of the fair value acquired at that date.Under IFRS, where the acquirer has a pre-existingequity interest in the entity acquired if the acquirerincreases its equity interest sufficiently to achievecontrol, it must remeasure its previously-heldequity interest in the acquiree at acquisition-datefair value and recognize any resulting gain or lossin the income statement.In prior reporting periods, the acquirer may haverecognized changes in the value of its equityinterest in the acquiree in other comprehensiveincome. If so, the amount that was recognized inother comprehensive income shall be recognizedon the same basis as would be required if theacquirer had disposed directly of the previouslyheld equity interest.Once control is obtained, as long as control is notlost all changes to ownership interests are treatedas transactions among equity holders andreported within equity. Goodwill does not arise onany increase, and no gain or loss is recognized onany decrease.Reverse Takeover TransactionsEIC 10 - Reverse Takeover Accounting,addresses 6 issues related to reverse takeovertransactions. It also provides guidance forThe application guidance found in Appendix B ofIFRS 3 (Revised 2008) addresses reversetakeover transactions. IFRS 3 Revised does notBDO Dunwoody LLP is a Member Firm of BDO International. BDO International is a world wide network ofpublic accounting firms, called BDO Member Firms, serving international clients. Each BDO Member Firm is anindependent legal entity in its own country.
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Business Combinations - IFRS Canadian GAAP Differences Series

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