(IFRS) for Small and Medium-sized Entities (SMEs)

IFRS FOR SMES – JULY 2009Section 19Business Combinations and GoodwillScope of this section19.1 This section applies to accounting for business combinations. It providesguidance on identifying the acquirer, measuring the cost of the businesscombination, and allocating that cost to the assets acquired and liabilities andprovisions for contingent liabilities assumed. It also addresses accounting forgoodwill both at the time of a business combination and subsequently.19.2 This section specifies the accounting for all business combinations except:(a)(b)(c)combinations of entities or businesses under common control. Commoncontrol means that all of the combining entities or businesses areultimately controlled by the same party both before and after the businesscombination, and that control is not transitory.the formation of a joint venture.acquisition of a group of assets that do not constitute a business.Business combinations defined19.3 A business combination is the bringing together of separate entities or businessesinto one reporting entity. The result of nearly all business combinations is thatone entity, the acquirer, obtains control of one or more other businesses, theacquiree. The acquisition date is the date on which the acquirer effectivelyobtains control of the acquiree.19.4 A business combination may be structured in a variety of ways for legal, taxationor other reasons. It may involve the purchase by an entity of the equity of anotherentity, the purchase of all the net assets of another entity, the assumption of theliabilities of another entity, or the purchase of some of the net assets of anotherentity that together form one or more businesses.19.5 A business combination may be effected by the issue of equity instruments, thetransfer of cash, cash equivalents or other assets, or a mixture of these.The transaction may be between the shareholders of the combining entitiesor between one entity and the shareholders of another entity. It may involve theestablishment of a new entity to control the combining entities or net assetstransferred, or the restructuring of one or more of the combining entities.Accounting19.6 All business combinations shall be accounted for by applying the purchasemethod.19.7 Applying the purchase method involves the following steps:(a)identifying an acquirer.104 © IASCF