Section 19

Business
Combinations and
Goodwill

19.3 Business Combination

Is the bringing together of separate entities or
businesses into one reporting entity. The result of nearly
all business combinations is that one entity, the acquirer,
obtains control of one or more other business, the
acquiree. The acquisition date is the date on which the
acquirer effectively obtains control of the acquiree.

Exclusions
Combinations of entities or businesses under
common control
The formation of a joint venture
Acquisition of a group of assets that do not
constitute a business

 19.8 The acquirer is the combining entity that

obtains control of the other combining entities
or businesses.
19.9 Control is the power to govern the financial
and operating policies of an entity or business
so as to obtain benefits from its activities.

 19.6 All business combinations shall be accounted

for by applying the purchase method.
19.7 Applying the purchase method involves the
following steps:
identifying an acquirer
measuring the cost of business combination
allocating the cost of business combination to the
assets acquired and liabilities and provisions for
contingent liabilities assumed.

 19.22 The acquirer shall, at the acquisition date:

recognize goodwill acquired in a business
combination as an asset
initially measure that goodwill at its cost, being the
excess of the cost of the business combination over the
acquirers interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities
recognized

 19.3 After initial recognition, the acquirer

shall measure goodwill acquired in a business
combination at cost less accumulated
amortization and accumulated impairment
losses

19.25- 19.26 Disclosures for business

combinations:
The name and descriptions of the combining entities or
businesses and the acquisition date
The percentage of voting equity instruments acquired
The cost of combination and a description of the
components of that cost

 The amounts recognized at the acquisition date for each

class of the acquirees assets, liabilities and contingent
liabilities, including goodwill
The amount of any excess recognized in profit or loss
A reconciliation of the carrying amount of goodwill at the
beginning and end of the reporting period, showing
separately changes from new business combinations,
impairment losses, disposal and other changes.

Differences Between Full IFRS and IFRS for SMEs

Full IFRS
Transaction costs are expensed
Contingent consideration is recognized
regardless of probability of payment
Goodwill is tested for impairment

IFRS for SMEs

Transaction costs are included in the
acquisition cost
Included as part of cost if it probable that
the amount will be paid and its fair value
can be measured reliably
Goodwill is tested for impairment and is
amortized over its useful life

Negative goodwill is recognized in profit Negative goodwill is recognized in

or loss using the term gain on bargain
profit or loss
purchase

Illustrative Example
On 30 June 2010, ABC Limited acquired 100% of the
ordinary share capital of DEF Inc., a fruit grower and
fruit juice producer for the wholesale market operating
in southern European countries. The fair value of DEF
Inc.'s assets and liabilities as of 30 June 2010 arising
from the acquisition is $1,336. The cost of the
contribution is made up as follows:
Cash Paid

$1,405

Transaction costs

20

Illustrative Example
A purchased a competitors (B) taxi business for
CU42,000, which was paid in cash on the date of
acquisition. The business combination was effected by
the assets, obligations and operations of the taxi
business being transferred to A.

Reference
https://www.pwc.com/gx/en/ifrs-reporting/pdf/ifrs-forsmes-illustrative-f-s2010.pdf
https://www.pwc.no/no/ifrs/publikasjoner/similaritiesand-differences-a-comparison-of-ifrs-for-smes-and-fullifrs.pdf
http://www.ifrs.org/IFRS-for-SMEs/Documents/IFRS
%20for%20SMEs%20Modules/Module19_version
%202013%20(final).pdf
www.icagh.com/file/IFRSforSMEs2009[1].pdf