Business Combinations

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Contributed By

• Michael Judd, 2 July 2008

n.b. If you have any specific requirements in regards to IFRS3 please do not hesitate to get in contact with the author above for further clarification.

Basis of Business Combination

• Business combinations are accounted for using the purchase method (pooling of interests is no longer acceptable).

• IFRS3 Does not apply to:
  • joint ventures
  • business combinations involving entities or businesses under common control
  • business combinations in which separate entities or businesses are brought together to form a reporting entity by contract alone without obtaining the ownership interest

• A 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 businesses, the acquiree.
• If an entity obtains control of one or more other entities that are not businesses, the bringing together of those entities is not a business combination.

Aquisition Costing

• When an entity acquires a group of assets or net assets that does not constitute a business, it shall allocate the cost of the group between the individual identifiable assets and liabilities in the group based on their relative fair values at the date of acquisition.

• Where the cost of acquisitions exceeds the fair value of the net identifiable assets, liabilities, contingent liabilities purchased, goodwill is recognised at cost.

• Where the cost of acquisition is less than the fair value of the net identifiable assets, liabilities, contingent liabilities purchased, the amount is recognised in the profit and loss.

• The majority of the standard concerns the finer points including acquiree's intangible assets and contingent liabilities as well as business combinations achieved in stages.

• The main requirements from a practical view point is to be able to recognise the investment in the acquiree business at fair value, the goodwill at cost and any accumulated impairment in the balance sheet and the impairment in the profit and loss.

IFRS3 Compliance

• ADempiere provides the necessary accounts for the compliance with IFRS3.

There are no special business combinations functionality other than the ability to account for business combinations in accordance with the standard within the general ledger.