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MFRS 3 - effective 1 January 2012

Business Combinations

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a transaction or other event in which an
acquirer obtains control of one or more
Acquirer and acquiree remain separate legal
Acquisition method of accounting

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The acquisition method

Identifying the acquirer

Determining the acquisition date
Recognising and measuring the fair values of net
assets acquired and any non-controlling interest in
the acquiree
Recognising and measuring goodwill or a gain from
a bargain purchase

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Identifying the acquirer
An acquirer in a business combination is the
entity that obtains control of the acquiree
The party that has control over the operating
and financial policies of the acquiree.
Control - refer to MFRS 10
Previously, the party that acquires > 50% of the
other entitys voting shares is presumed to have

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Determining the acquisition date

The date the acquirer obtains control of the

acquiree is generally the date on which the
acquirer legally transfers the consideration,
acquires the assets and assumes the liabilities of
the acquiree i.e the closing date

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Recognizing and
Acquirer to recognize separately from goodwill only the
identifiable assets, liabilities and non-controlling interests in the
acquiree that existed at the acquisition date
A & L must meet the definition of assets and liabilities
A & L those agreed by acquirer and acquiree
May include identifiable assets not recognized by acquiree
previously such as brand name
Non-controlling interests (NCI) at either proportionate share of
fair value of acquirees identifiable net assets or fair value of
shares held by NCI
A & L measured at their fair values on the date of acquisition

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Recognising and measuring goodwill or a gain
from a bargain purchase
The acquirer shall recognise goodwill as of the date of
acquisition measured as the excess of (a) over (b) below:
(a) the aggregate of
(i) consideration transferred which generally requires
acquisition date fair value
(ii) the amount of any non-controlling interest in the
acquiree measured at either based on fair value of shares or
proportionate share of net assets
(iii) in a business combination achieved in stages, the
acquisition date fair value of the acquirers previously held
equity interest in the acquiree
(b) the acquisition date fair value of net identifiable assets
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Consideration transferred (cost of
business combination)
May comprise of:
Assets given (e.g. cash or property transferred)
Equity instruments issued (e.g. shares)

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Goodwill/gain on bargain purchase
If (a) > (b) the difference is termed goodwill
and tested for impairment
If (b) > (a) the difference is termed a gain on
bargain purchase and taken to income statement
on acquisition date gain attributed to the

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Gain on bargain purchase
Gain on bargain purchase can only be
recognized after :
Reassessing and Review the procedures used to
measure the amounts in (a) and (b)

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