Question

Discussing the importance of identifying the acquisition date in AASB 3/ IFRS 3?

Answer 1

Importance of Determining the Acquisition Date in IFRS 3 is as under -

IFRS 3 deals with Business Combination.
Wherein the acquirer obtains Control of another Business (the acquiree).

The procedure and the time frame for such deals may or may not be short.

Steps -
1. Preliminary agreement that first asks for the consent from both the parties.
2. Approval ie. Consent from both the parties.
3. Final agreement
4. Consideration
5. Registration

(Consideration terms might be different and so it also may be the last step in few cases.)

Acquisition date is the date on which acquirer obtains Control of the acquire, the date on which acquirer legally transfers the consideration, acquired the assets and assumes the liability of the acquire. Usually, the Acquisition date is considered to be the 'closing date', however the case may be different.

For example -

Company P acquired 80% equity in company S for $4000/-. Date of Agreement is 1st feb, 20**, date of consideration paid is 24th feb, 20**, date of obtaining control over board representation 20th feb, 20**.

In the given case, Acquisition date will be 24th feb, 20** as the final settlement and legally company P will be the 80% equity holder of company S.

Liabilities attached to this new acquisition should also be accounted for in the books of P. Liabilities as on 24th Feb, will be taken into account and same goes with the assets.

For Accounting purpose, the acquisition date needs to be determined correctly. The significance is that recognition and measurement of assets and liabilities revolve around the acquisition date.