Question

Summarize the IFRS 3 includes:
Are there any new changes to the standard?
The most important goals of the standard

Answer 1

IFRS 3 standard provides the recognition and measurement of the concept of Business Combination.IFRS 3 must be applied when accounting for business combinations and it provides guidance on determining whether a particular transaction meets the definition of a business combination and one covered under IFRS 3 then it should be accounted for in accordance with its requirements.

Method of accounting for business combinations

All business combinations shall be accounted under the Acquisition method. The Steps involved in applying Acquisition method are as follows:

1. Identification of the acquirer: Guidance note of IFRS 10  Consolidated Financial Statements is used to identify an acquirer in Businesss combination ie the entity that acquires the Control of the acquiree

2.Deteremine the Acquisition date

The acquirer considers all pertinent facts and circumstances when determining the acquistition date ie the date on which the acquirer has obtained the control over the acquiree.

3.Recognition and Measurement of the identifiable Assets and Liabilities including Non controllable interest if any

Recognition Principle : Identify assets & liablilites acquired and non-controlling interest in the aquiree are recognized separetely from goodwill

Measurement Principle : All the Assets acquired and liablities assumed in a business combination are measured at acquisition date at Fair value

4. Recognition and measurement of Good will or gain from a bargain purchase :

when the purchase consideration is more  then net Assets acquired it will be recognised as goodwill and when its less it is recorded as gain from bargain purchase.

Goodwill = consideration transfered +NCI+Fair value of previous equity interest -Net Assets recognised

Amendments in IFRS 3

From 1st January 2020 (effective date of amendment), the definition of business is amended ;

The amendment clarifies the definition of a business with the objective of assissting entities to deteremine whether a transaction is a business combination or an acquisiton .The amendment clarifies that an acquried set of activities and assets must include an input and substantive process that significantly contribute the ability to create output which removes the assessment of whether market participants are capable of replacing any missing inputs or processes and continues to produce output.

The most important goal of IFRS 3 is to assure the reliability , relevance and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects on the financial statements.