16Applying the purchase method involves the following steps:

16 Applying the purchase method involves the following steps:

(a) identifying an acquirer;

(b) measuring the cost of the business combination; and

(c) allocating, at the acquisition date, the cost of the business combination to the assets acquired and liabilities and contingent liabilities assumed.

Identifying the acquirer Identifying the acquirer

Identifying the acquirer

17 An acquirer shall be identified for all business combinations. The acquirer is the combining entity that obtains control of the other combining entities or businesses.

18 Because the purchase method views a business combination from the acquirer’s perspective, it assumes that one of the parties to the transaction can be identified as the acquirer.

19 Control is the power to govern the financial and operating policies of an entity or business so as to obtain benefits from its activities. A combining entity shall be presumed to have obtained control of another combining entity when it acquires more than one-half of that other entity’s voting rights, unless it can be demonstrated that such ownership does not constitute control. Even if one of the combining entities does not acquire more than one-half of the voting rights of another combining entity, it might have obtained control of that other entity if, as a result of the combination, it obtains:

(a) power over more than one-half of the voting rights of the other entity by virtue of an agreement with other investors; or

(b) power to govern the financial and operating policies of the other entity under a statute or an agreement; or

(c) power to appoint or remove the majority of the members of the board of directors or equivalent governing body of the other entity; or

(d) power to cast the majority of votes at meetings of the board of directors or equivalent governing body of the other entity.

20 Although sometimes it may be difficult to identify an acquirer, there are usually indications that one exists. For example:

(a) if the fair value of one of the combining entities is significantly greater than that of the other combining entity, the entity with the greater fair value is likely to be the acquirer;

(b) if the business combination is effected through an exchange of voting ordinary equity instruments for cash or other assets, the entity giving up cash or other assets is likely to be the acquirer; and

(c) if the business combination results in the management of one of the combining entities being able to dominate the selection of the management team of the resulting combined entity, the entity whose management is able so to dominate is likely to be the acquirer.