Section 57 - AASB 3 - Business Combinations - July 2004 - A gain recognised in accordance with paragraph 56 could comprise one or more of the following components: | Zoe
57 A gain recognised in accordance with paragraph 56 could comprise one or more of the following components:
(a) errors in measuring the fair value of either the cost of the combination or the acquiree’s identifiable assets, liabilities or contingent liabilities. Possible future costs arising in respect of the acquiree that have not been reflected correctly in the fair value of the acquiree’s identifiable assets, liabilities or contingent liabilities are a potential cause of such errors; or
(b) a requirement in an accounting standard to measure identifiable net assets acquired at an amount that is not fair value, but is treated as though it is fair value for the purpose of allocating the cost of the combination. For example, the guidance in Appendix B on determining the fair values of the acquiree’s identifiable assets and liabilities requires the amount assigned to tax assets and liabilities to be undiscounted; or
(c) a bargain purchase.
Business combination achieved in stages Business combination achieved in stages
Business combination achieved in stages
58 A business combination may involve more than one exchange transaction, for example when it occurs in stages by successive share purchases. If so, each exchange transaction shall be treated separately by the acquirer, using the cost of the transaction and fair value information at the date of each exchange transaction, to determine the amount of any goodwill associated with that transaction. This results in a step-by-step comparison of the cost of the individual investments with the acquirer’s interest in the fair values of the acquiree’s identifiable assets, liabilities and contingent liabilities at each step.
59 When a business combination involves more than one exchange transaction, the fair values of the acquiree’s identifiable assets, liabilities and contingent liabilities may be different at the date of each exchange transaction. Because:
(a) the acquiree’s identifiable assets, liabilities and contingent liabilities are notionally restated to their fair values at the date of each exchange transaction to determine the amount of any goodwill associated with each transaction; and
(b) the acquiree’s identifiable assets, liabilities and contingent liabilities must then be recognised by the acquirer at their fair values at the acquisition date,
any adjustment to those fair values relating to previously held interests of the acquirer is a revaluation and shall be accounted for as such. However, because this revaluation arises on the initial recognition by the acquirer of the acquiree’s assets, liabilities and contingent liabilities, it does not signify that the acquirer has elected to apply an accounting policy of revaluing those items after initial recognition in accordance with, for example, AASB 116 Property, Plant and Equipment.
60 Before qualifying as a business combination, a transaction may qualify as an investment in an associate and be accounted for in accordance with AASB 128 Investments in Associates using the equity method. If so, the fair values of the investee’s identifiable net assets at the date of each earlier exchange transaction will have been determined previously in applying the equity method to the investment.
61 The initial accounting for a business combination involves identifying and determining the fair values to be assigned to the acquiree’s identifiable assets, liabilities and contingent liabilities and the cost of the combination.
62 If the initial accounting for a business combination can be determined only provisionally by the end of the period in which the combination is effected because either the fair values to be assigned to the acquiree’s identifiable assets, liabilities or contingent liabilities or the cost of the combination can be determined only provisionally, the acquirer shall account for the combination using those provisional values. The acquirer shall recognise any adjustments to those provisional values as a result of completing the initial accounting:
(i) the carrying amount of an identifiable asset, liability or contingent liability that is recognised or adjusted as a result of completing the initial accounting shall be calculated as if its fair value at the acquisition date had been recognised from that date;
(ii) goodwill or any gain recognised in accordance with paragraph 56 shall be adjusted from the acquisition date by an amount equal to the adjustment to the fair value at the acquisition date of the identifiable asset, liability or contingent liability being recognised or adjusted;
(iii) comparative information presented for the periods before the initial accounting for the combination is complete shall be presented as if the initial accounting had been completed from the acquisition date. This includes any additional depreciation, amortisation or other profit or loss effect recognised as a result of completing the initial accounting.
Adjustments after the initial accounting Adjustments after the initial accounting is complete
Adjustments after the initial accounting is complete
63 Except as outlined in paragraphs 33, 34 and 65, adjustments to the initial accounting for a business combination after that initial accounting is complete shall be recognised only to correct an error in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. Adjustments to the initial accounting for a business combination after that accounting is complete shall not be recognised for the effect of changes in estimates. In accordance with AASB 108, the effect of a change in estimates shall be recognised in the current and future periods.
64 AASB 108 requires an entity to account for an error correction retrospectively, and to present financial statements as if the error had never occurred by restating the comparative information for the prior period(s) in which the error occurred. Therefore, the carrying amount of an identifiable asset, liability or contingent liability of the acquiree that is recognised or adjusted as a result of an error correction shall be calculated as if its fair value or adjusted fair value at the acquisition date had been recognised from that date. Goodwill or any gain recognised in a prior period in accordance with paragraph 56 shall be adjusted retrospectively by an amount equal to the fair value at the acquisition date (or the adjustment to the fair value at the acquisition date) of the identifiable asset, liability or contingent liability being recognised (or adjusted).
Recognition of deferred tax assets after Recognition of deferred tax assets after the initial accounting is complete
Recognition of deferred tax assets after the initial accounting is complete
65 If the potential benefit of the acquiree’s income tax loss carry-forwards or other deferred tax assets did not satisfy the criteria in paragraph 37 for separate recognition when a business combination is initially accounted for but is subsequently realised, the acquirer shall recognise that benefit as income in accordance with AASB 112 Income Taxes. In addition, the acquirer shall:
(a) reduce the carrying amount of goodwill to the amount that would have been recognised if the deferred tax asset had been recognised as an identifiable asset from the acquisition date; and
(b) recognise the reduction in the carrying amount of the goodwill as an expense.
However, this procedure shall not result in the creation of an excess as described in paragraph 56, nor shall it increase the amount of any gain previously recognised in accordance with paragraph 56.
Disclosure Disclosure
Disclosure
66 An acquirer shall disclose information that enables users of its financial statements to evaluate the nature and financial effect of business combinations that were effected:
(a) during the period;
(b) after the end of the reporting period but before the financial statements are authorised for issue.
67 To give effect to the principle in paragraph 66(a), the acquirer shall disclose the following information for each business combination that was effected during the period:
(a) the names and descriptions of the combining entities or businesses;
(b) the acquisition date;
(c) the percentage of voting equity instruments acquired;
(d) the cost of the combination and a description of the components of that cost, including any costs directly attributable to the combination. When equity instruments are issued or issuable as part of the cost, the following shall also be disclosed:
(i) the number of equity instruments issued or issuable; and
(ii) the fair value of those instruments and the basis for determining that fair value. If a published price does not exist for the instruments at the date of exchange, the significant assumptions used to determine fair value shall be disclosed. If a published price exists at the date of exchange but was not used as the basis for determining the cost of the combination, that fact shall be disclosed together with: the reasons the published price was not used; the method and significant assumptions used to attribute a value to the equity instruments; and the aggregate amount of the difference between the value attributed to, and the published price of, the equity instruments;
(e) details of any operations the entity has decided to dispose of as a result of the combination;
(f) the amounts recognised at the acquisition date for each class of the acquiree’s assets, liabilities and contingent liabilities, and, unless disclosure would be impracticable, the carrying amounts of each of those classes, determined in accordance with Australian Accounting Standards, immediately before the combination. If such disclosure would be impracticable, that fact shall be disclosed, together with an explanation of why this is the case;
(g) the amount of any excess recognised in profit or loss in accordance with paragraph 56, and the line item in the statement of comprehensive income in which the excess is recognised;
(h) a description of the factors that contributed to a cost that results in the recognition of goodwill – a description of each intangible asset that was not recognised separately from goodwill and an explanation of why the intangible asset’s fair value could not be measured reliably – or a description of the nature of any excess recognised in profit or loss in accordance with paragraph 56; and
(i) the amount of the acquiree’s profit or loss since the acquisition date included in the acquirer’s profit or loss for the period, unless disclosure would be impracticable. If such disclosure would be impracticable, that fact shall be disclosed, together with an explanation of why this is the case.
68 The information required to be disclosed by paragraph 67 shall be disclosed in aggregate for business combinations effected during the reporting period that are individually immaterial.
69 If the initial accounting for a business combination that was effected during the period was determined only provisionally as described in paragraph 62, that fact shall also be disclosed together with an explanation of why this is the case.
70 To give effect to the principle in paragraph 66(a), the acquirer shall disclose the following information, unless such disclosure would be impracticable:
(a) the revenue of the combined entity for the period as though the acquisition date for all business combinations effected during the period had been the beginning of that period;
(b) the profit or loss of the combined entity for the period as though the acquisition date for all business combinations effected during the period had been the beginning of the period.
If disclosure of this information would be impracticable, that fact shall be disclosed, together with an explanation of why this is the case.
71 To give effect to the principle in paragraph 66(b), the acquirer shall disclose the information required by paragraph 67 for each business combination effected after the end of the reporting period but before the financial statements are authorised for issue, unless such disclosure would be impracticable. If disclosure of any of that information would be impracticable, that fact shall be disclosed, together with an explanation of why this is the case.
72 An acquirer shall disclose information that enables users of its financial statements to evaluate the financial effects of gains, losses, error corrections and other adjustments recognised in the current period that relate to business combinations that were effected in the current or in previous periods.