Classifying or designating identifiable Classifying or designating identifiable assets acquired and liabilities assumed in a business combination

Classifying or designating identifiable assets acquired and liabilities assumed in a business combination

15 At the acquisition date, the acquirer shall classify or designate the identifiable assets acquired and liabilities assumed as necessary to apply other Australian Accounting Standards subsequently. The acquirer shall make those classifications or designations on the basis of the contractual terms, economic conditions, its operating or accounting policies and other pertinent conditions as they exist at the acquisition date.

16 In some situations, Australian Accounting Standards provide for different accounting depending on how an entity classifies or designates a particular asset or liability. Examples of classifications or designations that the acquirer shall make on the basis of the pertinent conditions as they exist at the acquisition date include but are not limited to:

(a) classification of particular financial assets and liabilities as measured at fair value through profit or loss or at amortised cost, or as a financial asset measured at fair value through other comprehensive income in accordance with AASB 9 Financial Instruments;

(b) designation of a derivative instrument as a hedging instrument in accordance with AASB 9; and

(c) assessment of whether an embedded derivative should be separated from a host contract in accordance with AASB 9 (which is a matter of ‘classification’ as this Standard uses that term).

17 This Standard provides two exceptions to the principle in paragraph 15:

(a) classification of a lease contract as either an operating lease or a finance lease in accordance with AASB 117 Leases; and

(b) classification of a contract as an insurance contract in accordance with AASB 4 Insurance Contracts.

The acquirer shall classify those contracts on the basis of the contractual terms and other factors at the inception of the contract (or, if the terms of the contract have been modified in a manner that would change its classification, at the date of that modification, which might be the acquisition date).