Business Combinations

10 Basic important things that you need to know about BUSINESS COMBINATIONS

1.  Legal basis:      IFRS/PFRS #3 2004 and 2008 (Revised)
2. Definition: An event where the acquirer obtains control of one or more businesses.
3. Core  Concept: Acquisition of Control  
4. How control is achieved?  a. Acquisition of net assets     b. Acquisition of stocks
5. Accounting Method:   Purchase method/Acquisition method
6. Steps In applying the acquisition method:
       1.) Identify the acquirer            2.) Determine the acquisition date            3.) Determine the considerations given (Price paid) by the acquirer     4.) Recognize and measure the following:    
   
   • Identifiable assets acquired  Liabilities assumed
   •  Non-controlling interest in the acquired company
   • Any resulting goodwill or gain from a bargain purchase.
   
   
7.  Identifying the acquirer: The one transferring the cash or other assets or assuming the liabilities is the acquiring company
8. When is the Acquisition date?   
•  The date the acquirer obtains control of the acquired company
•  The date on which the acquirer legally transfers the considerations or acquired the assets and assumes the liabilities.
9.    Considerations and acquisition costs:    To get considerations given, get the sum of the following:
•  Assets transferred of the acquirer either, cash, NCA, contingent consideration, equity instruments, options or warrants
• Liabilities incurred of the acquirer
• Equity instruments issued by the acquirer
10.  Net Assets recognition and measurement:    Follow the simple principles below
•  The fair values of all identifiable assets and liabilities of the acquired company are measured and recorded.  
•  The identifiable assets should never include goodwill that may exist in the books of the acquired company
• The excess of the price paid over the values assigned to net assets is the goodwill
• The excess of the fair value assigned to the net assets over the price paid is recorded as gain from bargain purchase. 

Note: Acquisition-related costs are costs by the acquirer to effect a business combination such as broker’s fees, accounting, legal and   other professional fees and  general administrative costs. These costs are recorded as expenses. Where the consideration given is stock of the acquirer the issue costs are usually deducted from the value assigned to Additional Paid In Capital/Share Premium.