GROUP ACCOUNTS 1: BUSINESS

COMBINATIONS
Lesson 1: Introduction
What is a business?
A business is defined as an integrated set of activities and assets that
is capable of being conducted and managed for the purpose of
providing a return in the form of dividends, lower costs or other
economic benefits directly to investors or other owners, members or
participants.
Key points on a business:
To be capable to conduct and manage a set of activities and
assets, a business needs inputs and processes applied to those
inputs that have the ability to create outputs. Although businesses
usually have outputs, outputs are not required for an integrated
set of activities and assets to qualify as a business.
However, a business need not include all of the inputs or
processes that the seller used in operating that business if market
participants are capable of acquiring the business and continuing
to produce outputs, for example, by integrating the business with
their own inputs and processes.
The nature of the elements of a business varies by industry and
by the structure of an entitys operations (activities), including the
entitys stage of development.
Nearly all businesses also have liabilities, but a business need
not have liabilities.
In the assessment of whether an entity is a business, it is not
relevant whether a seller operated the set of activities as a
business or the acquirer intends to operate the set as a business,
only that the acquirer is capable of doing so.

Scope of IFRS 3
A business combination is defined in IFRS 3 as a transaction or other
event in which an acquirer obtains control of one or more businesses.
IFRS 3 notes that such transactions might be structured in a variety of
ways for legal, taxation or other reasons. It could involve:
One or more businesses becoming subsidiaries of an acquirer or
the net assets of one or more businesses being legally merged
into the acquirer
One entity transferring its net assets, or its owners transferring
their equity interests, to another entity
All of the entities transferring their net assets to a newly-formed
entity
A group of former owners of one of the entities obtaining control
of the combined entity
The standard does not cover combinations in which separate entities
are brought together to form a joint venture, nor the acquisition of an
asset or group of assets that does not constitute a business or those
that involve entities under common control.

Business combinations Key points

The combination can be effected by the issue of equity
instruments, by the transfer of cash or other assets, by incurring
liabilities or a combination of these. It may also be effected
without transferring consideration; for example, by contract alone.
The transaction can be between the shareholders of the
combining entities or between one entity and the shareholders of

the other entity. The transaction can involve the establishment of

a new entity to control the combining entities or net assets
transferred or the restructuring of one or more of the combining
entities. However, a new entity formed to effect a business
combination is not necessarily the acquirer. If a new entity is
formed to issue equity interests to effect a business combination,
one of the combining entities that existed before the business
combination shall be identified as the acquirer.
Whenever the substance of the transaction falls within the
definition of a business combination, the requirements of IFRS 3
apply, regardless of the particular structure adopted for the
combination.
The exclusion of transactions involving entities under common
control has the effect of scoping most group reconstructions out
of the standard.
The result of nearly all business combinations is that one entity,
the acquirer, obtains control of one or more other businesses, the
acquiree, and the control must not be transitory. However, a
change in the extent of the non-controlling interest does not
breach this definition

Question 1

Binfathi Holding plc., a subsidiary of the Binfathi Group, makes the

following offers. Under IFRS 3 Business Combinations, which of the
following is a business combination?
A. Binfathi Holdings offers to acquire all of the equity shares of
Colorado Ltd. on 1 July 2012 for 10,000 cash and 50,000 shares in
Binfathi.
B. Binfathi Holdings offers to acquire all three of the manufacturing
sites of Colorado Ltd., i.e., only the building and the machinery
without the workforce and inventory, for 20,000 cash.
C. Binfathi Holdings offers to acquire 25% of the equity shares of
Colorado Ltd. on 1 July 2012 for 2,500 cash and 12,500 shares in
Binfathi.
D. Binfathi Holdings offers to acquire some brand names and
trademarks of Colorado Ltd. for 30,000 cash
This is a business combination, as Binfathi has acquired a business, e.g., an
integrated set of activities and assets that is capable of being conducted and
managed for the purpose of providing a return in the form of dividends, lower
costs or other economic benefits directly to investors or other owners,
members or participants.

Lesson 2: Applying the Acquisition Method

Applying the acquisition method
The acquisition method is required for accounting for all business
combinations. IFRS 3 Business Combinations describes its four steps.
Step 1: The first step in the acquisition method is identifying the
acquirer. You will learn that sometimes it may be difficult to identify the
acquirer.
Step 2: The second step in the acquisition method is determining the
acquisition date. You will learn how to determine the acquisition date.
Step 3: The third step in the acquisition method, done at the
acquisition date, is recognizing and measuring the identifiable assets
acquired, liabilities and contingent liabilities assumed and noncontrolling interest.
Step 4: The fourth and final step in the acquisition method, performed
at the acquisition date, is recognizing and measuring the goodwill or
bargain purchase.

Identifying the acquirer

The acquirer is defined as the entity that obtains control of the

acquiree. The acquiree is defined as the business or businesses the
acquirer obtains control of in a business combination. The guidance in
IFRS 10 Consolidated Financial Statements shall be used to identify
the acquirer. In most cases, identifying the acquirer is straightforward;
for example, in a cash acquisition it will generally be the entity that
transfers the cash. In most cases, it will be the parent of the enlarged
group.
If a business combination is effected through an exchange of shares,
the entity that issues new shares is normally the acquirer, but not
always. In a reverse acquisition, the acquirer is the entity that
becomes the subsidiary of the other entity. Or when a new holding
entity is formed to issue shares to effect the combination, one of the
combining entities that existed before the combination shall be
identified as the acquirer.
Cases will exist in which identifying the acquirer in a transaction is less
clear, particularly when shares of one entity are issued as
consideration for shares in the other. Relevant questions that might
help to identify the acquirer include: Which of the entities initiated the
combination? Which is the larger party, in terms of relative size
(measured in assets, revenues and profits)? (Note: relative size is not
a conclusive test.) And which of the combining parties subsequently
dominates the management of the combined entity or the composition
of the governing body?
IFRS 3 is built on the premise that no cases exist in which identifying
the acquirer is impossible, and consequently, the acquisition method
shall be applied in all cases.

Question 1

Binfathi Group acquired 60% interest in Colorado Ltd. on 1 July 2011.

The consideration for the 60% interest in Colorado Ltd. is 50,000
shares in Binfathi. After the acquisition, the governing body of
Colorado Ltd. will consist of 3 directors of Binfathi and 5 directors of
the former parent company, Colorado Investment Ltd., which retains
the remaining 40% interest. Who will consolidate Colorado Ltd.?
A. Binfathi, as it is the acquirer because it has issued 50,000 shares.
B. Colorado Investment Ltd. retains control as it can appoint the
majority of the members of the governing body. Colorado
Investment Ltd. will continue consolidating Colorado Ltd.
C. It is not possible to determine the acquirer and therefore Binfathi
accounts for its 60% interest in Colorado Ltd. using the proportional
consolidation method. Colorado Investment Ltd. accounts for the
remaining 40% interest using the equity method.
D. It is not possible to determine the acquirer; therefore, this is a joint
venture: Binfathi and Colorado Investment Ltd. have joint control
over Colorado Ltd.
Colorado Investment Ltd. has retained a significant interest in Colorado Ltd.
and has the right to appoint the majority of the members of the governing
body. Therefore, Colorado Investment Ltd. is the acquirer despite the fact that
Binfathi has acquired the majority of the interest in Colorado Ltd. through the
issuance of 50,000 of its own shares (in this case equity instruments)

Determining the acquisition date

The acquirer identifies the acquisition date, which is the date on which
it obtains control of the acquiree.
The date on which the acquirer obtains control of the acquiree is
generally the date on which the acquirer legally transfers the
consideration, acquires the assets and assumes the liabilities of the
acquiree the closing date. However, the acquirer might obtain
control on a date that is either earlier or later than the closing date. For
example, the acquisition date precedes the closing date if a written

agreement provides that the acquirer obtain control of the acquiree on

a date before the closing date.
All pertinent facts and circumstances need to be considered when
determining the acquisition date.

Question 2

Binfathi Holding plc, a sub-holding of the Binfathi Group, makes an

offer for all the equity shares of Colorado Ltd. on 1 July 2011. The
consideration for the offer is 50,000 shares in Binfathi together with
10,000 cash. The offer is accepted on 1 August 2011. However, the
offer is conditional upon receiving the approval of the competition
authority which is obtained on 30 September 2011. In the past, the
competition authority has never rejected the application for any merger
or combination of businesses. The shares are exchanged on 10
August 2011. What is the date of acquisition?
A. 1 July 2011, the date of the offer
B. 1 August 2011, the date the offer has been accepted
C. 10 August 2011, the date the shares have been exchanged
D. 30 September 2011, the date of the approval by the competition
authority
The acquisition date is the date on which the acquirer obtains control of the
acquiree, which is the date when the exchange of shares takes place.

Recognizing and measuring the assets, liabilities,

contingent liabilities and non-controlling interest
The third step in the acquisition method is recognizing and measuring
the identifiable assets, liabilities, contingent liabilities and any noncontrolling interest in the acquiree.
The acquirer is required to recognize all the identifiable assets
acquired and liabilities and contingent liabilities assumed at their
acquisition-date fair values, provided that they (1) meet the definition
of an asset and liability in the Framework for the preparation and
presentation of financial statements and (2) must be part of what the
acquirer and acquiree exchanged in the transaction rather than the
result of a separate transaction.
Contingent assets do not meet the definition of an asset and are
therefore not recognized.
Identifiable assets and liabilities over which the acquirer obtains
control might not necessarily have been recognized in the financial
statements of the acquiree because they did not qualify for recognition
before the combination. For example, an asset might not have been
recognized by the acquiree in respect of tax losses, but might qualify
for recognition as a result of the acquirer earning sufficient taxable
income.
The acquirer also recognizes non-controlling interest, if any, and
measures it at either fair value or at the non-controlling interest's
proportionate share of the acquiree's identifiable net assets acquired.
The acquirer can make this choice for each acquisition, and it is not an
accounting policy choice.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at the measurement date. Note that these requirements apply
regardless of whether the acquisition is of 100% of the business or
less. These fair values also provide the starting point for measuring
post-acquisition results in accordance with other applicable IFRSs. For
example, the amount of future depreciation will be based on the fair
values assigned to the relevant assets.

As uncertainties about future cash flows are included in the fair value
measure, a separate valuation allowance is not necessary at
acquisition date. There are, however, some exceptions to this basic
principle. I will send you a summary of these.

Exceptions to the recognition and measurement

principles
Exception to the recognition principle
Contingent liabilities
The requirements in IAS 37 Provisions, Contingent Liabilities and
Contingent Assets do not apply in determining which contingent
liabilities to recognize as of the acquisition date. Instead, the acquirer
recognizes a contingent liability assumed in a business combination if
it is a present obligation that arises from past events and its fair value
can be measured reliably. That is, it is not necessary that an outflow of
future economic benefits is probable.
After their initial recognition, contingent liabilities are measured at the
higher of the amount that would have been recognized under IAS 37
or the initial amount recognized less cumulative amortization
recognized in accordance with IAS 18 Revenue (if applicable).
Exceptions to the measurement principle
Reacquired rights
The acquirer may reacquire a right that it had previously granted to the
acquiree; for example, the right to use the acquirer's technology under
a technology licensing agreement. The acquirer recognizes the
reacquired intangible right as an asset and determines its fair value on
the basis of the remaining contractual term of the contract, regardless
of whether market participants would consider potential contractual
renewals when measuring its fair value.
Subsequently, the reacquired right is amortized over the remaining
contractual period.
Share-based payment awards
When the acquirer replaces an acquiree's share-based payment
awards with its own share-based payment awards, the acquirer
measures a liability or an equity instrument in accordance with IFRS 2
Share-based Payment. Exchanges of share-based payments are
treated as a modification and the accounting depends on whether
there is an obligation to replace the acquiree awards or not.
If there is an obligation, IFRS 3 prescribes how the market-based
value should be calculated in order to split it between what is included
in the consideration transferred and what is recognized as a postcombination expense. If no obligation exists, IFRS 3 does not give
clear guidance. This could be treated either on the same basis as
when there is an obligation or the expense will be recognized over the
remaining vesting period.
Assets held for sale
The acquirer measures an acquired non-current asset (or disposal
group) that is classified as held for sale at the acquisition date in
accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations at fair value less costs to sell.
Assets held for sale are those classified by the acquiree before the
acquisition, but also those so classified by the acquirer on acquisition.
Exceptions to both principles

Income tax and employee benefits

Income tax: The acquirer recognizes and measures a deferred tax
asset or liability in accordance with
IAS 12 Income Taxes for:
Assets acquired and liabilities assumed in a business
combination
Potential tax effects of temporary differences
Carryforwards of an acquiree that exist at the acquisition date or
arise as a result of the acquisition
Employee benefits: The acquirer recognizes and measures a liability
(or asset, if any) related to the acquiree's employee benefit
arrangements in accordance with IAS 19 Employee Benefits.
Indemnification assets
The seller in a business combination may contractually indemnify the
acquirer for the outcome of a contingency or uncertainty related to all
or part of a specific asset or liability. For example, the seller may
indemnify the acquirer against losses above a specified amount on a
liability arising from a particular contingency. In other words, the seller
will guarantee that the acquirer's liability will not exceed an agreed
amount, regardless of the outcome of a particular contingency. As a
result, the acquirer recognizes an indemnification asset at the same
time that it recognizes the indemnified item measured on the same
basis as the indemnified item, subject to the need for a valuation
allowance for uncollectible amounts.
Therefore, if the indemnification relates to an asset or a liability that is
recognized at the acquisition date and measured at its acquisition-date
fair value, the acquirer recognizes the indemnification asset at the
acquisition date measured at its acquisition-date fair value.
Subsequently, the acquirer measures an indemnification asset on the
same basis as the indemnified liability or asset, subject to any
contractual limitations on its amount. For an indemnification asset that
is not subsequently measured at its fair value, management must
assess the collectability. The acquirer derecognizes the
indemnification asset only when it collects the asset, sells it or
otherwise loses the right to it.
Example
The seller guarantees that a specific liability would be only CU 1,000.
The acquirer must account for the liability at the acquisition-date fair
value.
If the acquisition-date fair value is CU 900:
The acquirer recognizes the liability at CU 900
No indemnification asset is recognized
If there are indications at acquisition date that the fair value of the
liability is CU 1,200:
The acquirer recognizes the liability at CU 1,200
Acquirer also recognizes the indemnification asset at CU 200

Other issues on the recognition and measurement

principles
Acquired classifies and designates
The acquirer classifies or designates the identifiable assets acquired
and liabilities assumed at the acquisition date. This is based on their
contractual terms, economic conditions, accounting policies and other
conditions as at the acquisition date. There are two exceptions where
the classification is based on the contractual terms at inception of the
contract: leases (IAS 17 Leases applies) and insurance contracts
(IFRS 4 Insurance Contracts applies).

Future losses/costs
The acquirer cannot recognize liabilities for future losses or costs of
the acquiree based on its intentions for the future as these do not
represent liabilities of the acquiree at the acquisition date.
Existing obligations
Liabilities that were existing obligations of the acquiree at the
acquisition date must be recognized. Items that do not meet the
definition of a liability are not liabilities at that date and are recognized
as post-combination activities or transactions of the combined entity
when the costs are incurred (examples are costs associated with
restructuring or exiting an acquiree's activities).
Intangible assets
Identifiable intangible assets must be recognized separately from
goodwill if they meet the definition of an intangible asset under IAS 38
Intangible Assets: an identifiable, non-monetary asset without physical
substance that must be separable from the entity or arise from
contractual or other legal rights. If these items cannot be distinguished
from goodwill, they are absorbed within goodwill, with the result that
the subsequent accounting treatment would be less discriminating.
Measurement period
If the initial accounting for a business combination is incomplete by the
end of the reporting period in which the combination occurs, the
acquirer reports provisional amounts. As new information becomes
available during the measurement period, these provisional amounts
are adjusted if it would have affected the measurement of the amounts
recognized as of the date of acquisition. This involves retrospective
restatement of goodwill and the comparative figures.
During the measurement period, the acquirer also recognizes
additional assets or liabilities, if any, based on new information
obtained. The measurement period ends as soon as the acquirer
receives the information it was seeking about facts and circumstances
that existed as of the acquisition date or learns that more information
is not obtainable. However, the measurement period cannot exceed
one year from the acquisition date.
After the measurement period ends, the acquirer revises the
accounting for a business combination only to correct an error in
accordance with IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors.
Operating leases (acquire is a lessee)
The acquirer does not normally recognize assets or liabilities related to
an operating lease in which the acquiree is the lessee except when
the terms of the lease are favorable (intangible asset) or unfavorable
(liability) relative to market terms. An identifiable intangible asset may
be associated with an operating lease, which may be evidenced by
market participants' willingness to pay a price for the lease even if it is
at market terms. For example, a lease of gates at an airport or of retail
space in a prime shopping area might provide entry into a market or
other future economic benefits that qualify as identifiable intangible
assets; for example, as a customer relationship. In that situation, the
acquirer recognizes the associated identifiable intangible asset(s).
Assets subject to operating leases (acquire is a lessor)
In measuring the acquisition-date fair value of an asset, such as a
building or a patent that is the subject of an operating lease, the
acquirer takes into account the terms of the lease. No separate asset
or liability is recognized if the terms of an operating lease are either
favorable or unfavorable when compared with market terms.
Pre-existing relationship between acquirer and acquire
A pre-existing relationship between the acquirer and acquiree may be
contractual (vendor and customer or licensor and licensee) or non-

contractual (plaintiff and defendant). If the business combination in

effect settles a pre-existing relationship, the acquirer recognizes a gain
or loss, measured as follows:
For a pre-existing non-contractual relationship (such as a lawsuit)
at fair value
For a pre-existing contractual relationship at the lesser of:
o The amount by which the contract is favorable or unfavorable
from the perspective of the acquirer when compared with
terms for current market transactions for the same or similar
items
o The amount of any stated settlement provisions in the
contract available to the counterparty to whom the contract is
unfavorable (If this is the lesser amount, the difference is
included as part of the business combination accounting.)

Contingent payments to employees or shareholders

Whether arrangements for contingent payments to employees or
selling shareholders are contingent consideration in the business
combination or are separate transactions depends on the nature of the
arrangements. Understanding the reasons why the acquisition
agreement includes a provision for contingent payments, who initiated
the arrangement and when the parties entered into the arrangement
may be helpful in assessing the nature of the arrangement.

Question 3

The following valuations have been provided to Binfathi Group by an

independent appraiser for some of the assets and liabilities of the
acquiree, Colorado Ltd., which were not previously recognized in the
balance sheet of Colorado Ltd. before acquisition:
Order backlog It arises from sales orders already received by
customers and has been valued at 5,000.
Licensed customer list There are no terms of confidentiality or
other agreements which prohibit Colorado Ltd. from selling
information about these customers. The fair value of the list is
valued at 10,000.
Potential contracts with prospective new customers Colorado
Ltd. is still in negotiation as at the acquisition date. These
potential contracts have been valued at 20,000.
Rights to a number of patented products, which was a significant
reason behind Binfathi's desire to buy the company No active
market exists for these intangible assets and the chief financial
officer is skeptical about the potential development of these
products because of Colorado Ltd.'s current poor performance.
The rights have been valued at 40,000.
Which of the following must be recognized under IFRS 3?
A. Only the order backlog can be recognized by Binfathi at its fair
value of 5,000.
B. All four assets are recognized by Binfathi at their value fair values,
totaling 75,000.
C. Binfathi recognizes at their fair values the rights to a number of
patented products and of the order backlog, valued at 45,000.
D. All assets except for the potential contracts with prospective new
clients are recognized for 55,000.

Recognizing and measuring goodwill or bargain

purchase
When the amount of net assets (represented by (b) of the elements)
exceeds the aggregate of the amounts represented in (a), the acquirer
has made a bargain purchase. This is sometimes referred to as
"negative goodwill." (Note that the standard does not actually use the
term "negative goodwill.")

Before recognizing a gain on a bargain purchase, the acquirer

reassesses whether it has correctly identified and measured all of the
assets acquired, liabilities assumed, the non-controlling interest, if any,
and the consideration transferred. If any excess remains, the acquirer
recognizes this as a gain in profit or loss on the acquisition date. The
gain shall be attributed to the acquirer.
Elements of the goodwill or bargain purchase calculation
The acquirer recognizes goodwill as of the acquisition date measured
as the excess of (a) over (b) below:
(a) The aggregate of:
The consideration transferred measured in accordance with this
IFRS, which generally requires acquisition-date fair value
The amount of any non-controlling interest in the acquiree
measured in accordance with this IFRS
In a business combination achieved in stages, the acquisitiondate fair value of the acquirer's previously held equity interest in
the acquiree
(b) The net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed measured in accordance with this
IFRS.

Consideration transferred
The consideration transferred is the sum of the acquisition-date fair
values of the assets transferred (usually cash), liabilities incurred or
assumed and equity interest issued by the acquirer.
When the fair value of transferred assets or liabilities of the acquirer
differs from the carrying amounts in the acquirer's accounts, the
acquirer recognizes a gain or loss in profit or loss, unless the
transferred assets or liabilities remain within the combined entity after
the business combination. However, this gain or loss is reversed on
consolidation such that the carrying amounts are used.
Acquisition-related costs are expensed in the period in which the costs
are incurred and the services are received. Acquisition-related costs
are costs the acquirer incurs to effect a business combination. Some
examples are finder's fees, advisory, legal, accounting, valuation and
other professional or consulting fees. The costs of issuing shares or
debt instruments are an integral part of the debt or share issue
transaction and are not part of the acquisition cost.

Contingent consideration - importance

The acquisition agreement may allow for adjustments to the purchase
consideration, contingent on one or more future events, such as
specified levels of earnings being maintained or achieved in future
periods. At acquisition date, the consideration transferred in exchange
for the acquiree includes the acquisition-date fair value of any asset or
liability resulting from a contingent
consideration arrangement.
The acquirer classifies an obligation to pay contingent consideration
as a liability or as equity on the basis of the definitions of an equity
instrument and a financial liability in IAS 32 Financial Instruments:
Presentation. It is therefore accounted for under IAS 32 and IAS 39
Financial Instruments: Recognition and Measurement. A right to return
of previously transferred consideration if specified conditions are met
is classified as an asset.
Changes resulting from events after the acquisition date, such as
meeting an earnings target or a specified share, are not measurement
period adjustments. The acquirer accounts for changes in the fair
value as follows:

Contingent consideration classified as equity is not remeasured

and its subsequent settlement is accounted for within equity
Contingent consideration classified as an asset or a liability that:
o Is a financial instrument within the scope of IFRS 9 Financial
Instruments or IAS 39, measured in terms of IFRS 9
o Is not within the scope of IFRS 9, accounted for in
accordance with IAS 37 or other IFRSs as appropriate

No consideration transferred
An acquirer sometimes obtains control of an acquiree without
transferring consideration. The acquisition method of accounting for a
business combination applies to those combinations.
Such circumstances include:
a. The acquiree repurchases its own shares such that an existing
investor (the acquirer) obtains control.
b. Minority veto rights lapse that previously kept the acquirer from
controlling an acquiree in which the acquirer held the majority
voting rights.
c. The acquirer and acquiree agree to combine their businesses by
contract alone. The acquirer transfers no consideration in
exchange for control of an acquiree and holds no equity interests
in the acquiree, either on the acquisition date or previously.
Examples of business combinations achieved by contract alone
include bringing two businesses together in a stapling
arrangement or forming a dual-listed corporation.
In a business combination achieved by contract alone, the acquirer
attributes to the owners of the acquiree the amount of the acquiree's
net assets recognized in accordance with this IFRS. In other words,
the equity interests in the acquiree held by parties other than the
acquirer are a non-controlling interest in the acquirer's postcombination financial statements even if the result is that all of the
equity interests (100%) in the acquiree are attributed to the noncontrolling interest.
In order to measure the goodwill or gain on a bargain purchase, the
acquirer substitutes the acquisition-date fair value of its interest in the
acquiree for the acquisition-date fair value of the consideration
transferred.

Business combinations achieved in stages

A business combination may involve more than one exchange
transaction. When this occurs, IFRS 3 requires that the acquirer
remeasure its previously held interest in the acquiree at its acquisitiondate fair value and recognize the resulting gain or loss, if any, in profit
or loss or other comprehensive income, as appropriate. Basically, it is
accounted for as a disposal of an existing holding and the acquisition
of a new holding.
So what happens before an investment actually qualifies as a
business combination?
Prior to qualifying as a business combination, an investment may have
been accounted for in one of two ways. Either it qualifies as an
associate and is accounted for in accordance with IAS 28 Investment
in Associates using the equity method or, if it did not qualify as an
associate, it is accounted for as a financial asset under IFRS 9.
Does it make any difference how it was accounted for in the past?
Going forward it does not make a difference. The only difference is in
the gain or loss on acquisition date. With the associate, the gain or
loss is the difference between the acquisition-date fair value and the

carrying amount at acquisition. With the financial instrument, the

investment would be measured at fair value with changes in fair value
recognized in profit or loss (if it was classified as held to maturity) or in
equity (if it was classified as available for sale). If the investment had
been carried at fair value with changes recognized in equity, the
amount accumulated in equity would be reclassified to profit or loss as
if the investment had been sold.
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. The acquiree's identifiable assets, liabilities and
contingent liabilities are notionally restated to fair values at the date of
each exchange transaction to determine the amount of any goodwill
associated with each transaction. At the acquisition date, the
acquiree's identifiable assets, liabilities and contingent liabilities must
then be recognized by the acquirer at their fair values at the
acquisition date; then, any adjustment relating to those fair values
relating to the previously held interest of the acquirer is a revaluation
and shall be accounted for as such. Doing this does not count as
adopting a policy of revaluation in accordance with IAS 16 Property,
Plant and Equipment or any other similar standards.

Subsequent treatment of goodwill

Goodwill is carried at cost and subjected to annual impairment tests in
accordance with IAS 36 Impairment of Assets. There is no systematic
amortization of goodwill.
After any provisional allocations have been finalized, any further
changes do not result in any adjustment of goodwill unless it is a
correction of errors in accordance with IAS 8.

Question 4

Binfathi has completed the assessment of the fair value of the net
asset of Colorado Ltd. to amount to 19,560. The consideration payable
for the acquisition equals 19,000. Additional transaction costs amount
to 1,100. What must be recognized and recorded?
A. Binfathi will book a gain of 560 through profit or loss and expense
transaction costs.
B. Binfathi will book a gain of 560 through other comprehensive
income and expense transaction costs.
C. Binfathi will book a goodwill of 540 as an asset.
D. Binfathi will book a negative goodwill of 560 as a liability and
expense the transaction costs.
The difference between the consideration transferred of 19,000 and the net
asset acquired measured at their fair value of 19,560 is a gain from a bargain
purchase and is recorded through profit or loss. Transactions costs are
expensed.

Lesson 3: Other Business Combination Topics

IFRS 3 disclosure requirements: principle 1
IFRS 3 has an extensive list of disclosure requirements for business
combinations.
The disclosures listed below support the principle that "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 current reporting period and (b) after
the end of the reporting period, but before the financial statements are
authorized for issue."

These disclosures should be given for business combinations effected

after the end of the reporting period, unless the initial accounting for
the business combination is incomplete at the time the financial
statements are authorized for issue. In that situation, the acquirer
describes which disclosures could not be made and the reasons why
they cannot be made.
Disclose the following separately for each acquisition:
The name and description of the acquiree
The acquisition date
The percentage of voting-equity interest acquired
The primary reasons for the business combination and a
description of how the acquirer obtained control of the acquiree
The following are additional requirements that support the same
principle that "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 current
reporting period and (b) after the end of the reporting period, but
before the financial statements are authorized for issue."
Disclose the following separately for each material acquisition (or
collectively for all immaterial acquisitions):
A qualitative description of the factors that make up the goodwill
recognized, such as expected synergies, intangible assets that
do not qualify for separate recognition or other factors.
The acquisition-date fair value of the total consideration
transferred with a breakdown of its components into each major
class.
For contingent consideration, the amount recognized at the
acquisition date, a description of the arrangement and the basis
for determining the amount and an estimate of the range of
outcomes. If this cannot be estimated, then that fact and reasons
why must be disclosed.
The amounts recognized as of the acquisition date for each major
class of assets acquired and liabilities assumed.
For acquired receivables, the fair value, the gross contractual
amount receivable and the best estimate of the cash flows not
expected to be collected.
For contingent liabilities not recognized because their fair value
cannot be measured reliably, the acquirer discloses the reasons
why the liability cannot be measured reliably with the disclosure
requirements of IAS 37 Provisions, Contingent Liabilities and
Contingent Assets.
For transactions recognized separately from the acquisition of
assets and assumption of liabilities in the business combination,
disclose (1) a description of each transaction; (2) how the
acquirer accounted for each transaction; (3) the amounts
recognized for each transaction and the line item in the financial
statements in which each amount is recognized; and (4) if the
transaction is the effective settlement of a preexisting
relationship, the method used to determine the settlement
amount.
Additionally, for each transaction recognized separately from the
acquisition of assets and assumption of liabilities in the business
combination, shall disclose (1) the amount of acquisition-related
costs; and separately (2) the amount of those costs recognized
as an expense and the line item or items in the statement of
comprehensive income in which those expenses are recognized;
and (3) the amount of any issue costs not recognized as an
expense and how they were recognized
The total amount of goodwill that is expected to be deductible for
tax purposes.
In a bargain purchase, the amount of any gain recognized and
the line item in profit or loss with a description of the reasons why
it resulted in a gain.

 For each business combination in which the acquirer holds less

than 100% of the equity interests in the acquiree at the
acquisition date, (1) the amount of the non-controlling interest in
the acquiree recognized at the acquisition date and the
measurement basis for that amount; and (2) for each noncontrolling interest in an acquiree measured at fair value, the
valuation technique(s) and significant inputs used to measure that
value.
In a business combination achieved in stages, the acquisitiondate fair value of the equity interest in the acquiree held by the
acquirer immediately before the acquisition date and the amount
of any gain or loss recognized as a result of remeasuring to fair
value of the equity interest.
If practical, the amount of profit or loss of the acquiree included in
the acquirer's results for the period. (Otherwise, the reason why
such disclosure would be impracticable should be disclosed).
If practical, the revenue and the profit or loss of the combined
entity for the period as though the acquisition date for all
combinations effected during the period had been the beginning
of that period (if it is impractical to do so, this fact must be
explained and the reason given).

IFRS 3 disclosure requirements: principle 2

These disclosures support the principle that "an acquirer discloses
information that enables users of its financial statements to evaluate
the financial effects of adjustments recognized in the current reporting
period that relate to business combinations that occurred in the period
or previous reporting periods."
Disclose separately for each material acquisition (or collectively for all
immaterial acquisitions):
If the initial accounting for any combination was determined only
provisionally, (1) an explanation why this is the case and (2) the
assets, liabilities, equity interest or consideration for which the
initial accounting is incomplete and (3) the nature and amount of
any measurement period adjustments recognized during the
reporting period.
For each reporting period after the acquisition date until the entity
collects, sells or otherwise loses the right to a contingent
consideration asset, or until the entity settles a contingent
consideration or the liability is cancelled or expires, (1) any
changes in the recognized amounts, including any differences
arising upon settlement; (2) any changes in the range of
outcomes (undiscounted) and the reasons for those changes;
and (3) the valuation techniques and key model inputs used to
measure contingent consideration.
For contingent liabilities recognized in a business combination,
the acquirer discloses the information required by IAS 37 for each
class of provision.
The amount and an explanation of any gain or loss recognized
during the current period that both (a) relate to the assets or
liabilities assumed in a business combination in the current or a
previous period and (b) are of such a size, nature or incidence
that disclosure is relevant to an understanding of the combined
entitys financial performance.
The following are additional requirements that support the same
principle that "an acquirer discloses information that enables users of
its financial statements to evaluate the financial effects of adjustments
recognized in the current reporting period that relate to business
combinations that occurred in the period or previous reporting
periods."
For each material acquisition (or collectively for all immaterial
acquisitions), disclose a reconciliation of the carrying amount of

goodwill at the beginning and end of the reporting period showing

separately:
Opening amounts for gross goodwill and impairment losses
Additional goodwill recognized during the period
Adjustments from recognition of deferred tax assets
Movements in goodwill of a "disposal group" under IFRS 5 Noncurrent Assets Held for Sale and Discontinued Operations
Impairment losses recognized during the period
Net exchange differences arising during the period
Any other changes arising during the period
The gross amount and the accumulated impairment losses at the
end of the period

Question 1

Binfathi has acquired 80% interest in Colorado Ltd. The 20% noncontrolling interest, measured at their fair value, amounts to 30,000.
The fair value was measured using a discounted cash-flow model.
Binfathi would like to keep the disclosures as short as possible. In
respect of non-controlling interest, Binfathi shall at least disclose which
of the following?
A. There are no mandatory disclosures relating to non-controlling
interests.
B. Binfathi shall disclose that the 20% non-controlling interest amounts
to 30,000 and has been measured at fair value.
C. Binfathi shall disclose that the 20% non-controlling interest amounts
to 30,000 and has been measured at fair value.
Additionally, it shall disclose that the fair value has been measured
using a discounted cash-flows model.
D. Binfathi shall disclose that the 20% non-controlling interest amounts
to 30,000 and has been measured at fair value. Additionally, it shall
disclose that the fair value has been measured using a discounted
cash-flows model and
describe the key inputs used for the valuation.

First-time adoption
According to IFRS 1 First-time Adoption of International Financial
Reporting Standards appendix C.C1, if a first-time adopter restates
any business combination to comply with IFRS 3, then it must also
restate all later business combinations and it must also apply the
revised versions of IAS 36 Impairment of Assets and IAS 38 Intangible
Assets from the same date.
In summary, a first-time adopter has the following options:
Restate all past business combinations (apply IFRS 3
retrospectively) that occurred before the date of transition to IFRS
or restate business combinations that have occurred since the
date elected by the entity to restate business combinations (this
applies equally to past acquisitions of investments in associates
and of interests in joint ventures)
Not restate any business combinations that occurred before the
date of transition to IFRS

Question 2

Binfathi, a first-time adopter, acquired a group of assets (short-term

contracts, internally-generated brand name, tangible assets and staff)
from Colorado Investment Inc. in 2006. As allowed by previous GAAP,
the purchase price of 140,000 was entirely allocated to the tangible
assets. This transaction qualifies as a business combination under
IFRSs. The date of transition to IFRSs is 1 January 2011. Which
choice(s) does Binfathi have to account for this transaction?

A. Binfathi can continue to recognize the tangible assets because this

transaction was classified as the acquisition of
a group of assets.
B. Binfathi can continue to recognize this transaction as the
acquisition of a group of assets. However, the purchase
price of 140,000 needs to be reallocated to the intangible assets,

and to the tangible assets, after deduction of the accumulated

depreciation/amortization for the period 2006 to 2010.
C. Binfathi can restate the transaction and account for a business
combination under IFRS 3.
D. Binfathi can restate the transaction and account for a business
combination under previous GAAP.

Combinations that are restated

Keep the same classification as in the previous GAAP financial

statements (acquisition, reverse acquisition or uniting of interests).

Where the entity does not take advantage of the exemption and
therefore restates previous business combinations in accordance with
IFRS 3, the main consequences are summarized below. Note that the
transitional provisions of IFRS 3 do not apply.
The entity applies IFRS 3 retrospectively with respect to:
Determining the classification of business combinations (as
acquisitions or reverse acquisitions)
Recognizing and measuring, at the acquisition date, the
identifiable assets acquired, liabilities and contingent liabilities
assumed and non-controlling interest
Recognizing and measuring goodwill or bargain purchase

Question 3

Binfathi Group is a first-time adopter with the transition date 1 January

2011. Binfathi acquired Colorado Ltd. in 2011, Arizona Ltd. in 2005
and Texas Ltd. in 1999. Which of the following choices does Binfathi
have to account for the past business combination under IFRS 3?
A. Binfathi has no option and should apply IFRS 3 prospectively from
the transition date; that is, Binfathi only needs to restate the
acquisition of Colorado Ltd., which occurred after the transition
date.
B. Binfathi can choose to restate all three acquisitions or only the
acquisition of Arizona Ltd. and Colorado Ltd. or only the acquisition
of Colorado Ltd. However, it does not need to perform the goodwill
test for the restated business combination as it is possible to use
insights to measure the goodwill.
C. Binfathi can choose to restate all three acquisitions or only the
acquisition of Arizona Ltd. and Colorado Ltd. or only the acquisition
of Colorado Ltd. However, Binfathi continues to perform the
goodwill impairment test in accordance with previous GAAPs for
any goodwill arising from one of the three business combinations.
D. Binfathi can choose to restate all three acquisitions or only the
acquisition of Arizona Ltd. and Colorado Ltd. or only the acquisition
of Colorado Ltd. However, Binfathi needs to perform an impairment
test of goodwill in accordance with IAS 36.
Binfathi can restate all past business combinations that occurred before the
date of transition to IFRS, all business combinations that occurred since a
date elected or to not restate any business combination before the date of
transition. IAS 36 shall likewise be applied.

Combinations that are not restated

Recognize all assets and liabilities at the date of transition to IFRS that
were acquired or assumed in a past business combination, except
certain financial assets and liabilities derecognized under previous
GAAP, and items that were not recognized under previous GAAP in
the acquirer's consolidated balance sheet and also would not qualify
for recognition under IFRS in the separate balance sheet of the
acquiree.
Exclude from the opening IFRS balance sheet any item recognized
under previous GAAP that does not qualify for recognition as an asset
or liability under IFRS.
Adjustments are taken to retained earnings, except any that require an
intangible asset to be reclassified as goodwill or vice versa.
You measure the assets acquired and liabilities assumed in different
ways depending on whether they had been recognized under previous
GAAP.
For assets acquired and liabilities that were recognized under previous
GAAP, if measured on the basis of cost, then the carrying amount
under previous GAAP immediately after the business combination is
the deemed cost under IFRS at that date. If measured on another
basis, such as fair value, then the assets and liabilities are measured
on that basis at the date of transition, even if they arose from a past
business combination. If IFRS requires a cost-based measurement of
those assets and liabilities at a later date, the deemed cost shall be
the basis for cost-based depreciation or amortization from the date of
the business combination.
Assets acquired or liabilities assumed in a past business combination
that were not recognized under previous GAAP do not have a deemed
cost of zero in the opening balance sheet. Instead, the acquirer
recognizes and measures them in the consolidated balance sheet on
the basis that IFRS would require in the separate balance sheet of the
acquiree.
What are some examples of assets and liabilities not recognized
under previous GAAP?
Suppose, for example, the acquirer had not capitalized under previous
GAAP finance leases acquired in a past business combination. Then it
must capitalize those leases in its consolidated financial statements,

as IAS 17 Leases would require the acquiree to do in its separate

financial statements. Conversely, if an asset or liability was subsumed
in goodwill under previous GAAP but would have been recognized
separately under IFRS 3, it must remain in goodwill unless IFRS would
require its recognition in the separate financial statements of the
acquiree.
The carrying amount of goodwill in the opening IFRS balance sheet is
the carrying amount under previous GAAP at the date of transition to
IFRS, except for restatements to recognize or derecognize intangible
assets and any impairment of goodwill that has to be recognized. The
impairment test is based on conditions at the date of transition to
IFRS.
No other adjustments are made to goodwill; for example, to exclude
in-process research and development acquired, to adjust previous
amortization of goodwill or to reverse adjustments to goodwill that
IFRS 3 would not permit, such as restructuring costs that were not
committed to prior to the effective date of the business combination.
If an entity recognized goodwill under previous GAAP as a deduction
from equity, it does not recognize that goodwill in its opening IFRS
balance sheet. Nor would it transfer that goodwill to the income
statement if the subsidiary were disposed of or if the investment were
impaired. Also, in such cases, adjustments resulting from the
subsequent resolution of a contingency affecting the purchase
consideration are recognized in retained earnings.

Question 4

Binfathi, a first-time adopter, acquired Colorado Inc. in 2007. A license

acquired for 20,000 in 2005 by Colorado Inc. was expensed through
profit or loss in accordance with previous GAAP. The license had
qualified as intangible assets under IAS 38. The date of transition to
IFRS is 1 January 2011 and Binfathi elects to not restate the previous
business combination under IFRS 3. What shall Binfathi do at the date
of transition to IFRSs?
A. Though Binfathi has chosen not to restate the previous business
combination, the license meets
the recognition criteria of IAS 38 and can be reinstated against
retained earnings.
B. Though Binfathi has chosen not to restate the previous business
combination, the license meets the recognition criteria of IAS 38
and can be reinstated against goodwill.
C. Binfathi can choose not to restate the license or to reinstate the
license in the opening balance sheet.
D. Binfathi has chosen not to restate the previous business
combination and therefore shall not reinstate the license.

ASSESSMENT
Question 1
Group A has acquired the following. Which of the following acquisitions are
business combinations under IFRS 3?
A. Land and a vacant building from Company B. No processes, other
assets or employees are acquired. Group A does not enter into any of
the contracts of Company B.
B. An operating hotel, the hotels employees, the franchise agreement,
inventory, reservations system and all back office operations.
C. All of the outstanding shares in Biotech D, a development stage
company that has a license for a product candidate. Phase I clinical trials
are currently being performed by Biotech D employees. Biotech Ds
administrative and accounting functions are performed by a contract
employee.
A. All three acquisitions are business combinations under IFRS 3.
B. A and B acquisitions are business combinations under IFRS 3.
C. A and C acquisitions are business combinations under IFRS 3.
D. B and C acquisitions are business combinations under IFRS 3.

Question 2
Entity A acquired Entity B. On the acquisition date, Entity B had an operating
lease as a lessee with a remaining period of two years out of the original four
years. Due to significant changes in the market, Entity B is paying less than
what you would expect to currently pay for a similar lease. The value of the
existing lease based on the current terms is 10,000 and that of a lease based
on relative market terms is 13,000. How should Entity A account for this?
A. Entity A should disregard this, as this is an operating lease of Entity B and
no asset or liability is recognized
related to operating leases.
B. Entity A determines whether the terms of each operating lease in which
Entity B is the lessee are favorable or unfavorable. Entity A should account
for the difference between the value of the existing lease terms and the
market terms in profit or loss.
C. Entity A determines whether the terms of each operating lease in which
Entity B is the lessee are favorable or unfavorable. Entity A should
recognize an intangible asset separate from goodwill for the favorable
portion of the operating lease relative to market terms.
D. None of the above.

Question 3
Binfathi Group acquired an 80% interest in Entity B. The consideration for the
80% interest in Entity B was 36,000 in shares in Binfathi and 12,000 in cash.
To issue the shares, Binfathi incurred a cost of 2,000 and incurred costs of
1,400 associated with legal fees and the valuation of Entity B. The fair value of
the net assets of Entity B amounted to 64,000. How should Binfathi account
for this acquisition?
A. Binfathi shall book a gain (negative goodwill) through profit or loss of 3,200
related to the acquisition, recognize expenses of 1,400 and deduct from
equity 2,000 relative to the cost of issuing the shares.
B. Binfathi shall book goodwill as an asset of 200.
C. Binfathi shall book a gain (negative goodwill) through profit or loss of 1,200
and recognize the costs of legal fees of 1,400 as expenses in profit or loss.
D. Binfathi shall book a gain (negative goodwill) though profit or loss of 3,200
and recognize expenses of 3,400, relative to the costs of issuing shares,
paying legal fees and performing the valuation of Entity B, in profit or loss.

Question 4
The consideration transferred in the business combination was 55,000.
Transaction costs amount to 1,000. The fair value of the acquirees net assets
at the acquisition date was 63,000. The acquirer has not yet decided whether
to measure the 20% non-controlling interest (NCI) in the acquiree at the NCIs
proportionate share of the fair value of the acquirees net assets, which is
12,600, or at the NCIs fair value, which is 13,000. Does the choice of
accounting policy for NCI impact the determination of goodwill at the
acquisition date?
A. No, the accounting policy choice for NCI does not impact goodwill at the
acquisition date.
B. Yes, it does. If the acquirer values the NCI at its proportionate share of the
fair value of the acquired business, the goodwill amounts to 4,600; if the
acquirer values the NCI at its fair value, then the goodwill amounts to 5,000.
C. Yes, it does. If the acquirer values the NCI at its proportionate share of the
fair value of the acquired business, the goodwill amounts to 5,600; if the
acquirer values the NCI at its fair value, then the goodwill amounts to 6,000.
D. No, it does not. However, the accounting policy choice for NCI impacts the
fair value of the acquirees net assets. If the acquirer values the NCI at its
proportionate share of the fair value of the acquired business, the
acquirees net assets amount to 63,000; if the acquirer values the NCI at its
fair value, then the acquirees net assets amount to 63,400

Question 5
Entity A had several business acquisitions during the reporting period and
after the reporting period. Entity A will disclose, among other information, the
following:
a. The name and a description of the acquiree
b. The acquisition date
c. The percentage of voting equity interests acquired
d. The primary reasons for the business combination and a description of
how the acquirer obtained control of the acquiree
A. These disclosures shall be done for each business combination that
occurred in the reporting period only, but are not required for business
combinations that occurred after the end of the reporting period.

B. These disclosures shall be done for each material business combination

that occurred both in the reporting period and after the end of the reporting
period, but before the financial statements are authorized for issue. The
information is disclosed in aggregate for individually immaterial business
combinations.
C. These disclosures are optional for each business combination that occurred
both in the reporting period and after the end of the reporting period, but
before the financial statements are authorized for issue.
D. These disclosures shall be done for each business combination that
occurred both in the reporting period and after the end of the reporting
period, but before the financial statements are authorized for issue.

Question 6
Entity A acquired Entity B, which is a material business combination, during
the reporting period. Among the assets acquired, trade accounts receivable
were provisionally accounted for at fair value of 1,736. Which of the following
information shall be provided additionally to the fair value amount of the trade
accounts receivable? Select all that apply.
A. Entity A does not need to disclose any further information.
B. Entity A must disclose that the fair value of the accounts receivable was
determined provisionally.
C. Entity A must disclose the nominal value of the accounts receivable.
D. Entity A must disclose the amount of the contractual cash flows that it does
not expect to collect.

Question 7
The goodwill resulting from the acquisition of Entity C by Entity B amounts to
50,000. Which disclosures does Entity B provide relating to the goodwill?
Select all that apply.
A. Entity B shall describe the factors that make up the goodwill to be
recognized.
B. Entity B shall disclose the total amount of goodwill deductible for tax
purposes.
C. Entity B shall disclose the amortization period of goodwill for tax purposes.

Question 8
Entity A is a first-time adopter with the transition date 1 January 2011. Entity A
acquired Entity C in 2007 and Entity D in 2009. Which are the alternative
accounting treatments in respect of the two business combinations?
A. Under the current IFRS 3, Entity A can choose to restate the acquisition
that occurred in 2007 and the acquisition that occurred in 2009 or just the
acquisition that occurred in 2009 or choose not to restate either one.
B. Under the current IFRS 3, Entity A needs to restate the business
combination that occurred in 2009 and has the choice to not restate or to
restate the acquisition that occurred in 2007.
C. Under the current IFRS 3, Entity A can decide to restate the acquisition that
occurred in 2007, but not to restate the acquisition that occurred in 2009.
D. Entity A has no choice and cannot restate any past business combinations.
Only business combinations that occurred/which will occur after the date of
transition will be accounted for under IFRS 3.

Question 9
Entity A is a first-time adopter with the transition date 1 January 2011. Entity A
acquired Entity C in 2007 and recognized the goodwill of 50,000 as a
deduction from equity as allowed under previous GAAP. Which is the
accounting treatment for the goodwill?
A. Entity A does not need to restate the goodwill if it decides not to restate the
business combination under IFRS 3. However, in case of disposal of Entity
C, goodwill will be recycled through profit or loss and decrease the gain or
increase the loss from disposal.
B. Entity A does not need to restate the goodwill, if it decides to not restate the
business combination under IFRS 3.
C. Entity A shall restate the business combination under IFRS 3 and
recalculate the goodwill which will be then
capitalized. However, an impairment test under IAS 36 has to be
performed.
D. Entity A does not need to restate the goodwill if it decides not to restate the
business combination under IFRS 3. However, Entity A shall reclassify the
50,000 from equity to goodwill which is shown under intangible assets.

Question 10
Entity A is a first-time adopter with the transition date 1 January 2011. Entity A
acquired Entity C in 2007. Entity A applies the business recognition exception

to the acquisition of Entity C. Entity C owns a registered internally-generated

trademark. The technical expertise to manufacture the trademarked product is
documented but unpatented. Therefore, Entity C has not recognized the
trademark in the consolidated financial statements of Entity A immediately
after the acquisition. What does Entity A need to do with respect to the
trademark at transition to IFRSs?
A. As the internally-generated trademark meets the recognition criteria to
qualify as an intangible asset if Entity C had already applied IFRS in its
separate financial statement, the trademark will be capitalized at the date of
transition to IFRS.
B. Even if the internally-generated trademark meets the recognition criteria to
qualify as an intangible asset if Entity C had already applied IFRS in its
separate financial statement, the trademark will remain subsumed in
goodwill.
C. As the internally-generated trademark does not meet the recognition criteria
to qualify as an intangible asset if Entity C had already applied IFRS in its
separate financial statement, an amount corresponding to the original fair
value of the trademark in 2007 shall be reclassified from goodwill to
retained earnings.
D. As the internally-generated trademark does not meet the recognition criteria
to qualify as an intangible asset if Entity C had already applied IFRS in its
separate financial statement, the trademark will remain subsumed in
goodwill.