Step Acquisitions under IFRS 3

Not all business combinations take place in one go. Sometimes a parent can acquire an entity in stages, which we call a step acquisition. This takes place when an acquirer holds an existing equity interest in the acquiree before the date of control. Say, for example, a company may hold 25% of a company, and then buy out another shareholder taking their share to 55% of the acquiree.

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Introduction to Business Combinations under IFRS 3

What is a Business Combination?

A Business Combination is a “transaction or other event in which an acquirer obtains control of one or more businesses”. IFRS 3 Business Combinations states how an acquirer should recognise and measure the acquisition of another business, and the recognition and measurement of any goodwill.

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The 4 Step Acqusition Method for Business Combinations under IFRS 3

Under IFRS 3, a business combination must be accounted for using a technique called the “acquisition method”. This views the transaction from the perspective of the acquirer and involves the following stages:

  1. Identify acquirer
  2. Determine acquisition date
  3. Recognise and measure
    Assets, liabilities and NCI in acquiree
    at FV at the acquisition date
  4. Goodwill/Bargain purchase
    Difference between consideration paid and net assets acquired

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