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Syllabus D1b

Acquisition Method 1 / 15

Acquisition Method

The Acquisition Method is used for all business combinations

Steps in applying it are:

  1. Identifying the 'Acquirer'

  2. Determining the 'Acquisition Date'

  3. Recognising (and measuring) the identifiable assets acquired, the liabilities assumed and any NCI (non-controlling Interest)

  4. Recognising (and measuring) Goodwill (or a gain from a Bargain Purchase)

Identifying an Acquirer

This is the entity that obtains 'control' of the Acquiree

IFRS 3 provides additional guidance:

  1. The Acquirer usually transfers cash (or other assets)

  2. The Acquirer usually issues shares (where the transaction is effected in this manner)

    You must also consider though:

    1. Relative voting rights in the combined entity after the business combination
    2. A large minority interest when no other owner has a significant voting interest 
    3. The composition of the board and senior management of the combined entity 
    4. The terms on which equity interests are exchanged

  3. The acquirer usually has the largest relative size (assets, revenues or profit)

  4. For business combinations involving multiple entities, look for who initiated the combination, and the relative sizes of the combining entities

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