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Business Combination Phase II

Date recorded:

Attributing a partially owned subsidiary's excess of losses to the controlling and minority interests

The Board agreed that a guarantee or other type of arrangement should not change the way losses are attributed between controlling and minority interests. The allocation should be based on the ownership interests.

Business Combination Diclosures

The Board asked its staff to review the wording of the disclosure requirements for contingent liabilities and assets. The issue is whether they should be measured at fair value (as in IAS 39) or at the best estimate of the expenditure required to settle the present obligation at the balance sheet date (as in IAS 37).

Comment Period, Effective Date, and Transition

The Board agreed to propose prospective application for business combinations that take place between the issue date and the effective date, consistent with the proposal in ED3. The Board also agreed to propose an effective date of 1 January 2006.

Convergence Issues

The Board noted a potential difference with US GAAP regarding whether assets and liabilities that arise as a result of acquisition (such as pension obligations and golden parachute obligations) should be reccognised. The Board re-affirmed that all assets and liabilities should be recognised including those that arise at the date of acquisition but asked its staff to explore this further.

Consequential Amendments

The Board agreed:

  • Gains or losses on a subsidiary that have been recognised in equity should be included in calculating gain or loss on disposal of the subsidiary.
  • Gains and losses on a subsidiary that have been recognised in equity should be 'recycled' (recognised in net profit or loss) when the parent increases or decreases its ownership whether or not the parent losses control.
  • Measurement of a deferred tax asset should take into account the tax consequences applicable to the combined entity, with a corresponding adjustment of goodwill. To illustrate, if the estimated amount of a deferred tax asset on the acquired company's books is 80 at the date of acquisition and will be 100 after acquisition because of different assumptions, it should be recognised 100.