IFRS 3 — Measurement of NCI

Date recorded:

Issue

The IFRIC received requests to clarify whether an entity should apply the measurement choice in paragraph 19 of IFRS 3 Business Combinations (as revised in 2008) to all components of non-controlling interest (NCI). Paragraph 19 states that, for each business combination, the acquirer shall measure any NCI in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.

In addition to minority interests as defined in IFRS 3 (issued in 2004), the definition of NCI includes, for example, options or warrants over an acquiree’s own shares that are classified as equity and the equity component of a convertible instrument. Some believe that if an entity chooses to measure NCI as a proportionate share of the acquiree’s identifiable net assets, it should apply this measurement to all components of the acquiree’s equity. The consequence would be that instruments other than those equivalent to minority interest would be measured at nil on acquisition.

 

Decision not to add

November 2009

 

Reason

The IFRIC noted that it would be appropriate that the measurement choice should apply only to instruments currently entitled to a proportionate share of the acquiree’s net assets. However, because IFRSs do not provide sufficient guidance to resolve this issue an amendment to revised IFRS 3 is required. Therefore, the IFRIC decided not to add the issue to its agenda but to recommend that the Board amend IFRS 3 to address the issues identified as a part of the annual improvements project.

 

IFRIC reference: IFRS 3R-4

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