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Business Combinations:

Date recorded:

Among the tentative decisions reached by the Board:

  • The acquirer should recognise restructuring-type provisions for terminating or reducing activities of the acquiree at time of acquisition only if the acquiree has, as at the date of acquisition, an existing liability for restructuring costs recognised in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets.
  • Minority interests should be presented within equity in the balance sheet, but separately from the parent shareholders' equity. This would require amendment of IAS 27, Consolidated Financial Statements and Accounting for Investments in Subsidiaries.
  • If less than a 100% interest in a subsidiary is acquired, the minority's proportion of the acquired identifiable assets and liabilities should be measured at fair value, the same as the acquirer's proportion. This is currently the allowed alternative treatment under IAS 22, Business Combinations. IAS 22's benchmark treatment of measuring minority interest at minority's minority's proportion of the pre-acquisition carrying amounts of the acquiree's identifiable net assets would not be permitted.
  • Phase 1 of the IASB business combinations project will not address reacquisition of minority interest in a subsidiary by the parent, the subsidiary itself or another entity within the consolidated group. That issue will be left for phase 2.
  • With regard to negative goodwill (excess of the fair values of the acquirfed identifiable net assets over the acquisition cost), the following should be done in sequence: First, re-examine whether all identifiable net assets have been properly identified and measured (particularly to ensure that some specific identifiable acquired intangible assets have not been overlooked or fair values overstated) Second, rreduce (if necessary to nil) the carrying amounts recognised for those acquired identifiable net assets that do not have a 'readily ascertainable market value'. Third, recognise any remaining negative goodwill immediately in income as a gain.
  • Goodwill should be tested for impairment before the end of the financial reporting period in which the business combination occurs.
  • In each of the next five financial years after a business combination, a cash flow test should be performed that actual cash flows achieved with those projected for the purposes of the initial goodwill impairment test and potentially requiring a write down if the actual cash flows would not have supported the original carrying amount of goodwill.
  • The cash generating units used for making the goodwill impairment test should be consistent with management's internal procedures for monitoring the return on the investment and, in no case, should be larger than a primary reportable segment determined in accordance with IAS 14, Segment Reporting.
  • Reversals of impairment losses of goodwill should not be recognised.

Correction list for hyphenation

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