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Business Combinations

Date recorded:

: The Board deliberated certain transition issues relating to its revised Standard on business combinations as follows:

  • The Board agreed to issue an IFRS to replace IAS 22 and to issue revised versions of IAS 36 and IAS 38.
  • The effective dates of all three would be for business combinations that are consummated (agreed to) after the Standards are issued and, in all other respects, for financial years beginning after the Standards are issued.
  • An entity electing early adoption would have to adopt all three Standards at the same time.
  • Amortisation will stop for any goodwill pre-existing at the time the Standards are aodpted. Instead, impairment testing will be requjired. This would apply also to goodwill implicit in an investment accounted for by the equity method.
  • Any negative goodwill pre-existing at the time the Standards are adopted should be credited directly to retained earnings. This would apply also to negative goodwill implicit in an investment accounted for by the equity method.
  • An intangible asset acquired in a business combination before the Standards are adopted and that does not meet the recognition criteria in the revised IAS 38 would be reclassified as goodwill.
  • The revisions to IAS 38 would apply to intangible assets recognised at the time the Standards are adopted. Any resulting change in estimated useful life (including a change from a finite life to an indefinite life) would be accounted for prospectively as a change in estimate.
The Board voted in principle to approve all of the provisions of three exposure drafts that would revise IAS 22, IAS 36, and IAS 38. IASB Staff were instructed to prepare ballot drafts for Board consideration.

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