Business Combinations Phase I

Date recorded:

The IASB plans to issue IFRS 3 Business Combinations on or around 31 March 2004. In addition, the IASB intends to issue a limited exposure draft on certain issues related to difficulties arising in phase I. This exposure draft is separate from Phase II -- applying the purchase method -- for which an exposure draft is also expected in 2004.

IFRS 3 will include a requirement to measure the cost of a business combination at the net fair value of the acquiree's identifiable assets, liabilities, and contingent liabilities when (a) the acquirer and acquiree are both mutual entities or (b) the business combination is effected through contract alone without obtaining ownership interest at the transaction date. The staff recommended and the IASB agreed that these transactions be measured at the net fair value of the acquiree when no readily measurable consideration is exchanged to effect the combination.

Related to the limited exposure draft, the Board discussed costs attributable to a business combination. The staff recommended and the Board agreed (7-5-1) that when the cost of a business combination is measured as the net fair value of the acquiree's identifiable assets, liabilities, and contingent liabilities, that cost should not include costs directly attributable to the combination. Those costs should be recognised immediately in profit or loss.

The Board concluded that the transition and effective date of the exposure draft should be the same as IFRS 3. The exposure draft will have a 90 day comment period.

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