Special IASPlus newsletter on business combinations
13 Dec 2002
We have posted a special edition of our newsletter summarising the IASB's recent Exposure draft ED 3, Business Combinations, and related ED proposing significant amendments to IAS 36 and IAS 38. You can (PDF 63k) the newsletter without charge.Key proposals in the EDs: Method of accounting for business combinations. All business combinations covered by the revised standard must use the purchase method.
Uniting (pooling) of interests would no longer be permitted. Therefore, an acquirer must be identified for every business combination within the scope of ED 3. The acquirer is the entity that obtains control of the other combining entities or operations.
Indefinite-lived intangible assets. Goodwill and other intangible assets with indefinite useful lives would not be amortised, but tested for impairment annually (or more frequently if there is an indication of impairment). Reversals of impairment losses with respect to goodwill are prohibited.
Finite-lived intangible assets. Amortisation continues, plus an impairment test. However, IAS 38's rebuttable presumption of a maximum 20-year life is dropped.
Negative goodwill. Any negative goodwill remaining after a reassessment of the identification and measurement of the identifiable net assets acquired should be recognised immediately in the income statement as a gain. This includes negative goodwill implicit in the carrying amount of an equity method investment.
Liabilities for terminating or reducing the activities of an acquiree. Costs expected to be incurred as a result of a business combination to restructure the acquired entity's (or acquirer's) activities would be treated as post-combination expenses, unless at the acquisition date, the acquired entity has an existing liability in accordance with IAS 37.
Date for measuring the cost of the acquisition. The consideration paid for an entity is measured at the date control passes to the acquirer (or, if control is acquired in stages, at the various earlier dates of exchange).