Download Guide on IFRS 3 Business Combinations as at 2025

 


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Note: All the materials in this blog post have been made available to the public for free download by the respective sources. They are compiled here for ease of access to you.

IFRS 3 Business combinations is an accounting standard that provides guidance on how companies should account for the acquisition of other businesses. Simply put, when one company (acquirer) buys another company (acquiree), IFRS 3 explains how to recognize and report the transaction in financial statements (acquisition method of accounting). 

Not all acquisitions will meet the definition of a business, as such, IFRS 3 provides a guideline in determining if an acquisition results in a business acquisition or an asset acquisition.

IFRS 10 Consolidated financial statements and IFRS 3 are interrelated standards.  

IFRS 3 is about the process of acquisition (determining if a business has been acquired, and the corresponding value of the acquired business upon acquisition). On the other hand, IFRS 10 Consolidated financial statements focuses on assessing if the acquirer has control over the acquiree, and how to consolidate the financial statements of the acquiree (a subsidiary) when control exists. 

Here is a simple example

  • Company A acquires Company B and paid $100 million cash. 
  • IFRS 3 requires Company A to determine if Company B is a business or an asset. 
  • If determined as a business, Company A is required to identify the fair value of Company B's assets and liabilities (assume $80 million and $20 million respectively).
  • Company A will calculate the goodwill or gain on bargain purchase resulting from whether Company A has paid more or less than the net assets (assets less liabilities) acquired of Company B respectively.
  • In this case, there is a goodwill of $40 million ($100 million - ($80 million - $20 million)).
  • As such, the fair value of the assets and liabilities including the goodwill of Company B, determined under IFRS 3 will become the value that Company A has acquired. 
  • Under IFRS 10, after determining that Company A has control over the relevant activities of Company B, Company A would then consolidate (add line by line) the fair value of the assets and liabilities including the goodwill acquired of Company B to its own financial statements. 
  • Subsequently, Company A is regarded as the Parent company while Company B is regarded as the Subsidiary, and they are together regarded as a Group.
  • The financial statements of the Group is then referred to as consolidated financial statements.

The below resources (PDF and eLearns) provide comprehensive coverage of IFRS 3, including its key requirements and practical guidance. Whether you are new to IFRS 3 or need a refresher, these resources will be helpful..

IFRS 3 Business Combinations

Pdf

Source: Grant Thornton

Grant Thornton Business Combinations - IFRS 3 Pdf

eLearn



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IFRS IS EASY

IFRS IS EASY is dedicated to teaching you about IFRS, US GAAP and IFRS Sustainability Standards. You'll get a variety of resources to help you learn about IFRS, including free online courses,documents, articles, and videos that cover the basics of IFRS and complex topics. Adedamola Otun (the Founder) has garnered experience in the Accounting Advisory unit of the Big4 Audit Firms with only one goal - to simplify IFRS for everyone.

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