Not all business combinations take place in one go. Sometimes a parent can acquire an entity in stages, which we call a step acquisition. This takes place when an acquirer holds an existing equity interest in the acquiree before the date of control. Say, for example, a company may hold 25% of a company, and then buy out another shareholder taking their share to 55% of the acquiree.
What is a Business Combination?
A Business Combination is a “transaction or other event in which an acquirer obtains control of one or more businesses”. IFRS 3 Business Combinations states how an acquirer should recognise and measure the acquisition of another business, and the recognition and measurement of any goodwill.
Under IFRS 3, a business combination must be accounted for using a technique called the “acquisition method”. This views the transaction from the perspective of the acquirer and involves the following stages:
- Identify acquirer
- Determine acquisition date
- Recognise and measure
Assets, liabilities and NCI in acquiree
at FV at the acquisition date
- Goodwill/Bargain purchase
Difference between consideration paid and net assets acquired