Group Accounts (IFRS)

8/10/2019 Group Accounts (IFRS)

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GROUP ACCOUNTS 1: BUSINESSCOMBINATIONS

Lesson 1: Introduction

What is a business?

A business is defined as an integrated set of activities and assets that

is capable of being conducted and managed for the purpose ofproviding a return in the form of dividends, lower costs or othereconomic benefits directly to investors or other owners, members orparticipants.

Key points on a business:

To be capable to conduct and manage a set of activities andassets, a business needs inputs and processes applied to thoseinputs that have the ability to create outputs. Although businessesusually have outputs, outputs are not required for an integratedset of activities and assets to qualify as a business.

However, a business need not include all of the inputs orprocesses that the seller used in operating that business if market

participants are capable of acquiring the business and continuingto produce outputs, for example, by integrating the business withtheir own inputs and processes.

The nature of the elements of a business varies by industry andby the structure of an entitys operations (activities), including theentitys stage of development.

Nearly all businesses also have liabilities, but a business neednot have liabilities.

In the assessment of whether an entity is a business, it is notrelevant whether a seller operated the set of activities as abusiness or the acquirer intends to operate the set as a business,only that the acquirer is capable of doing so.

Scope of IFRS 3

A business combination is defined in IFRS 3 as a transaction or otherevent in which an acquirer obtains control of one or more businesses.

IFRS 3 notes that such transactions might be structured in a variety ofways for legal, taxation or other reasons. It could involve:

One or more businesses becoming subsidiaries of an acquirer orthe net assets of one or more businesses being legally mergedinto the acquirer

One entity transferring its net assets, or its owners transferringtheir equity interests, to another entity

All of the entities transferring their net assets to a newly-formedentity

A group of former owners of one of the entities obtaining controlof the combined entity

The standard does not cover combinations in which separate entitiesare brought together to form a joint venture, nor the acquisition of anasset or group of assets that does not constitute a business or thosethat involve entities under common control.

Business combinationsKey points

The combination can be effected by the issue of equity

instruments, by the transfer of cash or other assets, by incurringliabilities or a combination of these. It may also be effectedwithout transferring consideration; for example, by contract alone.

The transaction can be between the shareholders of thecombining entities or between one entity and the shareholders of

the other entity. The transaction can involve the establishment ofa new entity to control the combining entities or net assetstransferred or the restructuring of one or more of the combiningentities. However, a new entity formed to effect a businesscombination is not necessarily the acquirer. If a new entity isformed to issue equity interests to effect a business combination,one of the combining entities that existed before the businesscombination shall be identified as the acquirer.

Whenever the substance of the transaction falls within the

definition of a business combination, the requirements of IFRS 3apply, regardless of the particular structure adopted for thecombination.

The exclusion of transactions involving entities under commoncontrol has the effect of scoping most group reconstructions outof the standard.

The result of nearly all business combinations is that one entity,the acquirer, obtains control of one or more other businesses, theacquiree, and the control must not be transitory. However, achange in the extent of the non-controlling interest does notbreach this definition

Question 1

Binfathi Holding plc., a subsidiary of the Binfathi Group, makes thefollowing offers. Under IFRS 3 Business Combinations, which of thefollowing is a business combination?A.Binfathi Holdings offers to acquire all of the equity shares of

Colorado Ltd. on 1 July 2012 for 10,000 cash and 50,000 shares inBinfathi.

B.Binfathi Holdings offers to acquire all three of the manufacturingsites of Colorado Ltd., i.e., only the building and the machinerywithout the workforce and inventory, for 20,000 cash.

C.Binfathi Holdings offers to acquire 25% of the equity shares ofColorado Ltd. on 1 July 2012 for 2,500 cash and 12,500 shares inBinfathi.

D.Binfathi Holdings offers to acquire some brand names and

trademarks of Colorado Ltd. for 30,000 cash

This is a business combination, as Binfathi has acquired a business, e.g., anintegrated set of activities and assets that is capable of being conducted andmanaged for the purpose of providing a return in the form of dividends, lowercosts or other economic benefits directly to investors or other owners,members or participants.

Lesson 2: Applying the Acquisition Method

Applying the acquisition method

The acquisition method is required for accounting for all businesscombinations. IFRS 3 Business Combinations describes its four steps.

Step 1: The first step in the acquisition method is identifying theacquirer. You will learn that sometimes it may be difficult to identify theacquirer.Step 2: The second step in the acquisition method is determining theacquisition date. You will learn how to determine the acquisition date.Step 3: The third step in the acquisition method, done at theacquisition date, is recognizing and measuring the identifiable assetsacquired, liabilities and contingent liabilities assumed and non-controlling interest.Step 4: The fourth and final step in the acquisition method, performed

at the acquisition date, is recognizing and measuring the goodwill orbargain purchase.

Identifying the acquirer


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The acquirer is defined as the entity that obtains control of theacquiree. The acquiree is defined as the business or businesses theacquirer obtains control of in a business combination. The guidance inIFRS 10 Consolidated Financial Statements shall be used to identifythe acquirer. In most cases, identifying the acquirer is straightforward;for example, in a cash acquisition it will generally be the entity thattransfers the cash. In most cases, it will be the parent of the enlargedgroup.

If a business combination is effected through an exchange of shares,the entity that issues new shares is normally the acquirer, but notalways. In a reverse acquisition, the acquirer is the entity thatbecomes the subsidiary of the other entity. Or when a new holdingentity is formed to issue shares to effect the combination, one of thecombining entities that existed before the combination shall beidentified as the acquirer.

Cases will exist in which identifying the acquirer in a transaction is lessclear, particularly when shares of one entity are issued asconsideration for shares in the other. Relevant questions that mighthelp to identify the acquirer include: Which of the entities initiated thecombination? Which is the larger party, in terms of relative size

(measured in assets, revenues and profits)? (Note: relative size is nota conclusive test.) And which of the combining parties subsequentlydominates the management of the combined entity or the compositionof the governing body?

IFRS 3 is built on the premise that no cases exist in which identifyingthe acquirer is impossible, and consequently, the acquisition methodshall be applied in all cases.

Question 1Binfathi Group acquired 60% interest in Colorado Ltd. on 1 July 2011.The consideration for the 60% interest in Colorado Ltd. is 50,000shares in Binfathi. After the acquisition, the governing body of

Colorado Ltd. will consist of 3 directors of Binfathi and 5 directors ofthe former parent company, Colorado Investment Ltd., which retainsthe remaining 40% interest. Who will consolidate Colorado Ltd.?A.Binfathi, as it is the acquirer because it has issued 50,000 shares.B.Colorado Investment Ltd. retains control as it can appoint the

majority of the members of the governing body. ColoradoInvestment Ltd. will continue consolidating Colorado Ltd.

C.It is not possible to determine the acquirer and therefore Binfathiaccounts for its 60% interest in Colorado Ltd. using the proportionalconsolidation method. Colorado Investment Ltd. accounts for theremaining 40% interest using the equity method.

D.It is not possible to determine the acquirer; therefore, this is a jointventure: Binfathi and Colorado Investment Ltd. have joint control

over Colorado Ltd.

Colorado Investment Ltd. has retained a significant interest in Colorado Ltd.and has the right to appoint the majority of the members of the governingbody. Therefore, Colorado Investment Ltd. is the acquirer despite the fact thatBinfathi has acquired the majority of the interest in Colorado Ltd. through theissuance of 50,000 of its own shares (in this case equi ty instruments)

Determining the acquisition date

The acquirer identifies the acquisition date, which is the date on whichit obtains control of the acquiree.

The date on which the acquirer obtains control of the acquiree isgenerally the date on which the acquirer legally transfers theconsideration, acquires the assets and assumes the liabilities of theacquiree the closing date. However, the acquirer might obtaincontrol on a date that is either earlier or later than the closing date. Forexample, the acquisition date precedes the closing date if a written

agreement provides that the acquirer obtain control of the acquiree ona date before the closing date.

All pertinent facts and circumstances need to be considered whendetermining the acquisition date.

Question 2Binfathi Holding plc, a sub-holding of the Binfathi Group, makes anoffer for all the equity shares of Colorado Ltd. on 1 July 2011. The

consideration for the offer is 50,000 shares in Binfathi together with10,000 cash. The offer is accepted on 1 August 2011. However, theoffer is conditional upon receiving the approval of the competitionauthority which is obtained on 30 September 2011. In the past, thecompetition authority has never rejected the application for any mergeror combination of businesses. The shares are exchanged on 10August 2011. What is the date of acquisition?A.1 July 2011, the date of the offerB.1 August 2011, the date the offer has been acceptedC.10 August 2011, the date the shares have been exchangedD.30 September 2011, the date of the approval by the competition

authority

The acquisition date is the date on which the acquirer obtains control of theacquiree, which is the date when the exchange of shares takes place.

Recognizing and measuring the assets, liabilities,contingent liabilities and non-controlling interest

The third step in the acquisition method is recognizing and measuringthe identifiable assets, liabilities, contingent liabilities and any non-controlling interest in the acquiree.

The acquirer is required to recognize all the identifiable assetsacquired and liabilities and contingent liabilities assumed at theiracquisition-date fair values, provided that they (1) meet the definition

of an asset and liability in the Framework for the preparation andpresentation of financial statements and (2) must be part of what theacquirer and acquiree exchanged in the transaction rather than theresult of a separate transaction.

Contingent assets do not meet the definition of an asset and aretherefore not recognized.

Identifiable assets and liabilities over which the acquirer obtainscontrol might not necessarily have been recognized in the financialstatements of the acquiree because they did not qualify for recognitionbefore the combination. For example, an asset might not have beenrecognized by the acquiree in respect of tax losses, but might qualify

for recognition as a result of the acquirer earning sufficient taxableincome.

The acquirer also recognizes non-controlling interest, if any, andmeasures it at either fair value or at the non-controlling interest'sproportionate share of the acquiree's identifiable net assets acquired.The acquirer can make this choice for each acquisition, and it is not anaccounting policy choice.

Fair value is the price that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participantsat the measurement date. Note that these requirements applyregardless of whether the acquisition is of 100% of the business or

less. These fair values also provide the starting point for measuringpost-acquisition results in accordance with other applicable IFRSs. Forexample, the amount of future depreciation will be based on the fairvalues assigned to the relevant assets.


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As uncertainties about future cash flows are included in the fair valuemeasure, a separate valuation allowance is not necessary atacquisition date. There are, however, some exceptions to this basicprinciple. I will send you a summary of these.

Exceptions to the recognition and measurementprinciples

Exception to the recognition principle

Contingent liabilitiesThe requirements in IAS 37 Provisions, Contingent Liabilities andContingent Assets do not apply in determining which contingentliabilities to recognize as of the acquisition date. Instead, the acquirerrecognizes a contingent liability assumed in a business combination ifit is a present obligation that arises from past events and its fair valuecan be measured reliably. That is, it is not necessary that an outflow offuture economic benefits is probable.

After their initial recognition, contingent liabilities are measured at thehigher of the amount that would have been recognized under IAS 37or the initial amount recognized less cumulative amortization

recognized in accordance with IAS 18 Revenue (if applicable).

Exceptions to the measurement principle

Reacquired rightsThe acquirer may reacquire a right that it had previously granted to theacquiree; for example, the right to use the acquirer's technology undera technology licensing agreement. The acquirer recognizes thereacquired intangible right as an asset and determines its fair value onthe basis of the remaining contractual term of the contract, regardlessof whether market participants would consider potential contractualrenewals when measuring its fair value.

Subsequently, the reacquired right is amortized over the remainingcontractual period.

Share-based payment awardsWhen the acquirer replaces an acquiree's share-based paymentawards with its own share-based payment awards, the acquirermeasures a liability or an equity instrument in accordance with IFRS 2Share-based Payment. Exchanges of share-based payments aretreated as a modification and the accounting depends on whetherthere is an obligation to replace the acquiree awards or not.

If there is an obligation, IFRS 3 prescribes how the market-basedvalue should be calculated in order to split it between what is included

in the consideration transferred and what is recognized as a post-combination expense. If no obligation exists, IFRS 3 does not giveclear guidance. This could be treated either on the same basis aswhen there is an obligation or the expense will be recognized over theremaining vesting period.

Assets held for saleThe acquirer measures an acquired non-current asset (or disposalgroup) that is classified as held for sale at the acquisition date inaccordance with IFRS 5 Non-current Assets Held for Sale andDiscontinued Operations at fair value less costs to sell.

Assets held for sale are those classified by the acquiree before theacquisition, but also those so classified by the acquirer on acquisition.

Exceptions to both principles

Income tax and employee benefitsIncome tax: The acquirer recognizes and measures a deferred taxasset or liability in accordance withIAS 12 Income Taxes for:

Assets acquired and liabilities assumed in a businesscombination

Potential tax effects of temporary differences

Carryforwards of an acquiree that exist at the acquisition date orarise as a result of the acquisition

Employee benefits: The acquirer recognizes and measures a liability(or asset, if any) related to the acquiree's employee benefitarrangements in accordance with IAS 19 Employee Benefits.

Indemnification assetsThe seller in a business combination may contractually indemnify theacquirer for the outcome of a contingency or uncertainty related to allor part of a specific asset or liability. For example, the seller mayindemnify the acquirer against losses above a specified amount on aliability arising from a particular contingency. In other words, the sellerwill guarantee that the acquirer's liability will not exceed an agreedamount, regardless of the outcome of a particular contingency. As a

result, the acquirer recognizes an indemnification asset at the sametime that it recognizes the indemnified item measured on the samebasis as the indemnified item, subject to the need for a valuationallowance for uncollectible amounts.

Therefore, if the indemnification relates to an asset or a liability that isrecognized at the acquisition date and measured at its acquisition-datefair value, the acquirer recognizes the indemnification asset at theacquisition date measured at its acquisition-date fair value.

Subsequently, the acquirer measures an indemnification asset on thesame basis as the indemnified liability or asset, subject to anycontractual limitations on its amount. For an indemnification asset that

is not subsequently measured at its fair value, management mustassess the collectability. The acquirer derecognizes theindemnification asset only when it collects the asset, sells it orotherwise loses the right to it.

ExampleThe seller guarantees that a specific liability would be only CU 1,000.The acquirer must account for the liability at the acquisition-date fairvalue.

If the acquisition-date fair value is CU 900:

The acquirer recognizes the liability at CU 900

No indemnification asset is recognized

If there are indications at acquisition date that the fair value of theliability is CU 1,200:

The acquirer recognizes the liability at CU 1,200

Acquirer also recognizes the indemnification asset at CU 200

Other issues on the recognition and measurementprinciples

Acquired classifies and designatesThe acquirer classifies or designates the identifiable assets acquiredand liabilities assumed at the acquisition date. This is based on their

contractual terms, economic conditions, accounting policies and otherconditions as at the acquisition date. There are two exceptions wherethe classification is based on the contractual terms at inception of thecontract: leases (IAS 17 Leasesapplies) and insurance contracts(IFRS 4 Insurance Contractsapplies).


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Future losses/costsThe acquirer cannot recognize liabilities for future losses or costs ofthe acquiree based on its intentions for the future as these do notrepresent liabilities of the acquiree at the acquisition date.

Existing obligationsLiabilities that were existing obligations of the acquiree at theacquisition date must be recognized. Items that do not meet thedefinition of a liability are not liabilities at that date and are recognized

as post-combination activities or transactions of the combined entitywhen the costs are incurred (examples are costs associated withrestructuring or exiting an acquiree's activities).

Intangible assetsIdentifiable intangible assets must be recognized separately fromgoodwill if they meet the definition of an intangible asset under IAS 38Intangible Assets: an identifiable, non-monetary asset without physicalsubstance that must be separable from the entity or arise fromcontractual or other legal rights. If these items cannot be distinguishedfrom goodwill, they are absorbed within goodwill, with the result thatthe subsequent accounting treatment would be less discriminating.

Measurement periodIf the initial accounting for a business combination is incomplete by theend of the reporting period in which the combination occurs, theacquirer reports provisional amounts. As new information becomesavailable during the measurement period, these provisional amountsare adjusted if it would have affected the measurement of the amountsrecognized as of the date of acquisition. This involves retrospectiverestatement of goodwill and the comparative figures.

During the measurement period, the acquirer also recognizesadditional assets or liabilities, if any, based on new informationobtained. The measurement period ends as soon as the acquirerreceives the information it was seeking about facts and circumstances

that existed as of the acquisition date or learns that more informationis not obtainable. However, the measurement period cannot exceedone year from the acquisition date.

After the measurement period ends, the acquirer revises theaccounting for a business combination only to correct an error inaccordance with IAS 8 Accounting Policies, Changes in AccountingEstimates and Errors.

Operating leases (acquire is a lessee)The acquirer does not normally recognize assets or liabilities related toan operating lease in which the acquiree is the lessee except whenthe terms of the lease are favorable (intangible asset) or unfavorable

(liability) relative to market terms. An identifiable intangible asset maybe associated with an operating lease, which may be evidenced bymarket participants' willingness to pay a price for the lease even if it isat market terms. For example, a lease of gates at an airport or of retailspace in a prime shopping area might provide entry into a market orother future economic benefits that qualify as identifiable intangibleassets; for example, as a customer relationship. In that situation, theacquirer recognizes the associated identifiable intangible asset(s).

Assets subject to operating leases (acquire is a lessor)In measuring the acquisition-date fair value of an asset, such as abuilding or a patent that is the subject of an operating lease, theacquirer takes into account the terms of the lease. No separate asset

or liability is recognized if the terms of an operating lease are eitherfavorable or unfavorable when compared with market terms.

Pre-existing relationship between acquirer and acquireA pre-existing relationship between the acquirer and acquiree may becontractual (vendor and customer or licensor and licensee) or non-

contractual (plaintiff and defendant). If the business combination ineffect settles a pre-existing relationship, the acquirer recognizes a gainor loss, measured as follows:

For a pre-existing non-contractual relationship (such as a lawsuit)at fair value

For a pre-existing contractual relationshipat the lesser of:oThe amount by which the contract is favorable or unfavorable

from the perspective of the acquirer when compared withterms for current market transactions for the same or similar

itemsoThe amount of any stated settlement provisions in the

contract available to the counterparty to whom the contract isunfavorable (If this is the lesser amount, the difference isincluded as part of the business combination accounting.)

Contingent payments to employees or shareholdersWhether arrangements for contingent payments to employees orselling shareholders are contingent consideration in the businesscombination or are separate transactions depends on the nature of thearrangements. Understanding the reasons why the acquisition

agreement includes a provision for contingent payments, who initiatedthe arrangement and when the parties entered into the arrangementmay be helpful in assessing the nature of the arrangement.

Question 3The following valuations have been provided to Binfathi Group by anindependent appraiser for some of the assets and liabilities of theacquiree, Colorado Ltd., which were not previously recognized in thebalance sheet of Colorado Ltd. before acquisition:

Order backlogIt arises from sales orders already received bycustomers and has been valued at 5,000.

Licensed customer listThere are no terms of confidentiality orother agreements which prohibit Colorado Ltd. from selling

information about these customers. The fair value of the list isvalued at 10,000.

Potential contracts with prospective new customersColoradoLtd. is still in negotiation as at the acquisition date. Thesepotential contracts have been valued at 20,000.

Rights to a number of patented products, which was a significantreason behind Binfathi's desire to buy the companyNo activemarket exists for these intangible assets and the chief financialofficer is skeptical about the potential development of theseproducts because of Colorado Ltd.'s current poor performance.The rights have been valued at 40,000.

Which of the following must be recognized under IFRS 3?A.Only the order backlog can be recognized by Binfathi at its fair

value of 5,000.B.All four assets are recognized by Binfathi at their value fair values,

totaling 75,000.C.Binfathi recognizes at their fair values the rights to a number of

patented products and of the order backlog, valued at 45,000.D.All assets except for the potential contracts with prospective new

clients are recognized for 55,000.

Recognizing and measuring goodwill or bargainpurchase

When the amount of net assets (represented by (b) of the elements)

exceeds the aggregate of the amounts represented in (a), the acquirerhas made a bargain purchase. This is sometimes referred to as"negative goodwill." (Note that the standard does not actually use theterm "negative goodwill.")


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Before recognizing a gain on a bargain purchase, the acquirerreassesses whether it has correctly identified and measured all of theassets acquired, liabilities assumed, the non-controlling interest, if any,and the consideration transferred. If any excess remains, the acquirerrecognizes this as a gain in profit or loss on the acquisition date. Thegain shall be attributed to the acquirer.

Elements of the goodwill or bargain purchase calculationThe acquirer recognizes goodwill as of the acquisition date measured

as the excess of (a) over (b) below:(a) The aggregate of:

The consideration transferred measured in accordance with thisIFRS, which generally requires acquisition-date fair value

The amount of any non-controlling interest in the acquireemeasured in accordance with this IFRS

In a business combination achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest inthe acquiree

(b) The net of the acquisition-date amounts of the identifiable assetsacquired and the liabilities assumed measured in accordance with thisIFRS.

Consideration transferred

The consideration transferred is the sum of the acquisition-date fairvalues of the assets transferred (usually cash), liabilities incurred orassumed and equity interest issued by the acquirer.

When the fair value of transferred assets or liabilities of the acquirerdiffers from the carrying amounts in the acquirer's accounts, theacquirer recognizes a gain or loss in profit or loss, unless thetransferred assets or liabilities remain within the combined entity afterthe business combination. However, this gain or loss is reversed onconsolidation such that the carrying amounts are used.

Acquisition-related costs are expensed in the period in which the costsare incurred and the services are received. Acquisition-related costsare costs the acquirer incurs to effect a business combination. Someexamples are finder's fees, advisory, legal, accounting, valuation andother professional or consulting fees. The costs of issuing shares ordebt instruments are an integral part of the debt or share issuetransaction and are not part of the acquisition cost.

Contingent consideration - importance

The acquisition agreement may allow for adjustments to the purchaseconsideration, contingent on one or more future events, such asspecified levels of earnings being maintained or achieved in futureperiods. At acquisition date, the consideration transferred in exchangefor the acquiree includes the acquisition-date fair value of any asset orliability resulting from a contingentconsideration arrangement.

The acquirer classifies an obligation to pay contingent considerationas a liability or as equity on the basis of the definitions of an equityinstrument and a financial liability in IAS 32 Financial Instruments:Presentation. It is therefore accounted for under IAS 32 and IAS 39Financial Instruments: Recognition and Measurement. A right to returnof previously transferred consideration if specified conditions are metis classified as an asset.

Changes resulting from events after the acquisition date, such asmeeting an earnings target or a specified share, are not measurementperiod adjustments. The acquirer accounts for changes in the fairvalue as follows:

Contingent consideration classified as equity is not remeasuredand its subsequent settlement is accounted for within equity

Contingent consideration classified as an asset or a liability that:oIs a financial instrument within the scope of IFRS 9 Financial

Instruments or IAS 39, measured in terms of IFRS 9oIs not within the scope of IFRS 9, accounted for in

accordance with IAS 37 or other IFRSs as appropriate

No consideration transferred

An acquirer sometimes obtains control of an acquiree withouttransferring consideration. The acquisition method of accounting for abusiness combination applies to those combinations.

Such circumstances include:a. The acquiree repurchases its own shares such that an existing

investor (the acquirer) obtains control.b. Minority veto rights lapse that previously kept the acquirer from

controlling an acquiree in which the acquirer held the majorityvoting rights.

c. The acquirer and acquiree agree to combine their businesses bycontract alone. The acquirer transfers no consideration in

exchange for control of an acquiree and holds no equity interestsin the acquiree, either on the acquisition date or previously.Examples of business combinations achieved by contract aloneinclude bringing two businesses together in a staplingarrangement or forming a dual-listed corporation.

In a business combination achieved by contract alone, the acquirerattributes to the owners of the acquiree the amount of the acquiree'snet assets recognized in accordance with this IFRS. In other words,the equity interests in the acquiree held by parties other than theacquirer are a non-controlling interest in the acquirer's post-combination financial statements even if the result is that all of theequity interests (100%) in the acquiree are attributed to the non-

controlling interest.

In order to measure the goodwill or gain on a bargain purchase, theacquirer substitutes the acquisition-date fair value of its interest in theacquiree for the acquisition-date fair value of the considerationtransferred.

Business combinations achieved in stages

A business combination may involve more than one exchangetransaction. When this occurs, IFRS 3 requires that the acquirerremeasure its previously held interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profitor loss or other comprehensive income, as appropriate. Basically, it isaccounted for as a disposal of an existing holding and the acquisitionof a new holding.

So what happens before an investment actually qualifies as abusiness combination?Prior to qualifying as a business combination, an investment may havebeen accounted for in one of two ways. Either it qualifies as anassociate and is accounted for in accordance with IAS 28 Investmentin Associates using the equity method or, if it did not qualify as anassociate, it is accounted for as a financial asset under IFRS 9.

Does it make any difference how it was accounted for in the past?Going forward it does not make a difference. The only difference is inthe gain or loss on acquisition date. With the associate, the gain orloss is the difference between the acquisition-date fair value and the


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carrying amount at acquisition. With the financial instrument, theinvestment would be measured at fair value with changes in fair valuerecognized in profit or loss (if it was classified as held to maturity) or inequity (if it was classified as available for sale). If the investment hadbeen carried at fair value with changes recognized in equity, theamount accumulated in equity would be reclassified to profit or loss asif the investment had been sold.

When a business combination involves more than one exchange

transaction, the fair values of the acquiree's identifiable assets,liabilities and contingent liabilities may be different at the date of eachexchange transaction. The acquiree's identifiable assets, liabilities andcontingent liabilities are notionally restated to fair values at the date ofeach exchange transaction to determine the amount of any goodwillassociated with each transaction. At the acquisition date, theacquiree's identifiable assets, liabilities and contingent liabilities mustthen be recognized by the acquirer at their fair values at theacquisition date; then, any adjustment relating to those fair valuesrelating to the previously held interest of the acquirer is a revaluationand shall be accounted for as such. Doing this does not count asadopting a policy of revaluation in accordance with IAS 16 Property,Plant and Equipment or any other similar standards.

Subsequent treatment of goodwill

Goodwill is carried at cost and subjected to annual impairment tests inaccordance with IAS 36 Impairment of Assets. There is no systematicamortization of goodwill.

After any provisional allocat ions have been f inalized, any furtherchanges do not result in any adjustment of goodwill unless it is acorrection of errors in accordance with IAS 8.

Question 4Binfathi has completed the assessment of the fair value of the net

asset of Colorado Ltd. to amount to 19,560. The consideration payablefor the acquisition equals 19,000. Additional transaction costs amountto 1,100. What must be recognized and recorded?A.Binfathi will book a gain of 560 through profit or loss and expense

transaction costs.B.Binfathi will book a gain of 560 through other comprehensive

income and expense transaction costs.C.Binfathi will book a goodwill of 540 as an asset.D.Binfathi will book a negative goodwill of 560 as a liability and

expense the transaction costs.

The difference between the consideration transferred of 19,000 and the netasset acquired measured at their fair value of 19,560 is a gain from a bargain

purchase and is recorded through profit or loss. Transactions costs areexpensed.

Lesson 3: Other Business Combination Topics

IFRS 3 disclosure requirements: principle 1

IFRS 3 has an extensive list of disclosure requirements for businesscombinations.

The disclosures listed below support the principle that "an acquirershall disclose information that enables users of its financial statementsto evaluate the nature and financial effect of business combinationsthat were effected (a) during the current reporting period and (b) afterthe end of the reporting period, but before the financial statements areauthorized for issue."

These disclosures should be given for business combinations effectedafter the end of the reporting period, unless the initial accounting forthe business combination is incomplete at the time the financialstatements are authorized for issue. In that situation, the acquirerdescribes which disclosures could not be made and the reasons whythey cannot be made.

Disclose the following separately for each acquisition:

The name and description of the acquiree

The acquisition date The percentage of voting-equity interest acquired

The primary reasons for the business combination and adescription of how the acquirer obtained control of the acquiree

The following are additional requirements that support the sameprinciple that "an acquirer shall disclose information that enables usersof its financial statements to evaluate the nature and financial effect ofbusiness combinations that were effected (a) during the currentreporting period and (b) after the end of the reporting period, butbefore the financial statements are authorized for issue."

Disclose the following separately for each material acquisition (or

collectively for all immaterial acquisitions):

A qualitative description of the factors that make up the goodwillrecognized, such as expected synergies, intangible assets thatdo not qualify for separate recognition or other factors.

The acquisition-date fair value of the total considerationtransferred with a breakdown of its components into each majorclass.

For contingent consideration, the amount recognized at theacquisition date, a description of the arrangement and the basisfor determining the amount and an estimate of the range ofoutcomes. If this cannot be estimated, then that fact and reasonswhy must be disclosed.

The amounts recognized as of the acquisition date for each major

class of assets acquired and liabilities assumed.

For acquired receivables, the fair value, the gross contractualamount receivable and the best estimate of the cash flows notexpected to be collected.

For contingent liabilities not recognized because their fair valuecannot be measured reliably, the acquirer discloses the reasonswhy the liability cannot be measured reliably with the disclosurerequirements of IAS 37 Provisions, Contingent Liabilities andContingent Assets.

For transactions recognized separately from the acquisition ofassets and assumption of liabilities in the business combination,disclose (1) a description of each transaction; (2) how theacquirer accounted for each transaction; (3) the amountsrecognized for each transaction and the line item in the financialstatements in which each amount is recognized; and (4) if thetransaction is the effective settlement of a preexistingrelationship, the method used to determine the settlementamount.

Additionally, for each transaction recognized separately from theacquisition of assets and assumption of liabilities in the businesscombination, shall disclose (1) the amount of acquisition-relatedcosts; and separately (2) the amount of those costs recognizedas an expense and the line item or items in the statement ofcomprehensive income in which those expenses are recognized;and (3) the amount of any issue costs not recognized as an

expense and how they were recognized

The total amount of goodwill that is expected to be deductible fortax purposes.

In a bargain purchase, the amount of any gain recognized andthe line item in profit or loss with a description of the reasons whyit resulted in a gain.


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For each business combination in which the acquirer holds lessthan 100% of the equity interests in the acquiree at theacquisition date, (1) the amount of the non-controlling interest inthe acquiree recognized at the acquisition date and themeasurement basis for that amount; and (2) for each non-controlling interest in an acquiree measured at fair value, thevaluation technique(s) and significant inputs used to measure thatvalue.

In a business combination achieved in stages, the acquisition-

date fair value of the equity interest in the acquiree held by theacquirer immediately before the acquisition date and the amountof any gain or loss recognized as a result of remeasuring to fairvalue of the equity interest.

If practical, the amount of profit or loss of the acquiree included inthe acquirer's results for the period. (Otherwise, the reason whysuch disclosure would be impracticable should be disclosed).

If practical, the revenue and the profit or loss of the combinedentity for the period as though the acquisition date for allcombinations effected during the period had been the beginningof that period (if it is impractical to do so, this fact must beexplained and the reason given).

IFRS 3 disclosure requirements: principle 2

These disclosures support the principle that "an acquirer disclosesinformation that enables users of its financial statements to evaluatethe financial effects of adjustments recognized in the current reportingperiod that relate to business combinations that occurred in the periodor previous reporting periods."

Disclose separately for each material acquisition (or collectively for allimmaterial acquisitions):

If the initial accounting for any combination was determined onlyprovisionally, (1) an explanation why this is the case and (2) theassets, liabilities, equity interest or consideration for which the

initial accounting is incomplete and (3) the nature and amount ofany measurement period adjustments recognized during thereporting period.

For each reporting period after the acquisition date until the entitycollects, sells or otherwise loses the right to a contingentconsideration asset, or until the entity settles a contingentconsideration or the liability is cancelled or expires, (1) anychanges in the recognized amounts, including any differencesarising upon settlement; (2) any changes in the range ofoutcomes (undiscounted) and the reasons for those changes;and (3) the valuation techniques and key model inputs used tomeasure contingent consideration.

For contingent liabilities recognized in a business combination,the acquirer discloses the information required by IAS 37 for eachclass of provision.

The amount and an explanation of any gain or loss recognizedduring the current period that both (a) relate to the assets orliabilities assumed in a business combination in the current or aprevious period and (b) are of such a size, nature or incidencethat disclosure is relevant to an understanding of the combinedentitys financial performance.

The following are additional requirements that support the sameprinciple that "an acquirer discloses information that enables users ofits financial statements to evaluate the financial effects of adjustments

recognized in the current reporting period that relate to businesscombinations that occurred in the period or previous reportingperiods."

For each material acquisition (or collectively for all immaterialacquisitions), disclose a reconciliation of the carrying amount of

goodwill at the beginning and end of the reporting period showingseparately:

Opening amounts for gross goodwill and impairment losses

Additional goodwill recognized during the period

Adjustments from recognition of deferred tax assets

Movements in goodwill of a "disposal group" under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Impairment losses recognized during the period

Net exchange differences arising during the period

Any other changes arising during the period The gross amount and the accumulated impairment losses at the

end of the period

Question 1Binfathi has acquired 80% interest in Colorado Ltd. The 20% non-controlling interest, measured at their fair value, amounts to 30,000.The fair value was measured using a discounted cash-flow model.Binfathi would like to keep the disclosures as short as possible. Inrespect of non-controlling interest, Binfathi shall at least disclose whichof the following?A.There are no mandatory disclosures relating to non-controlling

interests.

B.Binfathi shall disclose that the 20% non-controlling interest amountsto 30,000 and has been measured at fair value.

C.Binfathi shall disclose that the 20% non-controlling interest amountsto 30,000 and has been measured at fair value.Additionally, it shall disclose that the fair value has been measuredusing a discounted cash-flows model.

D.Binfathi shall disclose that the 20% non-controlling interest amountsto 30,000 and has been measured at fair value. Additionally, it shalldisclose that the fair value has been measured using a discountedcash-flows model anddescribe the key inputs used for the valuation.

First-time adoption

According to IFRS 1 First-time Adoption of International FinancialReporting Standards appendix C.C1, if a first-time adopter restatesany business combination to comply with IFRS 3, then it must alsorestate all later business combinations and it must also apply therevised versions of IAS 36 Impairment of Assets and IAS 38 IntangibleAssets from the same date.

In summary, a first-time adopter has the following options:

Restate all past business combinations (apply IFRS 3retrospectively) that occurred before the date of transition to IFRSor restate business combinations that have occurred since thedate elected by the entity to restate business combinations (thisapplies equally to past acquisitions of investments in associatesand of interests in joint ventures)

Not restate any business combinations that occurred before thedate of transition to IFRS

Question 2Binfathi, a first-time adopter, acquired a group of assets (short-termcontracts, internally-generated brand name, tangible assets and staff)from Colorado Investment Inc. in 2006. As allowed by previous GAAP,the purchase price of 140,000 was entirely allocated to the tangibleassets. This transaction qualifies as a business combination underIFRSs. The date of transition to IFRSs is 1 January 2011. Whichchoice(s) does Binfathi have to account for this transaction?


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A.Binfathi can continue to recognize the tangible assets because thistransaction was classified as the acquisition ofa group of assets.

B.Binfathi can continue to recognize this transaction as theacquisition of a group of assets. However, the purchaseprice of 140,000 needs to be reallocated to the intangible assets,

and to the tangible assets, after deduction of the accumulateddepreciation/amortization for the period 2006 to 2010.

C.Binfathi can restate the transaction and account for a businesscombination under IFRS 3.

D.Binfathi can restate the transaction and account for a businesscombination under previous GAAP.

Combinations that are restatedWhere the entity does not take advantage of the exemption andtherefore restates previous business combinations in accordance withIFRS 3, the main consequences are summarized below. Note that thetransitional provisions of IFRS 3 do not apply.

The entity applies IFRS 3 retrospectively with respect to:

Determining the classification of business combinations (asacquisitions or reverse acquisitions)

Recognizing and measuring, at the acquisition date, theidentifiable assets acquired, liabilities and contingent liabilitiesassumed and non-controlling interest

Recognizing and measuring goodwill or bargain purchase

Question 3Binfathi Group is a first-time adopter with the transition date 1 January2011. Binfathi acquired Colorado Ltd. in 2011, Arizona Ltd. in 2005and Texas Ltd. in 1999. Which of the following choices does Binfathihave to account for the past business combination under IFRS 3?A.Binfathi has no option and should apply IFRS 3 prospectively from

the transition date; that is, Binfathi only needs to restate theacquisition of Colorado Ltd., which occurred after the transitiondate.

B.Binfathi can choose to restate all three acquisitions or only theacquisition of Arizona Ltd. and Colorado Ltd. or only the acquisition

of Colorado Ltd. However, it does not need to perform the goodwilltest for the restated business combination as it is possible to useinsights to measure the goodwill.

C.Binfathi can choose to restate all three acquisitions or only theacquisition of Arizona Ltd. and Colorado Ltd. or only the acquisitionof Colorado Ltd. However, Binfathi continues to perform thegoodwill impairment test in accordance with previous GAAPs forany goodwill arising from one of the three business combinations.

D.Binfathi can choose to restate all three acquisitions or only theacquisition of Arizona Ltd. and Colorado Ltd. or only the acquisitionof Colorado Ltd. However, Binfathi needs to perform an impairmenttest of goodwill in accordance with IAS 36.

Binfathi can restate all past business combinations that occurred before thedate of transition to IFRS, all business combinations that occurred since adate elected or to not restate any business combination before the date oftransition. IAS 36 shall likewise be applied.

Combinations that are not restated

Keep the same classification as in the previous GAAP financialstatements (acquisition, reverse acquisition or uniting of interests).

Recognize all assets and liabilities at the date of transition to IFRS thatwere acquired or assumed in a past business combination, exceptcertain financial assets and liabilities derecognized under previousGAAP, and items that were not recognized under previous GAAP inthe acquirer's consolidated balance sheet and also would not qualifyfor recognition under IFRS in the separate balance sheet of theacquiree.

Exclude from the opening IFRS balance sheet any item recognizedunder previous GAAP that does not qualify for recognition as an assetor liability under IFRS.

Adjustments are taken to retained earnings, except any that require anintangible asset to be reclassified as goodwill or vice versa.

You measure the assets acquired and liabilities assumed in differentways depending on whether they had been recognized under previousGAAP.

For assets acquired and liabilities that were recognized under previousGAAP, if measured on the basis of cost, then the carrying amountunder previous GAAP immediately after the business combination isthe deemed cost under IFRS at that date. If measured on anotherbasis, such as fair value, then the assets and liabilities are measuredon that basis at the date of transition, even if they arose from a pastbusiness combination. If IFRS requires a cost-based measurement ofthose assets and liabilities at a later date, the deemed cost shall bethe basis for cost-based depreciation or amortization from the date ofthe business combination.

Assets acquired or liabilities assumed in a past business combinationthat were not recognized under previous GAAP do not have a deemedcost of zero in the opening balance sheet. Instead, the acquirerrecognizes and measures them in the consolidated balance sheet onthe basis that IFRS would require in the separate balance sheet of theacquiree.

What are some examples of assets and liabilities not recognizedunder previous GAAP?Suppose, for example, the acquirer had not capitalized under previousGAAP finance leases acquired in a past business combination. Then itmust capitalize those leases in its consolidated financial statements,


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as IAS 17 Leases would require the acquiree to do in its separatefinancial statements. Conversely, if an asset or liability was subsumedin goodwill under previous GAAP but would have been recognizedseparately under IFRS 3, it must remain in goodwill unless IFRS wouldrequire its recognition in the separate financial statements of theacquiree.

The carrying amount of goodwill in the opening IFRS balance sheet isthe carrying amount under previous GAAP at the date of transition to

IFRS, except for restatements to recognize or derecognize intangibleassets and any impairment of goodwill that has to be recognized. Theimpairment test is based on conditions at the date of transition toIFRS.

No other adjustments are made to goodwill; for example, to excludein-process research and development acquired, to adjust previousamortization of goodwill or to reverse adjustments to goodwill thatIFRS 3 would not permit, such as restructuring costs that were notcommitted to prior to the effective date of the business combination.

If an entity recognized goodwill under previous GAAP as a deductionfrom equity, it does not recognize that goodwill in its opening IFRS

balance sheet. Nor would it transfer that goodwill to the incomestatement if the subsidiary were disposed of or if the investment wereimpaired. Also, in such cases, adjustments resulting from thesubsequent resolution of a contingency affecting the purchaseconsideration are recognized in retained earnings.

Question 4Binfathi, a first-time adopter, acquired Colorado Inc. in 2007. A licenseacquired for 20,000 in 2005 by Colorado Inc. was expensed throughprofit or loss in accordance with previous GAAP. The license hadqualified as intangible assets under IAS 38. The date of transition toIFRS is 1 January 2011 and Binfathi elects to not restate the previousbusiness combination under IFRS 3. What shall Binfathi do at the date

of transition to IFRSs?A.Though Binfathi has chosen not to restate the previous business

combination, the license meetsthe recognition criteria of IAS 38 and can be reinstated againstretained earnings.

B.Though Binfathi has chosen not to restate the previous businesscombination, the license meets the recognition criteria of IAS 38and can be reinstated against goodwill.

C.Binfathi can choose not to restate the license or to reinstate thelicense in the opening balance sheet.

D.Binfathi has chosen not to restate the previous businesscombination and therefore shall not reinstate the license.

ASSESSMENT

Question 1Group A has acquired the following. Which of the following acquisitions arebusiness combinations under IFRS 3?

A. Land and a vacant building from Company B. No processes, otherassets or employees are acquired. Group A does not enter into any ofthe contracts of Company B.

B. An operating hotel, the hotels employees, the franchise agreement,inventory, reservations system and all back office operations.

C. All of the outstanding shares in Biotech D, a development stagecompany that has a license for a product candidate. Phase I clinical trialsare currently being performed by Biotech D employees. Biotech Dsadministrative and accounting functions are performed by a contractemployee.

A.All three acquisitions are business combinations under IFRS 3.B.A and B acquisitions are business combinations under IFRS 3.C.A and C acquisitions are business combinations under IFRS 3.D.B and C acquisitions are business combinations under IFRS 3.

Question 2Entity A acquired Entity B. On the acquisition date, Entity B had an operatinglease as a lessee with a remaining period of two years out of the original fouryears. Due to significant changes in the market, Entity B is paying less thanwhat you would expect to currently pay for a similar lease. The value of theexisting lease based on the current terms is 10,000 and that of a lease basedon relative market terms is 13,000. How should Entity A account for this?A.Entity A should disregard this, as this is an operating lease of Entity B and

no asset or liability is recognized

related to operating leases.B.Entity A determines whether the terms of each operating lease in which

Entity B is the lessee are favorable or unfavorable. Entity A should accountfor the difference between the value of the existing lease terms and themarket terms in profit or loss.

C.Entity A determines whether the terms of each operating lease in whichEntity B is the lessee are favorable or unfavorable. Entity A shouldrecognize an intangible asset separate from goodwill for the favorableportion of the operating lease relative to market terms.

D.None of the above.

Question 3Binfathi Group acquired an 80% interest in Entity B. The consideration for the80% interest in Entity B was 36,000 in shares in Binfathi and 12,000 in cash.

To issue the shares, Binfathi incurred a cost of 2,000 and incurred costs of1,400 associated with legal fees and the valuation of Entity B. The fair value ofthe net assets of Entity B amounted to 64,000. How should Binfathi accountfor this acquisition?A.Binfathi shall book a gain (negative goodwill) through profit or loss of 3,200

related to the acquisition, recognize expenses of 1,400 and deduct fromequity 2,000 relative to the cost of issuing the shares.

B.Binfathi shall book goodwill as an asset of 200.C.Binfathi shall book a gain (negative goodwill) through profit or loss of 1,200

and recognize the costs of legal fees of 1,400 as expenses in profit or loss.D.Binfathi shall book a gain (negative goodwill) though profit or loss of 3,200

and recognize expenses of 3,400, relative to the costs of issuing shares,paying legal fees and performing the valuation of Entity B, in profit or loss.

Question 4The consideration transferred in the business combination was 55,000.Transaction costs amount to 1,000. The fair value of the acquirees net assetsat the acquisition date was 63,000. The acquirer has not yet decided whetherto measure the 20% non-controlling interest (NCI) in the acquiree at the NCIsproportionate share of the fair value of the acquirees net assets, which is12,600, or at the NCIs fair value, which is 13,000. Does the choice ofaccounting policy for NCI impact the determination of goodwill at theacquisition date?A.No, the accounting policy choice for NCI does not impact goodwill at the

acquisition date.B.Yes, it does. If the acquirer values the NCI at its proportionate share of the

fair value of the acquired business, the goodwill amounts to 4,600; if theacquirer values the NCI at its fair value, then the goodwill amounts to 5,000.

C.Yes, it does. If the acquirer values the NCI at its proportionate share of the

fair value of the acquired business, the goodwill amounts to 5,600; if theacquirer values the NCI at its fair value, then the goodwill amounts to 6,000.

D.No, it does not. However, the accounting policy choice for NCI impacts thefair value of the acquirees net assets. If the acquirer values the NCI at itsproportionate share of the fair value of the acquired business, theacquirees net assets amount to 63,000; if the acquirer values the NCI at itsfair value, then the acquirees net assets amount to 63,400

Question 5Entity A had several business acquisitions during the reporting period andafter the reporting period. Entity A will disclose, among other information, thefollowing:

a.The name and a description of the acquireeb.The acquisition date

c.

The percentage of voting equity interests acquiredd.

The primary reasons for the business combination and a description ofhow the acquirer obtained control of the acquiree

A.These disclosures shall be done for each business combination thatoccurred in the reporting period only, but are not required for businesscombinations that occurred after the end of the reporting period.


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B.These disclosures shall be done for each material business combinationthat occurred both in the reporting period and after the end of the reportingperiod, but before the financial statements are authorized for issue. Theinformation is disclosed in aggregate for individually immaterial businesscombinations.

C.These disclosures are optional for each business combination that occurredboth in the reporting period and after the end of the reporting period, butbefore the financial statements are authorized for issue.

D.These disclosures shall be done for each business combination thatoccurred both in the reporting period and after the end of the reporting

period, but before the financial statements are authorized for issue.

Question 6Entity A acquired Entity B, which is a material business combination, duringthe reporting period. Among the assets acquired, trade accounts receivablewere provisionally accounted for at fair value of 1,736. Which of the followinginformation shall be provided additionally to the fair value amount of the tradeaccounts receivable? Select all that apply.A.Entity A does not need to disclose any further information.B.Entity A must disclose that the fair value of the accounts receivable was

determined provisionally.C.Entity A must disclose the nominal value of the accounts receivable.D.Entity A must disclose the amount of the contractual cash flows that it does

not expect to collect.

Question 7The goodwill resulting from the acquisition of Entity C by Entity B amounts to50,000. Which disclosures does Entity B provide relating to the goodwill?Select all that apply.A.Entity B shall describe the factors that make up the goodwill to be

recognized.B.Entity B shall disclose the total amount of goodwill deductible for tax

purposes.C.Entity B shall disclose the amortization period of goodwill for tax purposes.

Question 8Entity A is a first-time adopter with the transition date 1 January 2011. Entity Aacquired Entity C in 2007 and Entity D in 2009. Which are the alternativeaccounting treatments in respect of the two business combinations?A.Under the current IFRS 3, Entity A can choose to restate the acquisition

that occurred in 2007 and the acquisition that occurred in 2009 orjust theacquisition that occurred in 2009 orchoose not to restate either one.

B.Under the current IFRS 3, Entity A needs to restate the businesscombination that occurred in 2009 and has the choice to not restate or torestate the acquisition that occurred in 2007.

C.Under the current IFRS 3, Entity A can decide to restate the acquisition thatoccurred in 2007, but not to restate the acquisition that occurred in 2009.

D.Entity A has no choice and cannot restate any past business combinations.Only business combinations that occurred/which will occur after the date oftransition will be accounted for under IFRS 3.

Question 9Entity A is a first-time adopter with the transition date 1 January 2011. Entity Aacquired Entity C in 2007 and recognized the goodwill of 50,000 as adeduction from equity as allowed under previous GAAP. Which is theaccounting treatment for the goodwill?A.Entity A does not need to restate the goodwill if it decides not to restate the

business combination under IFRS 3. However, in case of disposal of EntityC, goodwill will be recycled through profit or loss and decrease the gain orincrease the loss from disposal.

B.Entity A does not need to restate the goodwill, if it decides to not restate thebusiness combination under IFRS 3.

C.Entity A shall restate the business combination under IFRS 3 andrecalculate the goodwill which will be thencapitalized. However, an impairment test under IAS 36 has to beperformed.

D.Entity A does not need to restate the goodwill if it decides not to restate the

business combination under IFRS 3. However, Entity A shall reclassify the50,000 from equity to goodwill which is shown under intangible assets.

Question 10Entity A is a first-time adopter with the transition date 1 January 2011. Entity Aacquired Entity C in 2007. Entity A applies the business recognition exception

to the acquisition of Entity C. Entity C owns a registered internally-generatedtrademark. The technical expertise to manufacture the trademarked product isdocumented but unpatented. Therefore, Entity C has not recognized thetrademark in the consolidated financial statements of Entity A immediatelyafter the acquisition. What does Entity A need to do with respect to thetrademark at transition to IFRSs?A.As the internally-generated trademark meets the recognition criteria to

qualify as an intangible asset if Entity C had already applied IFRS in itsseparate financial statement, the trademark will be capitalized at the date oftransition to IFRS.

B.Even if the internally-generated trademark meets the recognition criteria toqualify as an intangible asset if Entity C had already applied IFRS in itsseparate financial statement, the trademark will remain subsumed ingoodwill.

C.As the internally-generated trademark does not meet the recognition criteriato qualify as an intangible asset if Entity C had already applied IFRS in itsseparate financial statement, an amount corresponding to the original fairvalue of the trademark in 2007 shall be reclassified from goodwill toretained earnings.

D.As the internally-generated trademark does not meet the recognition criteriato qualify as an intangible asset if Entity C had already applied IFRS in itsseparate financial statement, the trademark will remain subsumed ingoodwill.

Documents

Group Accounts (IFRS)