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Home > Mergers and Acquisitions Best Practice > Accounting for Business Combinations in Accordance with International Financial Reporting Standards (IFRS) Requirements

Mergers and Acquisitions Best Practice

Accounting for Business Combinations in Accordance with International Financial Reporting Standards (IFRS) Requirements

by Shân Kennedy

Measuring the Goodwill Arising from a Business Combination

The revised IFRS 3 requires that goodwill is measured as the following:

The sum of:

  • the fair value of the consideration paid;

  • the amount of any non-controlling interest measured as described above;

  • the fair value of any previously held non-controlling interest in the acquiree;

 

Less:

  • the net sum of the acquisition date assets acquired and liabilities assumed, measured as required by IFRS 3.

 

It is important to note that goodwill itself is not measured at fair value—it is the residual amount that results from applying the calculation above. As a result of the option with respect to measurement of any non-controlling interest, the amount measured for goodwill may or may not include goodwill in such non-controlling interest.

Note

1 Source: PricewaterhouseCoopers. “Acquisitions: Accounting and transparency under IFRS 3.” April 2004. Online at: www.pwc.com/fi/fin/ifrs/pwc_acq_acc_transp_ifrs3.pdf

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Further reading

Reports:

Websites:

  • Company Reporting, comments on the types of intangible asset being recognized in company accounts are regularly made by this UK-based organization: www.comrep.co.uk
  • International Accounting Standards Board (IASB), from whom copies of the relevant IFRS and technical summaries of each standard can be obtained: www.iasb.org
  • International Actuarial Association (AAI/IAA): www.actuaries.org
  • International Valuation Standards Committee (IVSC): www.ivsc.org

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