IFRS Viewpoint : June
Is common control
transitory?
IFRS excludes common control
business combinations from its scope
only if common control is not ‘transitory’.
‘Transitory’ is not defined by IFRS but its
general meaning is ‘brief’ or ‘short-lived’.
IFRS includes the ‘transitory’ assessment
so that acquisition accounting cannot
be avoided simply by structuring
transactions to include a brief common
control phase. For example, a transaction
might be structured such that for a brief
period before and after the combination,
two combining entities are both
controlled by the same special purpose
vehicle. This transaction would fall within
the scope of IFRS because common
control is transitory. However, common
control should not be considered
transitory simply because a combination
is carried out in contemplation of an
initial public offering or sale of the
combining entities.
Judgement may be required to
assess whether or not common control
is transitory.
Acquisition method compared to a predecessor value method
Accounting topic Predecessor value method Acquisition method
Assets and
liabilities
• recorded at previous carrying
value and no fair value
adjustments made
• adjustments are made to
achieve uniform accounting
policies
• all identifiable assets and
liabilities are recognised at
their acquisition date fair value
(limited exceptions apply)
Intangible assets
and contingent
liabilities
• recognised only to the extent
that they were recognised by
the acquiree in accordance
with applicable IFRS (in
particular, IAS 38 ‘Intangible
Assets’)
• recognised if separable and/or
arise from contractual or legal
rights and fair value is reliably
measurable
Goodwill
• no new goodwill is recorded
• the difference between the
acquirer’s cost of investment
and the acquiree’s equity
is presented as a separate
reserve within equity on
consolidation
• goodwill or a gain from a
bargain purchase is recognised
and measured as the difference
between the consideration
transferred and the net
acquisition- date amounts of
identifiable assets acquired and
liabilities assumed (and value
of non-controlling interest, if
applicable)
Non-controlling
interest
• measured as a proportionate
share of the book values of the
related assets and liabilities
• measured either at fair value or
at the non-controlling interest’s
proportionate share of the
acquiree’s identifiable net
assets
Cost of the
combination
• written-off immediately in profit
or loss
• written-off immediately in profit
or loss
Profit or loss
• includes results of the
combining entities for the
full year, regardless of when
the combination took place
(subject to variations noted
below)
• includes results of the
combining entities from
the date of the business
combination
Comparatives
• amounts are restated as if the
combination had taken place
at the beginning of the earliest
comparative period presented
(subject to variations noted
page 5)
• no restatement of comparatives