First consolidation according to IFRS 3

Scientific Essay, 2009

6 Pages



1. Breakdown of purchase costs of the acquisition

2. Recording and valuation of a balancing amount
2.1 Positive balancing amount
2.2 Negative balancing amount

1. Breakdown of purchase costs of the acquisition

As already described only those assets and liabilities are to be shown in the course of a business combination which fulfil the criteria of IFRS 3 on the acquisition date.[1]

Assets and liabilities are recorded in their entirety at fair value, independent of the participation ratio of the parent company. For this reason the method is also described as complete revaluation.

The part of goodwill that relates to minority shareholders is always excepted from the capitalisation according to IFRS 3. However, in 2005 IASB suggested bringing the full goodwill onto the balance sheet i.e. not to eliminate the minority portion (so-called full goodwill method).[2] With this method of complete revaluation as per IFRS 3 the net identifiable assets, over which the acquirer has obtained control, result from the fair values at the time of acquisition, i.e. at the time at which the acquirer obtained control independent of whether the purchaser acquired the entire capital, only a part of the capital or even just the net assets of the subsidiary company.

For the minority interests an adjustment item has to be recorded in this case. The adjustment item corresponds to the portion, at fair value, that these shareholders have of the net assets and debts.

This procedure for recording the interests of minority shareholders corresponds to the unity theory.[3]

2. Recording and valuation of a balancing amount

2.1 Positive balancing amount

The acquirer has to identify all assets and liabilities of the acquired company on the acquisition date and to value them at fair value. Any net difference arising between net assets and debts is to be considered and valued as goodwill according to the IASB draft.[4]

Thus the entire goodwill of the acquired company would be recorded at fair value and would represent the entire goodwill of the acquired company and not only the portion of the acquirer (so-called full goodwill method).

Only then is the goodwill allocated to those shares with and those without controlling influence. The portion of the goodwill allocated to the acquirer is to be calculated as the difference between the fair value of the part of the capital acquired by the acquirer, i.e. the consideration paid, and the part of the acquirer of the fair values of the acquired net assets. Any goodwill remaining is then allocated to minority interests.

The goodwill thereby obtained as a positive balancing figure is explicitly called an asset in IFRS 3 for the first time and is not only defined by being calculated as a balancing item.[5]

Goodwill represents a payment by the acquirer with which he anticipates future economic benefits which are not otherwise embraced by the other identifiable assets and liabilities.[6] Thus this goodwill comes under the definition of an asset in the sense of the framework. For categorising the reasons for the payment by the acquirer, IASB has subdivided goodwill into the following components:[7]

1. Going concern
2. Synergies from the business combination
3. Overpayments by the acquirer
4. Recording and valuation errors of acquisition cost or of assets and liabilities, or valuations based on a standard which does not require a valuation at fair value.

As regards IASB is concerned, the first two components of goodwill mentioned represent the main components of goodwill (the so-called core goodwill).
The components specified under 3 and 4 are not typical goodwill components.[8]


[1] Cf. IFRS 3.37

[2] Cf. ED IFRS 3 (2005)

[3] Cf. Baetge/Hayn/Ströher Part B of IFRS 3, margin no. 166

[4] Cf. ED IFRS 3 (2005)

[5] Cf. IFRS 3.51 (a)

[6] Cf. IFRS 3.52

[7] Cf. IFRS 3. BC 130

[8] Cf. IFRS 3. BC 131-135

Excerpt out of 6 pages


First consolidation according to IFRS 3
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ISBN (eBook)
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First, IFRS
Quote paper
Holger Bittrich (Author), 2009, First consolidation according to IFRS 3, Munich, GRIN Verlag,


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