Inputs, processes and outputs of a business

Learning objectives

• Identify, in a case, the inputs, processes and outputs of an acquired set of activities and assets.L1, L2
• Distinguish a process used to create outputs from a mere administrative activity (accounting, billing, payroll).L1, L2

Normative references

• IFRS 3 §B7A business consists of inputs and processes applied to those inputs that have the ability to contribute to the creation of outputs; B7 defines these three elements (input, process, output). A process may be provided by an organised workforce that applies its skills; accounting, billing, payroll and other administrative systems are typically not processes used to create outputs. That outputs are not required is stated in para. B8. Wording from the October 2018 amendment "Definition of a Business" (business combinations whose acquisition date is in annual periods beginning on or after 1 January 2020, para. 64P).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

7 questions

• For an acquired set to be a business, it must already generate outputs (revenue) at the acquisition date.L1
• Berlue SA acquires machinery, patents and a team that operates them; no product has been sold yet. Which statements are correct? More than one answer is possible.L2
• Lumen SA acquires an online sales platform: website, customer database, servers, and a development and support team. The platform's revenue is still nil (launch planned). Case assumption: the team operates the servers and the database. Which reading is consistent with the definition of a business?L2
• Under the definition of a business, what must the acquired set of activities and assets include at a minimum?L1
• Cobalt SA acquires Pistil SA, a biotechnology company in development: laboratories, patents and an organised team of researchers that develops the products. No product is sold yet. Case assumption: the team is critical to the ability to turn the acquired patents into outputs. What does Cobalt conclude about the process?L2
• Delta SA acquires Presto, a printing works: machines and framework contracts with customers that generate recurring revenue; no employee is taken over. Delta's management argues that Presto is a business “because the revenue continues”. Write a short note concluding on this reasoning, distinguishing the facts of the case, the rule and professional judgement.L3
• Zeta SA, a listed company that runs a distribution business, issues shares to acquire 100% of the shares of Omega SA, which is unlisted. After the transaction, Omega's former shareholders hold 80% of the voting rights of Zeta and run its board. Write a short note concluding on the identification of the accounting acquirer, distinguishing facts of the case, rule and professional judgement.L4