Transactions separate from the combination

Learning objectives

• Distinguish what is part of the exchange for the acquiree from separate transactions entered into primarily for the benefit of the acquirer.L2, L3
• Explain the accounting for a separate transaction in accordance with the relevant IFRSs.L2, L3

Normative references

• IFRS 3 §51The acquirer identifies any amounts that are not part of what was exchanged for the acquiree; it applies the acquisition method only to the consideration transferred and to the assets acquired and liabilities assumed in that exchange; it accounts for other transactions in accordance with the relevant IFRSs.
• IFRS 3 §52Principle: a transaction entered into by or on behalf of the acquirer, or primarily for the benefit of the acquirer or the combined entity, rather than primarily for the benefit of the acquiree or its former owners, is likely to be a separate transaction; examples: settlement of a pre-existing relationship, remuneration for future services, reimbursement by the seller of the acquirer's acquisition-related costs.

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

4 questions

• Which statements about the amounts that are or are not part of the exchange in a business combination are correct? More than one answer is possible.L2
• To acquire Cime SA, Éclat SA pays 8,000,000 to the former owners. Outside the price, the seller reimburses Éclat for 90,000 of acquisition-related costs it had incurred. How is this reimbursement treated?L3
• In the agreement to acquire Rive SA, the acquirer: (1) pays 6,000,000 to the former owners; (2) undertakes to pay 300,000 to Rive's management for a two-year consulting contract proposed by the acquirer; (3) has the seller reimburse 50,000 of advisory fees it had incurred. Write a short note stating, for each item, whether it is part of the exchange, distinguishing facts of the case, rule and professional judgement.L3
• Fabrique SA acquires Galet SA for 5,000,000. Before the transaction, Fabrique had granted a licence to Galet; the agreement states that 150,000 of the price relates to the settlement of that pre-existing licence. How does Fabrique treat this 150,000?L4