The recognition principle

Learning objectives

• Identify the items (identifiable assets, liabilities assumed, non-controlling interest) recognised separately from goodwill at the acquisition date.L1, L2
• Explain the recognition conditions: the definitions of the Conceptual Framework at the acquisition date and the item being part of the exchange.L1, L2

Normative references

• IFRS 3 §10Recognition principle: at the acquisition date, the acquirer recognises, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree, subject to the conditions in paras. 11 and 12.
• IFRS 3 §11The identifiable assets acquired and liabilities assumed must, at the acquisition date, meet the definitions of an asset and a liability in the Conceptual Framework for Financial Reporting, subject to the exceptions; for example, restructuring costs that the acquirer expects but is not obliged to incur are not liabilities at that date. Reference to the Conceptual Framework updated in May 2020: business combinations whose acquisition date is in annual periods beginning on or after 1 January 2022 (para. 64Q).
• IFRS 3 §12Exchange condition: the items recognised must be part of what the acquirer and the acquiree (or its former owners) exchanged in the business combination, rather than the result of separate transactions.

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

12 questions

• At the acquisition date, how does the acquirer recognise the identifiable assets acquired and the liabilities assumed?L1
• Which statements about the recognition of a business combination at the acquisition date are correct? More than one answer is possible.L2
• In Klaxon SA's purchase price allocation file, the analyst did not recognise the acquiree's trademark, on the ground that it does not appear in the acquiree's balance sheet. What is the error in this reasoning?L2
• Under the contractual-legal criterion, which of these intangible assets of the acquiree is identifiable?L2
• Vega Santé SA acquires an engineering firm. Among its intangible assets are framework contracts signed with twelve customers, not transferable without the customers' agreement; and a list of prospect contacts with no contractual commitment, which the firm has never sold but for which exchange transactions exist in the sector. Write a short note concluding on the identification of each, distinguishing facts of the case, rule and professional judgement.L3
• Fresnel SA acquires Obier SA, which has a defined benefit pension plan showing a deficit at the acquisition date. Justify in a few lines how Fresnel treats this plan, and explain why market fair value is not the measurement basis used.L3
• Loing SA, the acquiree, is the lessee under a lease that is neither short-term nor for a low-value asset. The remaining lease payments at the acquisition date are {payment_1} in one year and {payment_2} in two years. Case convention: the discount rate is {discount_rate} (case data) and the contract is treated as a new contract at the acquisition date. Calculate the lease liability at the acquisition date.L3
• At the acquisition date of Doubs SA, a group of non-current assets is classified as held for sale. Its fair value is {fair_value} and the costs to sell are {costs_to_sell}. Calculate its measurement in the business combination.L2
• Fénix SA acquires an insurer in a business combination. How does it measure, at the acquisition date, a group of contracts within IFRS 17 assumed in this combination?L4
• Plaine SA acquires 100% of Sillon SA, paying {cash_paid} in cash. At the acquisition date, Sillon's identifiable assets have a fair value of {assets_fv} and its liabilities assumed {liabilities_fv}. Case convention: the entry is made at business combination level; there is no non-controlling interest or previously held interest. Record the acquisition entry.L3
• The separability of an intangible asset acquired in a business combination depends on the acquirer's intention to sell or dispose of it.L3
• An asset that meets, at the acquisition date, the definition of an asset in the Conceptual Framework is recognised in applying the acquisition method, even if it results from a separate transaction concluded with the former owners of the acquiree.L2