Asset acquisition or business combination

Learning objectives

• Determine whether the acquisition of a group of assets is a business combination or an asset acquisition, and the consequences (no goodwill, acquisition costs included in the cost of the assets).L1, L2
• Explain why an asset acquisition is not accounted for using the acquisition method.L1, L2

Normative references

• IFRS 3 §2Scope: IFRS 3 applies to any transaction or other event that meets the definition of a business combination. It does not apply to (a) the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself, (b) the acquisition of an asset or a group of assets that does not constitute a business (cost allocated to the individual identifiable items on the basis of their relative fair values, with no goodwill) and (c) combinations of entities or businesses under common control (guidance in B1 to B4). The wording of (a) comes from the Annual Improvements 2011-2013 Cycle (prospective application for annual periods beginning on or after 1 July 2014, para. 64J). Para. 2A also excludes the acquisition by an investment entity of a subsidiary that it is required to measure at fair value through profit or loss.
• 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.

5 questions

• Maréchal SA buys an office building let to several tenants, without taking over any staff or management process. Case assumption: management has concluded that this set is not a business. How is the transaction treated under IFRS 3?L1
• Which statements about the acquisition of a group of assets are correct? More than one answer is possible.L2
• Carbo SA acquires three identical machines from a bankrupt manufacturer, without taking over any employees, customer contracts or production process. Case assumption: management concludes that this set is not a business. What consequence does it draw under IFRS 3?L2
• The acquirer may choose, business combination by business combination, whether or not to apply the concentration test: its application is optional.L1
• Hexa SA acquires an office building (land and building) let to one tenant, together with a property management contract. It elects to apply the concentration test. Case assumption: Hexa judges that substantially all of the fair value of the gross assets acquired is concentrated in the building. What does it conclude?L3