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Scope of IFRS 3 and the acquisition method

Learning objectives

Identify, from the facts of a case, whether a transaction is a business combination within the scope of IFRS 3 or a transaction excluded from its scope.L1
Distinguish a business combination from the acquisition of an asset, the formation of a joint arrangement and a combination under common control.L1

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 §3Identifying a business combination: the entity determines whether a transaction or other event is a business combination by applying the definition in IFRS 3, which requires that the assets acquired and liabilities assumed constitute a business; otherwise, it accounts for the transaction as an asset acquisition (guidance in paras. B5 to B12D). The definition of a business combination (obtaining control of one or more businesses) is in Appendix A, and the acquisition method is applied to each business combination (para. 4).

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