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Commission Regulation
(EC) No 2236/2004 of 29 December 2004 amending
Regulation (EC) No 1725/2003 adopting certain
international accounting standards in accordance with
Regulation (EC) No 1606/2002 of the European Parliament
and of the Council as regards International Financial
Reporting Standards (IFRSs) Nos 1, 3 to 5, International
Accounting Standards (IASs) Nos 1, 10, 12, 14, 16 to 19,
22, 27, 28, 31 to 41 and the interpretations by the
Standard Interpretation Committee (SIC) Nos 9, 22, 28
and 32.
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Objective
1. The objective of this IFRS is to specify the financial
reporting by an entity when it undertakes a business
combination. In particular, it specifies that all
business combinations should be accounted for by applying
the purchase method. Therefore, the acquirer recognises the
acquiree’s identifiable assets, liabilities and
contingent liabilities at their fair values at the
acquisition date, and also recognises goodwill,
which is subsequently tested for impairment rather than
amortised.
Scope
2. Except as described in paragraph 3, entities shall apply
this IFRS when accounting for business combinations. 3. This
IFRS does not apply to:
(a) business
combinations in which separate entities or businesses
are brought together to form a joint venture.
(b)
business combinations involving entities or businesses
under common control.
(c) business
combinations involving two or more mutual entities.
(d) business
combinations in which separate entities or businesses
are brought together to form a reporting entity
by contract alone without the obtaining of an ownership
interest (for example, combinations in which separate
entities are brought together by contract alone to form
a dual listed corporation).
Identifying
a business combination
4. A business combination is the bringing together of
separate entities or businesses into one reporting entity.
The result of nearly all business combinations is that one
entity, the acquirer, obtains control of one or more
other businesses, the acquiree. If an entity obtains control
of one or more other entities that are not businesses, the
bringing together of those entities is not a business
combination. When an entity acquires a group of assets or
net assets that does not constitute a business, it shall
allocate the cost of the group between the individual
identifiable assets and liabilities in the group based on
their relative fair values at the date of acquisition.
5. A business combination may be structured in a variety of
ways for legal, taxation or other reasons. It may involve
the purchase by an entity of the equity of another entity,
the purchase of all the net assets of another entity, the
assumption of the liabilities of another entity, or the
purchase of some of the net assets of another entity that
together form one or more businesses. It may be effected by
the issue of equity instruments, the transfer of cash, cash
equivalents or other assets, or a combination thereof. The
transaction may be between the shareholders of the combining
entities or between one entity and the shareholders of
another entity. It may involve the establishment of a new
entity to control the combining entities or net assets
transferred, or the restructuring of one or more of the
combining entities.
6. A business combination may result in a parent-subsidiary
relationship in which the acquirer is the parent and
the acquiree a subsidiary of the acquirer. In such
circumstances, the acquirer applies this IFRS in its
consolidated financial statements. It includes its interest
in the acquiree in any separate financial statements it
issues as an investment in a subsidiary (see IAS 27
Consolidated and Separate Financial Statements).
7. A business combination may involve the purchase of the
net assets, including any goodwill, of another entity rather
than the purchase of the equity of the other entity. Such a
combination does not result in a parentsubsidiary
relationship.
8. Included within the definition of a business combination,
and therefore the scope of this IFRS, are business
combinations in which one entity obtains control of another
entity but for which the date of obtaining control (ie the
acquisition date) does not coincide with the date or dates
of acquiring an ownership interest (ie the date or dates
of exchange). This situation may arise, for example,
when an investee enters into share buy-back arrangements
with some of its investors and, as a result, control of the
investee changes.
9. This IFRS does not specify the accounting by venturers
for interests in joint ventures (see IAS 31 Interests in
Joint Ventures).
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