International Financial Reporting Standards IFRS 3- Business Combination

1. DEFINITION OF KEY TERMS 2. SCOPE 3. OBJECTİVE 4. ACQUİSİTİON METHOD 5. DISCLOSURE

1. DEFINITION OF KEY TERMS Business combination: Occurs where several entities are brought together to form a single reporting entity. Acquisition date: The date on which the acquirer obtains control of the acquiree. Acquirer: The entity that obtains control of the acquiree. Acquiree: The business or businesses that the acquirer obtains control of in a business combination. Control: The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

2.SCOPE IFRS 3 must be applied when accounting for business combinations, but does not apply to: ◦The formation of a joint venture ◦ The acquisition of an asset or group of assets that is not a business, ◦Combinations of entities or businesses under common control ◦Acquisitions by an investment entity of a subsidiary that is required to be measured at fair value through profit or loss under IFRS 10- Consolidated Financial Statements.

3. OBJECTİVE The objective of the IFRS is to enhance the relevance, reliability and comparability of the information about a business combination and its effects. It does that by establishing principles and requirements for how an acquirer: ◦recognises and measures the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; ◦recognises and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and ◦determines what information to disclose about the business combination.

4. ACQUİSİTİON METHOD An entity shall account for each business combination by applying the acquisition method. Applying the acquisition method requires: 1.identifying the acquirer; 2.determining the acquisition date; 3.recognising and measuring the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree; and 4.recognising and measuring goodwill or a gain from a bargain purchase.

1. Identifying an acquirer: The guidance in IFRS 10- Consolidated Financial Statements is used to identify an acquirer in a business combination. 1. Acquisition date: IFRS 3 does not provide detailed guidance on the determination of the acquisition date and the date identified should reflect all relevant facts and circumstances.

3. Acquired assets and liabilities: ◦Identifiable assets acquired, liabilities assumed, and non-controlling interests in the acquiree, are recognised separately from goodwill. ◦All assets acquired and liabilities assumed in a business combination are measured at acquisition-date fair value.

Exceptions to the recognition and measurement principles: ◦Contingent liabilities ◦Income taxes ◦Employee benefits ◦Indemnification assets ◦Reacquired rights ◦Share-based payment transactions ◦Assets held for sale

Non-controlling interest: ◦Definition: equity in a subsidiary not attributable directly or indirectly to a parent. ◦Examples: NCI= 100%-100%=0NCI= 100%-90%=10% ParentSubsidiaryParentSubsidiary 100 %90 %

Measurement of non-controlling interests: ◦1.Method: its proportionate share of the fair value of the subsidiary’s net assets ◦2. Method: full (fair value) (based on market value of shares held by NCI)

4. Goodwill: ◦Definition: Asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. ◦ ◦Example:  Parent pays : CU  Subsidiary’s net assets: CU  Goodwill= = CU

DİSCLOSURE For each business combination, this information should be disclosed: 1. Names and descriptions of the combining entities 2. The acquisition date 3. The percentage of voting equity instruments acquired 4. The cost of the combination and a description of the components of that cost 5. Amounts recognized at the acquisition date for each class of the acquiree’s assets, liabilities, and contingent liabilities and the carrying amounts of each of those classes immediately before the acquisition unless that is impracticable 6. The amount of any negative goodwill that has been shown in the income statement 7. The factors that contributed to the recognition of goodwill 8. The amount of the acquiree’s profit or loss since acquisition that has been included in the acquirer’s profit or loss for the period, unless this is, again, impracticable 9. The revenue of the combined entity for the period, as if the combination had occurred at the beginning of that period 10. The profit or loss of the combined entity for the period as if the combination had been effected at the beginning of the period

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