Overview:

• This proposed Statement is being issued as part of a joint effort by (IASB) and (FASB).

• would replace FASB Statement No. 141, Business Combinations.

• The objective is that all business combinations be accounted for by applying the acquisition method.

• A business combination: is a transaction or other event in which an acquirer obtains control of one or more businesses (the acquiree)

Acquisition method:

The acquirer measures and recognizes the acquiree, as a whole, and the assets acquired and liabilities assumed at their fair values as of the acquisition date.

The acquisition method has four steps:

• Identifying the acquirer

• Determining the acquisition date

• Measuring the fair value of the acquiree

• Measuring and recognizing the assets acquired and the liabilities assumed.

Significant Changes to Statement 141:

• Scope

• Definition of a Business Combination

• Measuring the Fair Value of the Acquiree

• Measuring and Recognizing the Assets Acquired and the Liabilities Assumed

• The requirements of this proposed Statement would be applicable to business combinations involving only mutual entities, business combinations achieved by contract alone, and the initial consolidation of variable interest entities that are businesses.

2. The ED would amend the definition of a business combination provided in Statement 141.

It defines a business combination as “a transaction or other event in which an acquirer obtains control of one or more businesses.”

3. ED business combinations to be measured and recognized as of the acquisition date at the fair value of the acquiree, even if the business combination is achieved in stages or if less than 100 percent of the equity interests in the acquiree are owned at the acquisition date.

• Statement 141 required that a business combination be measured and recognized on the basis of the accumulated cost of the combination.

• ED the costs the acquirer incurs in connection with the business combination to be accounted for separately from the business combination accounting.

• Statement 141 required direct costs of the business combination to be included in the cost of the acquiree.

• ED the acquirer in a business combination in which the acquisition-date fair value of the acquirer’s interest in the acquiree exceeds the fair value of the consideration transferred for that interest (a bargain purchase) to account for that excess by first reducing the goodwill related to that business combination to zero, and then by recognizing any excess in income.

• Statement 141 requires that excess to be allocated as a pro rata reduction of the amounts that would have been assigned to particular assets acquired.

4. ED the assets acquired and liabilities assumed to be measured and recognized at their fair values as of the acquisition date, with limited exceptions.

• Statement 141 required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values.

• ED the acquirer in business combinations in which the acquirer holds less than 100 percent of the equity interests in the acquiree at the acquisition date, to recognize the identifiable assets and liabilities at the full amount of their fair values, with limited exceptions, and goodwill as the difference between the fair value of the acquiree, as a whole, and the fair value of the identifiable assets acquired and liabilities assumed.

• Statement 141 did not provide guidance for measuring the noncontrolling interests’ share of the consolidated subsidiary’s assets and liabilities at the acquisition date

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