IFRS 3 establishes principles and requirements for how the acquirer: Recognizes and measures the identifiable assets acquired, the liabilities assumed and any non-controlling interest in 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” provides a screening test (“screen”) which assists entities with evaluating when the transfer of an integrated set of assets and activities (“set”) constitutes a business or asset acquisition. In most jurisdictions, an asset acquisition typically also involves an assumption of certain liabilities. A transaction is either accounted for as a business acquisition under IFRS 3, Business Combinations, or, if it is not a business combination, in accordance with the appropriate standard for an asset purchase (for example: IAS 16 Property, Plant and Equipment; IAS 38 Intangible Assets; or IAS 40 Investment Property). Under the proposed amendments, many real estate transactions that were previously considered business combinations would likely be considered asset acquisitions. When buying or selling a business, the owners and investors have a choice: the transaction can be a purchase and sale of assets Asset Acquisition An asset acquisition is the purchase of a company by buying its assets instead of its stock. 4-2 Asset acquisition versus business combination – Scenario 2 Background. One of the key differences between accounting for a business combination and an asset acquisition relates to the treatment of transaction-related costs. Company A purchases a legal entity from Company B that contains the rights to a Phase 3 (in the clinical research phase) compound being developed to treat diabetes, or the in-process … The FASB’s research will focus on the following three areas of the accounting guidance that differ significantly for assets vs. business combinations: Transaction costs (which are expensed in a business combination and capitalized in an asset acquisition), considered business combinations. Accounting for asset acquisitions follows a cost accumulation model, rather than the fair value model that applies to business combinations. The accounting frameworks for business combinations, pushdown accounting, common-control transactions, and asset acquisitions have been in place for many years. asset acquisition under Subtopic 805-50, Business Combinations — Related Issues. ASC 805-50 provides only limited guidance, so entities need to consider other sources, such as: Asset Purchase vs Stock Purchase. Accounting Standards Update (ASU) No. In February, the FASB completed its second stage of the business vs. asset acquisition project: ASU 2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. Various differences exist between the accounting for business combinations and asset IFRS IN PRACTICE fi DISTINGUISHING BETWEEN A BUSINESS COMBINATION AND AN ASSET PURCHASE IN THE ETRACTIVES INDUSTRY 7 Acquisition of a business Acquisition of an asset Measurement period The acquisition of a business may be accounted for based on provisional amounts if the accounting is incomplete by the end of the reporting period. In the accounting for a business combination, an acquirer must: 1) Expense transaction costs, 2) Recognize deferred taxes, 3) Recognize and value IPR&D assets, contingent consideration and goodwill (or gain from bargain purchase), 4) Generally, obtain independent appraisals of tangible and intangible assets as of the acquisition As entities adopt the new definition of a business, we expect more transactions to qualify as asset acquisitions. OBSERVATION: Understanding the definition of a business is critical to ensure that an entity properly identifies transactions as either business combinations or asset acquisitions. business combinations vs. asset acquisitions can have a significant impact on the entity’s financial reporting. The new definition of a business in ASC 805 has resulted in more transactions being accounted for as asset acquisitions rather than business combinations. However, views on the application of the frameworks continue to evolve, and entities may need to use significant judgment in applying them to current transactions.

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