First Published: IFRS Boutique
Date: February 2018
By: Chris Ragkavas, BA, MA, FCCA, CGMA
StudySmart management consultant, senior finance & accounting tutor, IFRS technical expert
This is the fourth Part of the series of articles related to takeovers. You are kindly advised to read the previous Parts, before going through this Part.
Sometimes business combinations occur for strategic purposes, e.g. for the achievement of economies of scale, in order to diversify operations, customer portfolio, supplier base, to name but a few. However sometimes takeovers may occur simply to avoid a target entity being purchased by a competitor. One might assume that in the latter case, valuations on the date of the acquisition might not be fully correct. The investor may have decided to proceed with the takeover before obtaining 100% insight into the target entity, and have used provisional values for the NAV acquired, instead.
IFRS 3 allows acquirers a period of 12 months post acquisition (the measurement period) to finalize the values of assets acquired and liabilities assumed, i.e. of the NAV acquired. During these 12 months, the acquirer may adjust the provisional values of the NAV acquired and finalize goodwill. Naturally, the acquirer is only allowed and not obliged to wait until the end of the measurement period to do so. So if the values originally attached to the NAV acquired are deemed to be final much earlier than 12 months post acquisition, the measurement period ends then, and goodwill is also deemed to be finalized.
IFRS 3, Business combinations – A survival guide to the essentials of takeovers, Part I – READ MORE
IFRS 3, Business combinations – A survival guide to the essentials of takeovers, Part II – READ MORE
IFRS 3, Business combinations – A survival guide to the essentials of takeovers, Part III – READ MORE
IFRS 3, Business combinations – A survival guide to the essentials of takeovers, Part V – READ MORE