Hi everyone,
I have a question that I'd like to validate with you.
When a company acquire the shares of another company, it's a business combination right? So why the standard, IAS27 for example, talks about transfer of shares and transfer of business separately? Isn't one entity that transfer 100% shares of another entity to the transferee a transfer of business?
I don't get the nuance thanks.
Business combination
Re: Business combination
A transfer of shares isn't necessarily a business combination, and a business combination doesn't require a transfer of shares.
You can buy 100% of a company's shares but it's an asset acquisition, or you can acquire trade and assets (but not shares) and it can be a business combination.
You can buy 100% of a company's shares but it's an asset acquisition, or you can acquire trade and assets (but not shares) and it can be a business combination.
Re: Business combination
I understand the latter, thanks JRSB. But I don't get why buying 100% of a company's shares it's an asset acquisition and not a business combination.
Re: Business combination
It might well be a business combination but not strictly, that's because the company you buy the shares in might just have one laptop on the balance sheet, no employees, no cash, no operation etc. it needs to constitute a business to be a business combination and a business is a set of operations/input/outputs . :
An integrated set of activities and assets that is capable
of being conducted and managed for the purpose of
providing goods or services to customers, generating
investment income (such as dividends or interest) or
generating other income from ordinary activities.
There's a concentration test so if all the value is in one main asset then that can indicate its really an asset and not a business. loads of guidance out there.
more on https://ifrscommunity.com/knowledge-bas ... of-ifrs-3/
An integrated set of activities and assets that is capable
of being conducted and managed for the purpose of
providing goods or services to customers, generating
investment income (such as dividends or interest) or
generating other income from ordinary activities.
There's a concentration test so if all the value is in one main asset then that can indicate its really an asset and not a business. loads of guidance out there.
more on https://ifrscommunity.com/knowledge-bas ... of-ifrs-3/
Re: Business combination
Thanks. When a company acquires another company, from ias27s perspective, if the other company constitutes a business, can the company consider that it's a business combination? Or combines combination only arises in consolidation?
Re: Business combination
Yes don't believe it has any impact on separate financial statements, that just shows interests in shares regardless of what it constitutes.
which para of ias27 are you looking at?
business combination can also occur in separate financial statements if you buy trade and assets which are a business.
which para of ias27 are you looking at?
business combination can also occur in separate financial statements if you buy trade and assets which are a business.
Re: Business combination
I would say that a transaction either is a business combination, or it isn't. IAS 27 just doesn't use this term because it doesn't deal with accounting for business combinations.