Accounting for Business Combination HO No.3.pdf - THE IFRS...

THE IFRS FOR SMALL AND MEDIUM-SIZED ENTITIES (SME)
In the SEC Commission En Banc meeting dated December 3, 2009, it decided to
adopt the Philippine Financial Reporting Standards for Small and Medium-sized
Entities ( PFRS for SMEs ). The PFRS for SMEs were adopted by the Philippine
Financial Reporting Standards Council (FRSC) from the IFRS for SMEs issued by
International Accounting Standards Board (IASB).
Who are qualified to apply PFRS for SMEs?
When is the effectivity date?
Section 19 of IFRS for SMEs – Business Combination and Goodwill
Scope
This section is applicable to all business combinations, as defined in the standard.
Furthermore, the section also addresses accounting for goodwill at the time of the
business combination and subsequently. This section specifically excludes
combinations of entities or businesses under common control, the formation of joint
ventures and the acquisition of a group of assets that does not constitute a business.

Definition
A business combination is the bringing together of separate entities or businesses
into one reporting entity. A business is an integrated set of activities and assets
conducted and managed for the purpose of providing a return to investors or lower
costs or other economic benefits directly and proportionately to policyholders or
participants. Furthermore, a business generally consists of inputs, processes applied
to those inputs and resulting outputs that are or will be used to generate revenues.
If goodwill is present in a transferred set of activities or assets, the transferred set is
presumed to be a business.
Method of Accounting
All business combinations are accounted for using the “ purchase method ”. This
method involves identifying the acquirer, measuring the cost of the combination and
allocating that cost to the assets acquired and liabilities and provisions for contingent
liabilities assumed.