What is a business combination 67 2 Accounting for business combinations 68 3

What is a business combination 67 2 accounting for

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1. What is a business combination?67 2. Accounting for business combinations 68 3. Practical considerations 73 4. Subsequent accounting for assets and liabilities acquired in a business combination 74 4.1 In - process research and development (IPR&D) 74 4.2 Goodwill 75 4 .3 Contingent liabilities 76 5. Disclosure 76
Identifying and valuing intangibles under IFRS 3 6 © 2008 Grant Thornton International Ltd. All rights reserved. A. Detecting intangible assets Recognition and fair value measurement of all of the acquiree s identifiable as sets and liabilities at the acquisition date are amongst the key elements of the acquisition method required by IFRS 3 Business Combinations (January 2008) (IFRS 3). The method implies that all assets and liabilities are known to the acquirer. In practic e however, detecting or ' finding ' identifiable intangible assets in particular may be a complex matter which requires intensive research into the acquired business. How does the acquirer determine which intangible assets need to be recognised separately from goodwill? This Section provides insights into how to go about this. The general requirements for identifiability and the definition of an intangible asset are explained. The Section also discusses how identifiable intangible assets are detected in practice, complemented by a list of intangible assets that should be considered in business combinations. 1. General requirements Economically, many intangible ' resources ' , ' value drivers ' or ' advantages ' are essential parts of a business. However, in acc ounting for business combinations these have to be analysed from two different perspectives in order to determine what should be recognised separately from goodwill: t he resource must meet the definition of an intangible asset and it must be ' identifiable '. 1.1 Definition of an intangible asset The acquirer must first assess which resources meet the definition of an asset in accordance with the Framework for the Preparation and Presentation of Financial Statements (the Framework) at the acquisition date. T he Framework defines an asset as follows: ' An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity ' (Framework, paragraph 49 (a)). In addition, an intangible asse t other than goodwill is defined as "[ a] n identifiable non - monetary asset without physical substance " (IFRS 3.A). The first step to detect intangible assets in a business combination is to find future economic benefits that are controlled by the entity at the date of acquisition as a result of the business combination. Potential intangible assets could take the form of additional income (or cost savings) and should therefore be capable of directly or indirectly increasing future cash flows.
Identifying and valuing intangibles under IFRS 3 7 © 2008 Grant Thornton International Ltd. All rights reserved.

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