Acquisition Method
Definition
The required accounting method for business combinations under IFRS 3 and ASC 805, which involves identifying the acquirer, determining the acquisition date, recognising and measuring the identifiable assets acquired and liabilities assumed at fair value, and recognising goodwill or a gain from a bargain purchase. The acquisition method replaced the previously permitted pooling of interests method and ensures that all identifiable intangible assets are separately recognised at fair value on the acquirer's balance sheet.
Complementary Terms
Concepts that frequently appear alongside Acquisition Method in practice.
A business combination achieved in stages, where the acquirer held a previously existing equity interest in the acquiree before obtaining control. Under IFRS 3 and ASC 805, the acquirer must remeasure its previously held equity interest at fair value at the acquisition date and recognise any resulting gain or loss in profit or loss.
An approach to measuring goodwill in a business combination where goodwill is recognised for both the acquirer's share and the non-controlling interest's share, resulting in a higher total goodwill figure. Under ASC 805, the full goodwill method is mandatory for all business combinations.
An approach to measuring goodwill in a business combination where the acquirer recognises goodwill only in proportion to its ownership interest, rather than attributing goodwill to the non-controlling interest. Under IFRS 3, acquirers have a choice on a transaction-by-transaction basis to measure non-controlling interests either at fair value (full goodwill) or at the NCI's proportionate share of identifiable net assets (partial goodwill).
An income approach valuation technique used to value a primary intangible asset by isolating the cash flows attributable to that asset after deducting fair returns on all other contributory assets (tangible and intangible) required to generate those cash flows. MPEEM is the most commonly used method for valuing customer relationships in purchase price allocations under IFRS 3 and ASC 805.
A valuation approach that estimates the value of a business by adjusting the book values of all assets and liabilities to their fair values, including the recognition of off-balance-sheet intangible assets that meet IFRS 3 or ASC 805 recognition criteria. The adjusted net asset method is primarily used for asset-holding companies, investment vehicles, and businesses where value resides primarily in the asset base rather than earnings capacity.
The process of allocating the total consideration paid in a business combination to the identifiable tangible and intangible assets acquired and liabilities assumed, with any residual assigned to goodwill. PPA is required under IFRS 3 and ASC 805 and is the primary mechanism through which acquired intangible assets are recognised on the balance sheet.
The excess of the fair value of identifiable net assets acquired over the purchase consideration in a business combination, now termed a bargain purchase gain under current standards. Under IFRS 3, negative goodwill is recognised immediately in profit or loss after the acquirer reassesses the identification and measurement of all assets and liabilities.
A business combination in which the fair value of the identifiable net assets acquired exceeds the consideration transferred, resulting in a gain rather than goodwill. Under IFRS 3 and ASC 805, the acquirer must reassess whether all assets and liabilities have been correctly identified and measured before recognising a bargain purchase gain in profit or loss.
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