Business Combinations and Consolidation
IFRS 3 requires the acquisition method: identify the acquirer, determine the acquisition date, recognise and measure identifiable assets acquired and liabilities assumed at fair value, and recognise goodwill or a gain from a bargain purchase. Goodwill is the excess of consideration transferred plus non-controlling interest plus previously held equity interest over the net fair value of identifiable assets and liabilities. Non-controlling interest may be measured at fair value (full goodwill) or at the proportionate share of net assets (partial goodwill). Candidates must also know IFRS 10 control (power over relevant activities, exposure to variable returns, and ability to use power to affect returns) and the consolidation procedures: elimination of intragroup balances, transactions and unrealised profits, and uniform accounting policies.
Traps
Frequent traps include contingent consideration (fair value at acquisition date, remeasured through P&L if classified as a liability), acquisition-related costs (expensed), and step acquisitions (remeasure previously held interest at fair value through P&L). Watch for intragroup profit elimination (only the group's share for upstream/downstream sales with NCI), the treatment of dividends and post-acquisition profits, and the difference between a business combination and an asset acquisition. Also know IFRS 11 joint arrangements (joint operations versus joint ventures) and the equity method under IAS 28.
Worked example / rule of thumb
Parent acquires 80% of Sub for $800,000; Sub's net identifiable assets are $900,000. NCI at proportionate share = $180,000. Goodwill = $800,000 + $180,000 − $900,000 = $80,000. Rule of thumb: goodwill is always the residual after recognising all identifiable net assets at fair value; a negative residual is a bargain purchase gain recognised in P&L after reassessment.