- 4 Marks
Question
b) All business combinations are accounted for by the acquisition method, which involves identifying the acquirer. However, it might not be easy to identify the acquirer.
Required:
Explain TWO (2) reasons why it might be difficult to identify the acquirer.
(4 marks)
Answer
- Business combinations by contract without legal ownership:
In some business combinations, businesses are brought together by contract alone, meaning that neither entity has legal ownership of the other. This can create difficulty in identifying which entity is the acquirer since the determination is based on control rather than legal ownership. - Complexity of mergers and acquisitions involving a new parent entity or legal mergers:
In cases where a new parent entity is created to facilitate a merger, or when entities merge through legal amalgamation, it becomes challenging to identify the acquirer. This is because there is no clear transfer of ownership, and the identification of the acquirer must be based on which entity ultimately controls the combined business.
- Tags: Acquirer Identification, Acquisition Method, IFRS 3
- Level: Level 3
- Topic: Business combinations and consolidation
- Series: APR 2022
- Uploader: Dotse