Section 17: Entity Combinations (AASB1061_04-26)

This section provides the requirements for the recording, initial measurement and disclosure of combinations of the entity (the ‘acquirer’) with other entities or operating units (the ‘acquiree’) for which either: 

(a) consolidated financial statements are prepared for the post-combination consolidated entity in accordance with paragraphs 8.18–8.28; or 

(b) only one entity exists after the combination and, consequently, the only items (assets, liabilities and items of equity) transferred to the acquirer are its direct interests and direct obligations. 

An entity combination combines separate entities or operating units into a larger reporting entity.

This section does not apply to combinations between an acquirer and another entity when, in accordance with paragraph 8.3, the entity has elected to collectively classify its subsidiaries, investments in associates and interests in joint arrangements involving a separate vehicle as investments in notable relationship entities. Those requirements do not require the presentation of consolidated financial statements.

An entity shall determine whether a transaction or another event is an entity combination by applying paragraphs 17.1 and 17.4, which require that the assets received and liabilities assumed constitute an entity or another operating unit. If an entity receives assets and the transaction or other event does not involve an entity combination, the entity shall account for the transaction or other event as an acquisition of one or more assets and, where applicable, the assumption of one or more liabilities.

An operating unit is an integrated set of activities and related assets capable of being conducted and managed for the purpose of achieving an entity’s objectives, by producing goods or services and/or generating income. It consists of assets capable of producing goods or services or generating income and operating processes applied to those assets to pursue that objective.

Subject to paragraphs 17.6–17.8, on the date an entity (the acquirer) gains control of another entity or operating unit (the acquiree), the carrying amounts of the assets, liabilities and items of equity of the acquiree on that date become the carrying amounts of those assets, liabilities and items of equity in the larger reporting entity. Where the date of gaining control is not observable, the entity shall use an estimated date. The estimated date selected shall not be one that causes the financial position of the entity to vary significantly when considered against the range of other possible dates.

In applying paragraph 17.5, if a major asset or liability of the acquiree subject to the combination had not been recorded in accordance with Australian Accounting Standards, it shall initially be measured at its fair value as at the combination date. 

The requirement in paragraph 17.6 does not apply to: 

(a) non-financial assets that the acquiree had obtained in exchange for nil consideration; 

(b) non-financial assets that the acquiree had obtained in exchange for nominal consideration, or another significantly discounted amount, and that are measured at cost or using a cost model before the combination date. On the combination date, the acquirer shall determine the carrying amounts of these assets as though this Standard had always been applied; and 

(c) internally generated intangible assets of the acquiree.

If the combining entities applied different accounting policies to record or measure assets or liabilities in their financial statements immediately before the entity combination, the balances of the acquiree’s assets or liabilities shall be adjusted as at the date of the combination to achieve uniformity of accounting policies across the combining entities.

Any difference between the carrying amount of the consideration paid by the acquirer in an entity combination and the carrying amount of the net assets acquired in the combination is recorded directly in equity. An entity combination does not give rise to the recording of goodwill or a gain on a bargain purchase.

Transaction costs incurred as a result of the entity combination shall be recorded as an expense when incurred.

After the initial recording of an entity combination, the entity shall measure and account for the combined assets, liabilities and items of equity in accordance with the sections of this Standard applicable to those items consistently with the reporting entity’s accounting policies.

An entity shall disclose for each entity combination occurring during the reporting period: 

(a) the names of the combining entities or operating units and a description of their operations; and 

(b) the total amounts recorded on the combination date for each class of the acquired assets and assumed liabilities. 

When required by paragraph 7.7, an entity shall also disclose the key judgements that management has made about the date the entity gained control of another entity or operating unit.

If an entity is a party to a major entity combination after the end of the reporting period but before the financial statements are authorised for issue by the entity’s management, it shall disclose: 

(a) the names of the acquired entities and a description of their operations; and 

(b) the combination date.