The Acquisition Method
Every business combination in scope of IFRS 3 is accounted for using 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 bargain purchase gain).
Identifying the Acquirer
This sounds obvious but isn't always — in a merger of equals or a reverse acquisition, determining which entity is the accounting acquirer changes which entity's assets get revalued to fair value and which retains historical carrying values. Factors include relative voting rights, the composition of governing bodies, and which entity's management dominates the combined business.
Purchase Price Allocation
The purchase price must be allocated across identifiable tangible and intangible assets at fair value, including intangibles that were never recognised on the target's own balance sheet — customer relationships, brand names, technology, and order backlogs are common examples that emerge in a PPA that weren't previously capitalised.
This is typically where the most technical work — and the most auditor scrutiny — concentrates, since intangible asset valuations directly determine both the goodwill residual and the future amortisation charge.
Goodwill and Bargain Purchases
Goodwill is the residual: consideration transferred, plus any non-controlling interest, plus the fair value of any previously held equity interest, less the net identifiable assets acquired. If that calculation is negative, it's a bargain purchase — rare, and worth double-checking the fair values before recognising a gain.
The Measurement Period
IFRS 3 allows a measurement period of up to 12 months from the acquisition date to finalise provisional fair values as new information about facts and circumstances that existed at the acquisition date comes to light. This is a narrower window than many finance teams assume, and it closes on facts that existed at acquisition — not on post-acquisition developments.