IAS 22 Business Combinations

The International Accounting Standard 22, Business Combinations, became effective for annual financial statements for periods beginning on or after 1 January 1995.

In October 1996, certain paragraphs were revised to be consistent with IAS 22 were revised to be consistent with IAS 36: Impairment of Assets, IAS 22 (revised 1998)) became operative for annual financial statements covering periods beginning on or after 1 July 1999.

In 1999, various paragraphs were amended to be consistent with SIC Interpretations relate to IAS 36, Impairment of Assets and

• • • disclose the reasons why the presumption that the useful life of goodwill will not exceed 20 years from initial recognition is rebutted and also the factor(s) that played a significant role in determining the useful life of goodwill.
  • The Standard does not permit an enterprise to assign an infinite useful life to goodwill.
  • If goodwill is written down for impairment, the writedown is not reversed.
• The benchmark treatment is not to apply fair valuation to the minority's proportion of net assets the allowed alternative is to fair value the whole of the net assets.
• Fair values are calculated by reference to intended use by the acquirer.
• a provision for restructuring costs may only be recognised at the date of acquisition where the restructuring is an integral part of the acquirer's plan for the acquisition and, among other things, the main features of the restructuring plan were announced at, or before, the date of acquisition so that those affected have a valid expectation that the acquirer will implement the plan. Recognition criteria for such a provision are based on those in IAS 37, Provisions, Contingent Liabilities and Contingent Assets, except that IAS 22 requires a detailed formal plan to be in place no later than three months after the date of acquisition or the date when the annual financial statements are approved if sooner (IAS 37 requires the detailed formal plan to be in place at the balance sheet date). This difference from IAS 37 acknowledges that an acquirer may not have enough information to develop a detailed formal plan by the date of acquisition. It does not undermine the principle that no restructuring provision should be recognised if there is no obligation immediately following the acquisition. IAS 22 also places strict limits on the costs to be included in a restructuring provision. For example, such provisions are limited to costs of restructuring the operations of the acquiree, not those of the acquirer.
• negative goodwill should always be measured and initially recognised as the full difference between the acquirer's interest in the fair values of the identifiable assets and liabilities acquired less the cost of acquisition.