What users think of IFRS 3

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. IFRS 3 defines a business as - an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants. Which of the following statements would not be used to help determine whether the acquisition is a business combination?

  2. Goodwill arising on acquisition is not amortised but impairment tested under IFRS. Many investors support the impairment approach. Which of the following is an argument against the impairment approach?

  3. There are many investors who do not support the measurement of non-controlling interest(NCI) in IFRS 3. How is NCI measured under IFRS 3?

  4. It can be argued that a separate accounting treatment for business combinations and asset acquisitions is conceptually justified only with respect to whether or not goodwill is recognised. Which of the following is not a key difference in the accounting treatment of an asset acquisition and a business combination?

  5. It is inevitable that managerial discretion will be used in recognising impairment of goodwill as it involves significant judgement. There is an opinion that the impairment test is complex, time-consuming and expensive. Which of the following is not a valid criticism of the impairment approach according to the findings of the IASB?

  6. IFRS 3 requires all assets acquired and liabilities assumed in a business combination to be measured at acquisition-date fair value. Fair values do allow users to understand the transaction better. Why does fair valuation of net assets on acquisition create a problem?

  7. IFRS 3 requires the separate identification and measurement of intangible assets and goodwill, irrespective of whether the entity had recognised the asset prior to the business combination occurring. However due to the lack of sufficiently reliable data and the unique nature of many intangibles, intangible assets are particularly difficult to measure. Which of the following intangibles are not quoted as being difficult to measure by the participants in the review of IFRS 3?

  8. The IASB found that most participants believed that there were benefits of having separate accounting treatments for business combinations and asset acquisitions. Why did many users believe that it was sometimes difficult to assess whether an asset acquisition was related to a business?

  9. Contingent consideration must be measured at fair value at the time of the business combination and is taken into account in the determination of goodwill. How are changes in the value of contingent consideration that is classified as an asset or liability dealt with in the financial statements?

  10. There are varying views on the separate recognition of intangible assets from goodwill because of the subjectivity involved. Which of the following statements does not represent the views of participants in the review of IFRS 3?