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IFRS 3 is important for investors and analysts who rely on financial statements to evaluate companies. It provides guidance on how to account for and report the effects of business combinations, which can have a significant impact on a company's financial performance and position.

IFRS 3 refers to 'consideration transferred' rather than 'purchase price' or 'cost of investment'. The key distinction is that consideration transferred comprises only what is transferred to the former owners of the acquiree in exchange for the acquiree.

IAS 28 does not exempt transactions that between entities under common control. Furthermore, the IFRS 3 exemption is clearly for business combinations involving entities under common control – the acquisition of an associate is not a business combination.

The core principles in IFRS 3 are that an acquirer measures the cost of the acquisition at the fair value of the consideration paid; allocates that cost to the acquired identifiable assets and liabilities on the basis of their fair values; allocates the rest of the cost to goodwill; and recognises any excess of ...

IFRS 3 establishes the following principles in relation to the recognition and measurement of items arising in a business combination: Recognition principle. Identifiable assets acquired, liabilities assumed, and non-controlling interests in the acquiree, are recognised separately from goodwill [IFRS 3.10]

Overview of IFRS 3 IFRS 3 clarifies how to identify business combination. It prescribes the acquisition method in accounting for business combination. Applying the acquisition method comprises 4 steps: Identifying the acquirer. Determining the acquisition date.

IFRS 3 requires the acquirer to recognise any contingent consideration as part of the consideration for the acquiree. It must be recognised at its fair value which is 'the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction'.

International Financial Reporting Standards (IFRS) are a set of accounting rules for the financial statements of public companies that are intended to make them consistent, transparent, and easily comparable around the world. The IFRS is issued by the International Accounting Standards Board (IASB).