HKFRS 3 (Revised) Business Combinations

1 Business Combinations Hong Kong Financial Reporting Standard 3 (Revised) HKFRS 3 (Revised) Revised September 2018 November 2016 Effective for annual periods beginning on or after 1 July 2009 Business Combinations Copyright 1A HKFRS 3 COPYRIGHT Copyright 2018 Hong Kong Institute of Certified Public Accountants This Hong Kong Financial Reporting Standard contains ifrs Foundation copyright material. Reproduction within Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source.

2 Requests and inquiries concerning reproduction and rights for commercial purposes within Hong Kong should be addressed to the Director, Finance and Operation, Hong Kong Institute of Certified Public Accountants, 37/F., Wu Chung House, 213 Queen's Road East, Wanchai, Hong Kong. All rights in this material outside of Hong Kong are reserved by ifrs Foundation. Reproduction of Hong Kong Financial Reporting Standards outside of Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use only.

3 Further information and requests for authorisation to reproduce for commercial purposes outside Hong Kong should be addressed to the ifrs Foundation at Further details of the copyright notice form ifrs Foundation is available at Business Combinations Copyright 2 HKFRS 3 (July 2014) CONTENTS from paragraph INTRODUCTION IN1 HONG KONG FINANCIAL REPORTING STANDARD 3 Business Combinations OBJECTIVE 1 SCOPE 2 IDENTIFYING A Business combination 3 THE ACQUISITION METHOD 4 Identifying the acquirer 6 Determining the acquisition date 8 Recognising and measuring the identifiable assets acquired.

4 The liabilities assumed and any non-controlling interest in the acquiree 10 Recognition principle 10 Recognition conditions 11 Classifying or designating identifiable assets acquired and liabilities assumed in a Business combination 15 Measurement principle 18 Exceptions to the recognition or measurement principles 21 Exception to the recognition principle 22 Exceptions to both the recognition and measurement principles 24 Exceptions to the measurement principle 29 Recognising and measuring goodwill or a gain from a bargain purchase 32 Bargain purchases 34 Consideration transferred 37 Contingent consideration 39 Additional guidance for applying the acquisition method to particular types of Business Combinations 41 A Business combination achieved in stages 41 A Business combination achieved without the transfer of consideration 43 Measurement period 45 Determining what is part of the Business combination transaction 51 Acquisition-related costs 53 Business Combinations Copyright 3 HKFRS 3 (July 2014 November 2016)

5 SUBSEQUENT MEASUREMENT AND ACCOUNTING 54 Reacquired rights 55 Contingent liabilities 56 Indemnification assets 57 Contingent consideration 58 DISCLOSURES 59 EFFECTIVE DATE AND TRANSITION 64 Effective date 64 Transition 65 Income taxes 67 REFERENCE TO HKFRS 9 67A WITHDRAWAL OF HKFRS 3 (issued 2004) 68 APPENDICES A Defined terms B Application guidance C Amendments to other HKFRSs D Comparison with International Accounting Standards BASIS FOR CONCLUSIONS ILLUSTRATIVE EXAMPLES Business Combinations Copyright 4 HKFRS 3 (February 2012) Hong Kong Financial Reporting Standard 3 Business Combinations ( HKFRS 3) is set out in paragraphs 1 68 and Appendices A C.

6 All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the HKFRS . HKFRS 3 should be read in the context of its objective and the Basis for Conclusions, the Preface to Hong Kong Financial Reporting Standards and the Conceptual Framework for the Preparation and Presentation of Financial ReportingStatements. HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

7 This revised Standard was issued in March 2008. It supersedes HKFRS 3 issued in 2004, as amended in 2005 and 2007. Business Combinations Copyright 5 HKFRS 3 (July 2014) Introduction Reasons for revising HKFRS 3 IN1 The objective of Hong Kong Institute of Certified Public Accountants (HKICPA) revising HKFRS 3 is to maintain international convergence arising from the revision of ifrs 3 Business Combinations ( ifrs 3) by the International Accounting Standards Board (IASB). The HKICPA supported the reasons for revising ifrs 3 of the IASB.

8 The revised ifrs 3 is part of a joint effort by the IASB and the US Financial Accounting Standards Board (FASB) to improve financial reporting while promoting the international convergence of accounting standards. The IASB and FASB decided to address the accounting for Business Combinations in two phases. The IASB and the FASB deliberated the first phase separately. The FASB concluded its first phase in June 2001 by issuing FASB Statement No. 141 Business Combinations . The IASB concluded its first phase in March 2004 by issuing the previous version of ifrs 3 Business Combinations .

9 The IASB s and FASB s primary conclusion in the first phase was that virtually all Business Combinations are acquisitions. Accordingly, the IASB and FASB decided to require the use of one method of accounting for Business Combinations the acquisition method. IN2 The second phase of the project addressed the guidance for applying the acquisition method. The IASB and FASB decided that a significant improvement could be made to financial reporting if they had similar standards for accounting for Business Combinations .

10 Thus, they decided to conduct the second phase of the project as a joint effort with the objective of reaching the same conclusions. The IASB and FASB concluded the second phase of the project by issuing ifrs 3 and FASB Statement No. 141 (revised 2007) Business Combinations and the related amendments to IAS 27 Consolidated and Separate Financial Statements and FASB Statement No. 160 Noncontrolling Interests in Consolidated Financial Statements.*1 IN3 The revised HKFRS 3 replaces HKFRS 3 (as issued in 2004) and comes into effect for Business Combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.