IFRS 3 Acquisition Review Skill

ifrs3-acquisition-review/
├── SKILL.md
├── references/
│   ├── document-intake.md
│   ├── tricky-clauses.md
│   ├── routing-and-business-test.md
│   ├── arrangements-and-consideration.md
│   ├── recognition-and-measurement.md
│   ├── asset-acquisition.md
│   ├── disclosures-and-day-two.md
│   └── output-template.md
└── scripts/
    └── ifrs3_calc.py

---
name: ifrs3-acquisition-review
description: "Review acquisitions under IFRS 3 from the deal documents (SPA or APA, funds flow, completion accounts, earn-out, service and share-plan terms, shareholder agreements, valuations). Routes the deal (business combination, asset acquisition, common control), fixes acquirer and date, finds the tricky clauses, unbundles earn-outs and side deals, then builds consideration, PPA, goodwill, entries and disclosures in a layered report: overview, plain-language explanation, working papers. Use for any acquisition, merger, carve-out, PPA, goodwill, earn-out, NCI, step or reverse acquisition, even 'we bought a company - what do we book?'"
---

# IFRS 3 — Acquisition review

Review an acquisition the way a senior IFRS technical specialist would: decide what the transaction is, strip out everything that is not part of the exchange, and only then measure. Most IFRS 3 errors are not measurement errors. They are routing errors (a business booked as an asset purchase, or the reverse), unbundling errors (an earn-out that is really pay, a price that quietly settles a pre-existing contract) and date errors (consolidating from the locked-box date). They usually hide in a handful of clauses — leaver definitions, settlement terms, side letters — so the workflow finds those clauses first and is ordered to catch these errors before any number is computed.

## What this produces

A source-referenced first analysis in three layers (`references/output-template.md`):

1. **Overview** — the bottom line in plain words, the key conclusions with their status, the key numbers (including what hits profit or loss now and later), and the open points that could change the answer, with who must supply them.
2. **Understanding** — the deal and its accounting in plain words: a timeline, a bridge from the headline price to goodwill, and a card for each tricky clause found, quoting it and saying what it does to the numbers.
3. **Working papers** — scope and coverage, the deal fact sheet, the routing gates, acquirer and date, the arrangements register, consideration and its reconciliation, the recognition and measurement register (including intangibles the acquiree never recognised), NCI and goodwill, journal entries, the measurement-period tracker and day-two plan, disclosures with draft wording, judgments and policy choices, information requests by recipient, and a self-check.

The user is a professional who will review and own the result. Write for that reader: direct conclusions, the reason in one line, the evidence referenced beside it. State the limits once, briefly, at the end (§18) — no disclaimers elsewhere.

## What this is not

Not a valuation: fair values come from the documents or the user; the review says what must be valued, on which basis and with which inputs. Not a legal or tax opinion: enforceability and local tax law are flagged, not resolved. Not assurance.

---

## Core rule: nothing invented

Work strictly from the documents and what the user states. If a term, date or amount is not there, write "not stated". An invented number is worse than a gap: it looks reliable, it will be booked, and it will be audited. Arithmetic on figures that were supplied is expected; estimating a figure that was not supplied is not.

Never supply from general knowledge:

- **Inputs:** fair values, discount or interest rates, useful lives, royalty or attrition rates, share prices, exchange rates, tax rates, tax bases, probabilities of earn-out outcomes, or the "substantially all" threshold.
- **Proxies for fair value:** do not use the price paid per share for the fair value of NCI or of a previously held interest (B45 explains why they may differ), book values for fair values, or rule-of-thumb splits of the purchase price between intangibles and goodwill. If the documents or the user adopt such a basis, use it and label it as theirs. Before a valuation exists, "consideration less book net assets" may be shown only under the label "excess over book net assets — not goodwill".
- **Terms:** never infer a clause from what deals of this kind "usually" contain, and never call a term "market standard". A clause that would matter but was not supplied is a question (§17), not a fact.
- **Quotes:** a quotation is verbatim from the document. A paraphrase is labelled as such; a translation is marked "[translation]". If a page could not be read, say so — never reconstruct its wording.
- **Local law and tax:** transfer taxes, loss-forfeiture rules, step-up elections, deductibility of goodwill, employment-transfer rules and enforceability come from the documents or the user's advisers. Otherwise they are questions, not statements.
- **Contractual allocations:** a purchase price allocation in the SPA or APA (often agreed for tax) is evidence, not fair value.
- **Reference-file examples:** the worked numbers in this skill's reference files are illustrations; never carry them into a review.
- **Sensitivities:** the user may ask "what if customer relationships were worth X?". Compute it, label it "illustrative — based on your assumption X", and keep it out of the entries and the key numbers.

Three standing limits are recorded in §5 (coverage and assumptions) and summarised once in §18: **completeness** — only arrangements evidenced by the documents can be analysed, and side letters or documents not supplied can change the answer; **enforceability** — clauses are read as written, and whether they are enforceable under their governing law is a legal question; **version** — the IFRS 3 version basis and the date the amendment position was verified.

## Citation discipline

Every conclusion carries a reference, which creates pressure to produce one whether or not it is known. A wrong reference is worse than none: it is the one thing a reader will not check, and it discredits everything around it.

- **IFRS 3 anchors — cite freely:** 2–2A scope; 3 and B5–B12D business; 6–7 and B13–B18 acquirer; 8–9 acquisition date; 10–14 recognition; 15–17 classification and designation; 18–20 measurement and NCI; 21–31A exceptions (21A–21C IAS 37 and IFRIC 21; 22–23A contingent liabilities and assets; 24–25 income taxes; 26 employee benefits; 27–28 indemnification assets; 28A–28B acquiree as lessee; 29 reacquired rights; 30 share-based payment; 31 held for sale; 31A insurance contracts); 32–36 goodwill and bargain purchase; 37–40 consideration; 41–42A business combinations achieved in stages; 43–44 no consideration transferred; 45–50 measurement period; 51–53 and B50–B62B what is part of the exchange; 54–58 and B63 subsequent accounting; 59–63 and B64–B67 disclosures; B1–B4 common control; B19–B27 reverse acquisitions; B31–B40 intangibles; B41–B45 particular measurements; B46–B49 no consideration and mutual entities; Appendix A definitions.
- **Illustrative Examples** accompany IFRS 3 but are not part of it: cite them as illustrations, never as requirements, and only at this level of detail: IE1–IE15 reverse acquisition; IE16–IE44 intangible assets by category (marketing IE18–IE22, customer IE23–IE31, artistic IE32–IE33, contract-based IE34–IE38, technology IE39–IE44); IE44A onwards, measurement of NCI; IE45–IE53 bargain purchase and measurement period; IE54–IE57 settlement of a pre-existing relationship; IE58–IE60 contingent payments to employees; IE61–IE71 replacement awards (Examples 1–4); IE72 disclosures; IE73–IE123 definition of a business (Examples A–I, Example A starting at IE74). Name an example by its letter or number rather than citing a narrower paragraph range.
- **Other Standards and agenda decisions:** the reference files cite cross-references that have been checked; anything they tag [ref: verify] has not been. For any proposition not covered by the anchor list or the reference files, state the requirement in words and tag the reference [ref: verify] — however familiar it feels.
- **Never cite a paragraph for a proposition it does not contain.** Where a position rests on practice, a policy choice or an agenda decision, say which.
- If a search tool is available and a reference decides a conclusion, verify it.

## Mode: match the output to the question

State the mode in the title line.

- **Express.** One narrow question ("is this a business?", "is this earn-out pay?") with little documentation. Answer in the first sentence, then the deciding requirement, the operative clause quoted, the pivot fact and the open points, in about 300 words, ending with one line of limits. Read only the reference file that covers the question. All other rules still apply. Escalate to Standard if the documents turn out richer than the question, and say why.
- **Standard.** The default for a document pack: the full three-part report in `references/output-template.md`.
- **File memo.** For the audit file, audit committee or auditor. Standard, plus memo front matter, issue-by-issue analysis, draft accounting policy wording and a preparer and reviewer block.

**Proportionality.** The structure is fixed; the length is not. A small trade-and-assets purchase or a single-property company produces a short report: one-line placeholders, collapsed "not stated" rows in the fact sheet, and no padding. Materiality decides depth, never whether a stage is run. For subsidiaries applying IFRS 19, the disclosure section follows its reduced requirements; individually immaterial combinations that are material together are disclosed in aggregate (B65).

## Inputs: ask only what changes the answer

Ask at most one round of no more than five questions, and only for facts that could change a conclusion in front of you. Otherwise proceed and record each assumption in §5, tagged with the conclusion it affects and the consequence if wrong.

| Fact | Why it matters |
|---|---|
| Reporting entity and which financial statements: consolidated, separate, own statements in a trade-and-assets deal or statutory merger, or the acquiree's own | IFRS 3 governs the acquirer's consolidated statements (or its own statements when it acquires assets and activities directly); separate statements follow IAS 27; IFRS has no pushdown accounting |
| Reporting date and expected authorisation date | Provisional amounts (45), combinations after the reporting date (B66), which period's disclosures apply |
| Framework and adoption status | IFRS as issued or as locally endorsed; IFRS 18 adoption changes line items and moves IAS 1 disclosure paragraphs into IAS 8; IFRS 19 for eligible subsidiaries |
| Existing entity policies: NCI measurement pattern, asset-acquisition allocation approach, options over NCI, common control method, variable payments in asset acquisitions | These are choices the Standards leave open; the review applies the entity's policy and never picks one silently |
| Valuation status: none, draft purchase price allocation, final | Whether amounts can be final or must be provisional |
| Materiality | Aggregation under B65; depth of the analysis and of the open-points list |
| Currencies: presentation currency and the functional currencies of acquirer and acquiree | Translation of consideration and of goodwill (IAS 21.21, 21.47) |
| The user's own proposed treatment or draft purchase price allocation | Recorded, set aside, compared only after the independent analysis |

**Other frameworks.** Under US GAAP, UK FRS 102 or the IFRS for SMEs, run Stages 0–3 unchanged (they are fact-finding), state that the conclusions are IFRS 3 conclusions, and flag that the frameworks differ in ways that matter here — for example, US GAAP requires fair value NCI, makes the screen for a set of assets mandatory, measures acquired contract liabilities under ASC 606 and permits pushdown accounting; FRS 102 amortises goodwill; the IFRS for SMEs (third edition, effective 2027) has moved closer to IFRS 3 but still amortises goodwill, measures NCI only at the proportionate share and allows undue-cost-or-effort reliefs. Do not carry an IFRS 3 answer across. A first-time adopter may be using the IFRS 1 Appendix C exemption for past business combinations: flag it rather than reopening those combinations.

**Read the complete text** of every document, including definitions, schedules and annexes. The economics of an acquisition live in the definitions ("Net Debt", "Leakage", "Earn-out Payment", "Good Leaver") and the schedules, not in the operative clauses. Review every page of scanned PDFs rather than sampling. If a document cannot be read, say so and ask for a readable version. Documents in other languages are read in the original: sweep for the local terms, quote the original and mark any translation.

---

## Standing rules

Each rule prevents a specific, repeatable failure. Follow them even when a shortcut looks safe.

1. **Substance over label.** "Merger", "asset purchase agreement", "share purchase" and "investment agreement" decide nothing. Buying the shares of a property company can be an asset acquisition; buying "trade and assets" can be a business combination.
2. **Route before measuring.** Record the control, scope and business gates (Stage 1) before any goodwill, deferred tax or consideration arithmetic. The two tracks differ on goodwill, deferred tax, transaction costs, contingent payments and contingent liabilities, so work done on the wrong track is wasted and misleading.
3. **Unbundle before measuring consideration.** The headline price is not the consideration transferred. Every payment in the funds flow and every agreement signed around the deal passes through the 51–52 test and lands in the arrangements register.
4. **The acquisition date is the control date.** Locked-box, effective, economic or accounting dates in the SPA are pricing mechanics and do not move the acquisition date (8–9). A written agreement brings the date forward only if it actually gives the acquirer control from that earlier date (9); control cannot be obtained retrospectively, so no date before that agreement can be the acquisition date.
5. **Quarantine the user's conclusion.** Record any treatment the user proposes, then set it aside until the analysis is complete. Reading it first turns review into confirmation.
6. **No invented figures.** Formulas carry placeholders where inputs are missing. Show arithmetic line by line, or run `scripts/ifrs3_calc.py` where code can be executed.
7. **Three numbers, reconciled.** The SPA price, the cash in the funds flow and the consideration transferred usually differ. Reconcile them explicitly: an unexplained difference means an arrangement has been missed.
8. **Everything ends somewhere.** Every candidate asset, liability and arrangement ends up recognised, subsumed into goodwill, treated as a separate transaction, or rejected — each with a reason and a reference. §18 reconciles the counts.
9. **Name policy choices; never make them silently.** Where IFRS leaves a choice or practice diverges, state the options and their effect and apply the entity's policy. If the entity has none, present the options and ask.
10. **Separate what the Standard decides from what management judges.** Automatic forfeiture under B55(a) decides. The B55(b)–(h) indicators are weighed. Keep the two visibly different.
11. **Provisional is a legitimate answer.** Where valuations or facts are outstanding, report provisional amounts with the information awaited and the measurement-period end date rather than forcing finality.
12. **Coverage stated honestly.** Name each document as fully read, partly read or not read. Partial coverage disclosed is useful; partial coverage concealed is worse than no analysis.
13. **Tricky clauses are found, not assumed.** Run the sweep and check every hit against `references/tricky-clauses.md`. Report only clauses the documents contain, quoted; ask about the ones that matter and are missing.
14. **The overview summarises; it never adds.** Every number and conclusion in Parts 1–2 appears identically in the working papers. Write the working papers first and the overview last.

**Evidence basis** on every extracted fact: **D** documented (with source and clause or page), **U** user-stated and not verified, **A** assumption made in this review (listed in §5). **Status** on every conclusion: **Concluded**; **Conditional**, with the condition put to the user as a question; or **Cannot conclude**, with the reason. Never "probably". Every conclusion also carries a **pivot fact**: the single fact that would change it. The pivot facts are what turn the review into a work programme.

---

## Stage 0 — Intake, deal fact sheet and clause sweep

1. **Inventory.** One line per document: title, date, parties, executed or draft, version, coverage. Flag anything referenced but missing — disclosure letter, schedules, side letters, service agreements, the earn-out schedule, the completion statement. A draft SPA evidences negotiating positions, not terms.
2. **Triage large packs** in the order set out in `references/document-intake.md`: the funds flow and completion statement first, then the SPA price and payment mechanics, then everything touching the sellers' future roles.
3. **Deal fact sheet.** Extract the fixed term list in `references/document-intake.md`, with a source for every line and verbatim quotes wherever wording decides an answer (leaver clauses, control-transfer clauses, settlement form of earn-outs).
4. **Keyword sweep and tricky-clause check.** Run the sweep list across the full text where the environment allows searching, then check each hit against `references/tricky-clauses.md`. Earn-out and leaver terms often sit in the definitions or a schedule, not in the price clause.

Read `references/document-intake.md` and `references/tricky-clauses.md` at this stage, always.

## Stage 1 — Route the transaction

Run the gates in order and record each one individually, even when the answer is obvious. A reviewer needs to see that every gate was run.

- **Gate 1 — Control (IFRS 10).** Does the reporting entity obtain control, and of what? Already in control → an equity transaction under IFRS 10.23, not IFRS 3. Joint control or significant influence → IFRS 11 or IAS 28, except that an acquired interest in a joint operation that is a business applies IFRS 3 principles (IFRS 11.21A). Control obtained without paying anything — a buyback, a lapsed veto, amended articles — is still in scope (43); changed facts trigger a reassessment of control (IFRS 10.8). Test potential voting rights and call options, which can give control before completion (IFRS 10.B47–B50).
- **Gate 2 — Scope exclusions.** Formation of a joint arrangement, in its own statements (2(a)); common control, meaning the same party or parties control before and after and that control is not transitory (2(c), B1–B4); investment entity subsidiaries measured at fair value through profit or loss (2A).
- **Gate 3 — Business or asset acquisition.** The optional concentration test (B7A–B7C), elected per transaction, can only conclude "not a business". Otherwise run the substantive-process assessment (B8–B12D), which applies different tests with and without outputs. Assess from a market participant's view, not the seller's history or the acquirer's plans (B11).

**Special structures** to check whenever shares are issued, a new entity appears or entities merge legally: reverse acquisitions (B19–B27), including listed shells and SPACs where the accounting acquiree is not a business; a Newco (B18); combinations by contract alone (43(c), 44); mutual entities (B47–B49); obtaining control of a joint operation (42A); statutory mergers, where the surviving legal entity is not necessarily the acquirer; carve-outs with delayed local closings.

**Outcomes.** Business combination → Stages 2–9. Asset acquisition → Stages 2–3 (the date control of the assets passes; side arrangements still need unbundling, because only the price of the assets is their cost), then `references/asset-acquisition.md` in place of Stages 4–7, then Stages 8–9 adapted. Common control → the entity's policy, with the options set out. Another Standard → a routing note naming it; complete §1–§8 and §16–§18, with placeholders elsewhere.

Read `references/routing-and-business-test.md` before Gate 3, every time.

## Stage 2 — Acquirer and acquisition date

**Acquirer.** Apply IFRS 10 first (7). If that does not clearly identify the acquirer, weigh B14–B18: who transfers cash or incurs liabilities; who issues equity; relative voting rights; large minority blocks; composition of the governing body and senior management; who pays a premium; relative size; and, where more than two entities combine, who initiated. Whenever the consideration includes shares, test for a reverse acquisition before going further.

**Acquisition date.** The date control is obtained (8), generally completion (9). Check conditions precedent, regulatory and antitrust approvals, and any written agreement that gives control earlier. Conduct-of-business covenants between signing and completion are protective and do not normally transfer control. List every other date in the documents (signing, locked-box, effective, economic, local closings) and say why each is or is not the acquisition date. Everything that follows is measured at the acquisition date.

## Stage 3 — Arrangements register: what is part of the exchange

List every payment in the funds flow and every agreement around the deal. For each, apply 51–52 and the B50 factors (reasons, who initiated, timing) and conclude: part of the exchange, separate transaction, or split. The recurring cases, with tests and worked arithmetic, are in `references/arrangements-and-consideration.md`; the less common clauses are in `references/tricky-clauses.md`.

- **Payments to sellers who stay on.** Test B55(a) first: a contingent payment automatically forfeited if employment ends is remuneration for post-combination services, and the other indicators cannot override that. The Interpretations Committee's January 2013 agenda decision reads B55(a) as conclusive unless the service condition is not substantive. Its April 2024 agenda decision (handover periods) observed that entities account for payments as compensation where the sellers keep them only on death, disability or termination with the entity's agreement — even though the sellers' other pay was comparable to other executives'. The request behind it proposed splitting such payments into a service component at market pay and a remainder treated as consideration; the Committee found no significant diversity in practice and added no project. Never split a forfeitable payment into "price" and "pay", whether by reference to market pay or to what sellers who leave receive. Weigh B55(b)–(h) only where there is no automatic forfeiture. Quote the leaver clause verbatim.
- **Pre-existing relationships** between acquirer and acquiree: effective settlement measured under B52; reacquired rights (B35–B36, 29, 55).
- **Replacement share-based payment awards** (B56–B62), unreplaced acquiree awards (B62A–B62B), and acquiree awards cashed out at completion.
- **Acquisition-related costs** (53): expensed, except debt and equity issue costs; costs reimbursed to the acquiree or sellers (52(c)).
- **Change-of-control, transaction and retention bonuses; severance; consultancy, non-compete, transitional services, lease, licence and supply agreements with sellers.**
- **Indemnities** given by the sellers (27–28), as distinct from general warranties and from warranty and indemnity insurance bought from a third party, which falls outside 27–28 because the seller does not give it.
- **Management rollover and sweet equity:** equity consideration versus IFRS 2 remuneration.

## Stage 4 — Consideration transferred

Schedule each component with its acquisition-date measurement, its classification (financial liability, equity or asset, under IAS 32 where it is a financial instrument), its subsequent accounting and its source: cash at completion; deferred consideration at fair value, normally the present value at a market rate reflecting the acquirer's own credit risk; contingent consideration at fair value (39–40, 58); acquirer equity at acquisition-date fair value, not the announcement price (37, with the alternative in 33) — for quoted shares, the quoted price times the number issued, with no blockage discount (IFRS 13.69, 80); non-cash assets remeasured with any gain or loss in profit or loss, unless the acquirer keeps control of them (38); completion-accounts and locked-box mechanics; escrows and holdbacks; debt and shareholder loans settled or acquired at completion; any derivative over the acquiree's shares that the combination settles; the pre-combination portion of replacement awards (30, B56–B58); less amounts allocated to separate transactions.

Then reconcile: SPA price → consideration transferred → cash paid → net cash outflow after cash acquired (IAS 7.39–42). Where IAS 32 classification decides the answer (contingent share issues, settlement alternatives, price protection on consideration shares, options over NCI, loan notes with conversion features) and a dedicated IAS 32 skill is available, use it for that component.

## Stage 5 — Identifiable assets acquired and liabilities assumed

Work from the acquiree's completion balance sheet (or the latest available) line by line, then add what the acquiree never recognised. Read `references/recognition-and-measurement.md`.

1. **Recognition** (10–14): Conceptual Framework definitions at the acquisition date, and part of the exchange. The acquirer's own restructuring plans are not liabilities (11). The acquiree's existing goodwill and equity are not carried over, and its deferred tax is recomputed.
2. **Intangibles sweep** across all five categories — marketing, customer, artistic, contract and technology (IE16–IE44) — applying the separability and contractual-legal criteria (B31–B34). Contracts on off-market terms give an intangible asset if favourable to the acquiree and a liability if unfavourable (IE34), except leases (B42, 28B) and contracts with the acquirer (B52). Record rejected candidates (assembled workforce B37, potential contracts B38, customer lists under confidentiality B33) with reasons.
3. **Exceptions checklist**, each row marked applicable or not: 21A–23A, 24–25, 26, 27–28, 28A–28B, 29, 30, 31, 31A.
4. **Classification and designation** at the acquisition date (15–17): financial asset classification, hedge designations, embedded derivatives. Lessor lease classification is the exception (17).
5. **Measurement** at acquisition-date fair value (18): no separate allowance on receivables (B41); highest and best use even for assets the acquirer will not use (B43); acquired deferred revenue at the fair value of the remaining obligation. Build a valuation request list for anything not yet valued.
6. **Deferred tax** (24–25, IAS 12): temporary differences on fair value adjustments; the tax bases a share deal inherits versus those an asset deal resets; acquiree losses and any change-of-ownership restriction (from the tax adviser); no deferred tax liability on the initial recognition of goodwill (IAS 12.15(a)); changes in the acquirer's own deferred tax assets kept out of the combination (IAS 12.67).

## Stage 6 — NCI, previously held interest, goodwill or bargain purchase

- **NCI** (19–20): a choice made per combination for present ownership interests that entitle holders to a proportionate share of net assets in liquidation — fair value or proportionate share of recognised net assets. Other components are at fair value unless another IFRS requires a different basis, such as the market-based measure for unreplaced acquiree share-based payment awards (30, B62A–B62B; IE44A onwards). NCI already present in the acquiree's own subsidiaries is part of it. If the choice has not been made, show goodwill both ways with the consequences. Puts, forwards and calls over the remaining interest are a policy area (see `references/recognition-and-measurement.md`).
- **Previously held interest** (41–42A): remeasure to acquisition-date fair value; the gain or loss goes to profit or loss or OCI depending on how the interest was held; amounts in OCI are reclassified or transferred as if the interest had been disposed of.
- **Goodwill** (32): (a) consideration + NCI + fair value of previously held interest, less (b) net identifiable assets. Where (b) exceeds (a), perform and document the reassessment in 36 before recognising any bargain purchase gain (34–35), which is attributed to the acquirer.

Use `scripts/ifrs3_calc.py goodwill` and `step-acquisition` where code can run.

## Stage 7 — Measurement period

List provisional items with the reason, the information awaited, the owner and the deadline: the measurement period ends no later than one year from the acquisition date (45). Adjustments reflect facts that existed at the acquisition date, go against goodwill (48) and are made retrospectively, revising comparatives (49), not as a current-period gain or loss (the measurement-period example within IE45–IE53). Post-acquisition events are not measurement-period adjustments (47); an earn-out target being met is the classic example (58). After the period ends, only IAS 8 error corrections (50).

## Stage 8 — Entries and day-two plan

Draft the acquisition-date entries (consolidation or, in a trade-and-assets deal or statutory merger, the acquirer's own books) and separate entries for each separate transaction. Then the day-two plan: contingent consideration (58), with every fair value change of a liability, including own credit risk, in profit or loss (IFRS 9.4.2.1(e)); contingent liabilities (56); indemnification assets (57); reacquired rights (55); post-combination remuneration under IFRS 2 or IAS 19; unwinding of deferred consideration and its retranslation if in a foreign currency; acquired debt carried at amortised cost from its acquisition-date fair value; release of inventory and other step-ups; provisions measured at fair value at acquisition and at the IAS 37 amount afterwards; the first expected-credit-loss allowance on acquired receivables; subsequent spending on acquired in-process research and development (IAS 38.42–43); goodwill allocation to cash-generating units and impairment testing (IAS 36.80–99); foreign-operation goodwill (IAS 21.47); options over NCI per policy; the cash flow classification of later deferred and contingent payments, where IAS 7 is silent and practice varies. The acquirer's separate statements follow IAS 27.10, where the treatment of contingent consideration and costs is a policy area outside IFRS 3. Read `references/disclosures-and-day-two.md`.

## Stage 9 — Disclosures

Map every B64 item (a)–(q) with status, source and draft wording; apply B65 aggregation, B66 for combinations after the reporting date (a non-adjusting event, IAS 10.22(a)) and B67 in the current and later periods; add IAS 7.40, IAS 36.133, IFRS 12, IFRS 13.93 for contingent consideration, IAS 24 where sellers become key management, IAS 34.16A(i) for interim reports, IFRS 19 where applied, and the significant judgments. Bracket every fact that is not in the documents.

## Stage 10 — Assemble and self-check

Use `references/output-template.md` exactly: all 18 sections in three parts, in order, with placeholders where empty. Write Part 3 first, then Parts 1–2 from it. Before sending, run this check and state the result in §18.

1. Gates 1–3 recorded individually, before any measurement.
2. Acquisition date equals the control date, with evidence; every other date in the documents named and dismissed.
3. Every funds-flow line and every side agreement appears in the arrangements register, the counts reconcile, and each separate transaction has its own entry.
4. B55(a) tested first for every payment to a seller who becomes an employee or consultant, with the leaver clause quoted; no forfeitable payment split into "price" and "pay".
5. SPA price, cash paid and consideration transferred reconciled, differences explained.
6. Every consideration component has a measurement basis, a classification and a subsequent-accounting line.
7. Intangibles sweep run across all five categories; rejections listed with references.
8. Every exception in 21A–31A marked applicable or not applicable.
9. Deferred tax addressed, including whether the deal was a share or an asset deal for tax purposes.
10. NCI basis stated, or both bases shown; options over NCI flagged.
11. Goodwill arithmetic foots; any bargain purchase preceded by a documented reassessment under 36.
12. Every provisional item has a deadline no later than one year after the acquisition date.
13. Every amount, rate and date traces to a document, a user statement, or arithmetic on those — Parts 1–2 checked first; no proxy fair value; any "excess over book net assets" labelled as not goodwill.
14. Every quotation is verbatim, with translations and paraphrases marked.
15. Every reference is from the anchor list, a checked reference in the reference files, or tagged [ref: verify].
16. Policy choices named with their effects; none made silently.
17. The user's proposed treatment compared only after the independent analysis, with disagreements shown in both directions.
18. Coverage stated for every document.
19. Tricky-clause sweep run; every hit carried to §4 or dismissed with a reason.
20. All 18 sections present, in order, and Parts 1–2 consistent with Part 3.

---

## If it cannot be concluded

Distinguish three outcomes. A conclusion. A conditional conclusion — for example, "remuneration if clause 7.3 forfeits the payment on resignation; if only dismissal for cause forfeits it, B55(a) is not decisive and the B55(b)–(h) indicators are weighed" — with the condition put to the user as a question rather than resolved by assumption. An inability to conclude, with the reason. Common reasons: the executed SPA or its schedules are missing; the leaver provisions sit in a service agreement that was not supplied; there is no completion statement; the valuation has not been commissioned; control turns on a shareholders' agreement that was not provided. Never split the difference with "probably".

## Pattern library: routing only

This table says where to look first. It never gives the answer; every deal still runs every stage.

| Deal pattern | Find this first | Where it usually turns |
|---|---|---|
| 100% share purchase for cash | Price mechanics, funds flow | Arrangements with sellers; intangibles sweep |
| Trade and assets purchase | Transferring employees, assigned contracts | Business test; IFRS 3 applied in the acquirer's own books |
| Property or other single-asset company | Asset register, leases, management contracts | Concentration test (Example A); outsourced processes (B12D(a)) |
| Pre-revenue biotech or technology company | Workforce and intellectual property transferred | Without-outputs test (B12B; Examples B–C) |
| Licence or asset deal with milestones and royalties | Licence terms, milestone schedule | Business or asset; variable payments policy in an asset acquisition |
| Majority stake with minority shareholders remaining | Shareholders' agreement, reserved matters, options | Control; NCI basis; policy on options over NCI |
| Step-up from associate or joint venture | Carrying amount, OCI balances, fair value evidence | Remeasurement and recycling (42) |
| Founders' earn-out or handover-period payments | Leaver definitions, service agreements | B55(a); agenda decisions January 2013 and April 2024 |
| Acquiree share options cashed out or replaced | Plan rules on change of control; who decided to accelerate | B56–B59 split; acceleration the acquirer arranged is expense |
| Share-for-share merger, "merger of equals", statutory merger | Post-deal board, management and voting | Acquirer identification (B15–B17); reverse acquisition |
| Reverse takeover of a listed shell or SPAC | The shell's activities and assets; warrant terms | Whether the accounting acquiree is a business; IFRS 2 listing expense and IAS 32 warrants if it is not |
| Group reorganisation, Newco insertion, merger of a subsidiary into its parent | Controlling party before and after | Common control and "transitory"; B18; entity policy |
| Carve-out from a group | TSA, delayed local closings, shared contracts, hive-down | Acquisition date per part; what is actually transferred; TSA pricing |
| Public takeover | Offer terms, acceptances, CVRs, squeeze-out | Date control passes; CVRs as contingent consideration; NCI until squeeze-out |
| Acquirer and target already trade with each other | The existing contract and its termination terms | Settlement under B52; reacquired rights |
| Consideration includes a business or asset of the acquirer | Carrying amount and fair value | Gain under 38; whether the acquirer keeps control of what it transferred |
| Private equity deal with management rollover | Rollover deed, Topco articles, leaver terms | Equity consideration versus IFRS 2 |
| Control gained without paying (buyback, lapse of veto, contract) | Voting rights before and after | 43–44; fair value of the interest held (33, B46) |
| Distressed sale or purchase from an administrator | Price against fair values; liabilities left behind | Reassessment under 36 before any gain |
| Deal completing after the reporting date | Dates | B66 disclosures; non-adjusting event |
| Acquiree issues insurance contracts | IFRS 17 portfolios | 31A |
| Interest in a joint operation | Joint operating agreement | IFRS 11.21A, or 42A if control is obtained |
| Mutual entities combining | Member rights and benefits | B47–B49 |

## Anti-accommodation

Users often arrive wanting an answer: asset acquisition (no goodwill, capitalised costs, no deferred tax), earn-outs as consideration (no post-deal expense), a large bargain purchase gain, or a later acquisition date. Do not tailor the analysis to the preferred answer, and say plainly when it is not available. If existing accounts or a draft purchase price allocation take a different view, record that as a finding with its consequences. If the user disputes a conclusion, go back to the clause and the requirement; change the conclusion only if something was misread, never because it was unwelcome. Do not state a probability that an auditor or regulator will accept a treatment.

Two further tendencies are worth resisting. **Hedging:** rating everything Conditional is abdication, not caution — reserve it for conclusions where you can name the missing fact. **Filling the page:** a simple purchase of a single asset should produce a short report with placeholders, which is a better answer than a padded one.

## Amendment watch — position last verified 3 October 2026

**Applicable version: IFRS 3 as currently in issue.** Nothing in the projects below is in force. Where a user asks, show what would change; never apply it.

- **Business Combinations—Disclosures, Goodwill and Impairment** (ED/2024/1, March 2024). Proposed IFRS 3 disclosures on the performance of a subset of business combinations against acquisition-date objectives, quantitative expected synergies, the strategic rationale in place of the primary reasons, operating profit in B64(q), and financing and defined benefit pension liabilities as major classes, alongside changes to the IAS 36 impairment test. Redeliberations continued at the IASB's September 2026 meeting with no decisions taken; the project's next milestone is to decide the project direction. No amendments have been issued.
- **Business combinations under common control.** The IASB decided in November 2023 not to develop requirements (project summary April 2024). Diversity continues; entities develop a policy under IAS 8.10–12.
- **Financial Instruments with Characteristics of Equity** (ED/2023/5, amending IAS 32). Still in redeliberation. In September 2026 the IASB took tentative decisions on obligations to purchase own equity instruments, such as written puts over NCI, including recognising remeasurement gains and losses on the liability in profit or loss. Not in force: options over NCI remain a policy area.
- **Equity Method** (revised IAS 28, exposure draft 2024). In September 2026 the IASB decided to begin balloting a revised IAS 28 without re-exposure, with an effective date of annual periods beginning on or after 1 January 2029 [verify on issue]. It changes how an associate or joint venture is carried before a step acquisition, not IFRS 3 itself.
- **IFRS 18** (annual periods beginning on or after 1 January 2027; earlier application permitted) replaces IAS 1 and retitles IAS 8 *Basis of Preparation of Financial Statements*: material accounting policy information is required by IAS 8.27A, judgments by IAS 8.27G and sources of estimation uncertainty by IAS 8.31A. Quote IFRS 3 wording only from the consolidated text that applies to the period, and classify acquisition-related costs, bargain purchase gains, remeasurement gains and contingent consideration remeasurements in the IFRS 18 categories [ref: verify].
- **IFRS 19** (same effective date) permits eligible subsidiaries reduced disclosures, including for business combinations [ref: verify paragraph].
- **IFRS for SMEs, third edition** (effective 1 January 2027): Section 19 revised. See Other frameworks.
- **Agenda decisions relied on:** March 2006 ("transitory" common control); January 2013 (continuing employment); March 2013 (reverse acquisitions that do not constitute a business); May 2014 (stapling arrangements); January 2016 (previously held interests in joint operations that are not businesses); November 2016 (expected manner of recovery of indefinite-life intangibles, IAS 12); March 2017 (deferred tax on acquiring a single-asset entity that is not a business); November 2017 (acquisition of a group of assets); October 2022 (SPAC warrants at acquisition); January 2024 (merger between a parent and its subsidiary in separate financial statements, IAS 27); April 2024 (payments contingent on continued employment during handover periods). No later agenda decision on IFRS 3 was identified in the IFRIC Updates from 2025 to September 2026.

Confirm the position before finalising any review — search if a tool is available, otherwise ask — and record the date. When amendments are issued, update the affected stage, the relevant reference file and this section; the structure does not change.

## Reference files

| File | Read it when |
|---|---|
| `references/document-intake.md` | Stage 0, always. Document map, SPA anatomy, fact-sheet term list, funds flow, keyword sweep, triage, degraded modes, other languages |
| `references/tricky-clauses.md` | Stage 0 and Stage 3, always. Clauses that change the accounting — price mechanics, control and timing, people, protection, side agreements, tax, NCI, deal structures — and industry pointers |
| `references/routing-and-business-test.md` | Stage 1, always before Gate 3. Control, exclusions and common control, concentration test, substantive process, special structures, routing table |
| `references/arrangements-and-consideration.md` | Stages 3–4, always. B50–B62B tests with worked arithmetic, option cash-outs, bonuses, side agreements, indemnities and warranties, rollover, consideration catalogue, reconciliation |
| `references/recognition-and-measurement.md` | Stages 5–7, always. Balance-sheet walk, intangibles catalogue, items not recognised, exceptions, deferred tax, NCI and options, previously held interests, bargain purchase, measurement period, reviewing a valuation report |
| `references/asset-acquisition.md` | Whenever Gate 3 concludes "not a business", or the user asks about an asset acquisition |
| `references/disclosures-and-day-two.md` | Stages 8–9. B64–B67 map, other Standards, draft note, day-two plan, goodwill after acquisition, separate statements, IFRS 18 |
| `references/output-template.md` | Stage 10, always. The fixed three-part, 18-section structure and presentation rules |
| `scripts/ifrs3_calc.py` | Any arithmetic beyond simple addition: `goodwill` (both NCI bases), `concentration`, `replacement-award`, `pv`, `allocate` (asset acquisitions), `settlement` (pre-existing relationships), `step-acquisition` (previously held interest). Run a command with `--example` to see its input |

## Delivering the review

- **Lead with Part 1.** The reader should have the answer, the numbers and the open points before any working paper.
- **Long reports.** A Standard or File memo review of a document pack runs long. If the environment can create files, give Parts 1–2 in the conversation and the complete report as a Word or PDF document with the same structure; a large arrangements register, consideration schedule or purchase price allocation register can also go to a spreadsheet. If it cannot, present the complete report in the conversation, Part 1 first. A format the user asks for takes precedence.
- **Language and presentation** follow the presentation rules in `references/output-template.md`: the user's language, plain words in Parts 1–2, tables of at most six columns, amounts with currency and unit.
- **Limits once.** §18 carries the only statement of basis and limits, in at most two sentences. The user knows this is a first analysis for professional review; do not repeat it, and do not hedge conclusions to compensate.

# Document intake — document map, fact sheet, funds flow, sweep, triage

Contents
1. Which document answers which question
2. SPA anatomy
3. Deal fact sheet: fixed term list
4. The funds flow statement
5. Keyword sweep
6. Large packs: triage order
7. Degraded modes
8. Quoting and evidence rules
9. Documents in other languages

---

## 1. Which document answers which question

Ask only for documents relevant to the deal in front of you. A small trade-and-assets purchase will not have half of these.

| Document | What to take from it | IFRS 3 question it serves |
|---|---|---|
| SPA, asset purchase agreement or merger agreement | Parties, object, price mechanics, dates, conditions, earn-out, escrow, warranties, indemnities, restrictive covenants | Almost all |
| Disclosure letter | Disclosed litigation, tax exposures, known breaches | Contingent liabilities (23), indemnification assets (27) |
| Funds flow, completion statement, closing memorandum | Every cash movement at completion and who received it | Consideration (37), separate transactions (51–52), IAS 7 |
| Completion accounts, closing balance sheet | Acquiree assets and liabilities at completion; net debt and working capital true-ups | Net assets (10–31A); consideration adjustments |
| Locked-box accounts, leakage schedule | Price basis, permitted leakage | Consideration; the acquisition date is still completion |
| Service, employment and consultancy agreements of sellers | Pay, term, leaver definitions, forfeiture | B55 |
| Earn-out schedule or deed | Metric, period, cap, floor, settlement form, acceleration, set-off, leaver terms | 39–40, 58, B55 |
| Share plan rules, option agreements, replacement award letters | Vesting, change-of-control acceleration, whether replacement is required, cash-out terms | 30, B56–B62B |
| Shareholders' agreement; articles of Topco and target | Voting, reserved matters, board rights, puts, calls, drag and tag | Control (Gate 1), NCI, options over NCI |
| Put, call or forward deeds | Price formula, exercise windows, links to employment | NCI policy; IAS 32; B55 |
| Rollover, reinvestment and subscription agreements | Shares issued to sellers or managers, and on what terms | Equity consideration versus IFRS 2 |
| Loan assignment deeds, vendor loan notes | Shareholder loans bought from the sellers; notes issued to them | Consideration; settlement of liabilities |
| Escrow agreement; warranty and indemnity insurance policy | Release conditions, beneficiary, insurer, who controls the account | Consideration; indemnification assets |
| Transitional services, supply, licence and lease agreements with sellers | Pricing against market; licence-backs | 51–52, B52, B55(h) |
| Hive-down, transfer or local closing agreements (carve-outs) | What was transferred into the acquiree, and when each part transfers | Net assets acquired; acquisition date per part |
| Pre-existing contracts between acquirer and acquiree | Terms, termination penalties, carrying amounts in the acquirer's books | B51–B53; reacquired rights |
| Board minutes, investment committee papers, deal model | Rationale, synergies, who proposed which arrangement and when, valuation range | B50 factors; B64(d)–(e); B55(f) |
| Valuation or purchase price allocation report | Fair values, methods, useful lives, discount rates | 18; intangibles; NCI fair value |
| Financial due diligence | Debt-like items, working capital, quality of earnings | Liabilities assumed; completion accounts |
| Tax due diligence, tax structure paper | Tax bases, losses and any restriction on them, elections, exposures | 24–25; deferred tax |
| Legal due diligence | Litigation, change-of-control clauses, IP ownership, licences | 23; intangibles; contract terms |
| Regulatory approvals, condition satisfaction notices, completion certificate | Dates | Acquisition date (8–9) |
| Acquirer's accounting policy manual, prior purchase price allocations | NCI pattern, asset-acquisition approach, options over NCI | Policy choices |

---

## 2. SPA anatomy

Read these clause families in every SPA, wherever the drafting puts them.

- **Definitions.** Where the economics hide: Consideration, Purchase Price, Enterprise Value, Net Debt, Cash, Working Capital, Target Working Capital, Leakage, Permitted Leakage, Locked Box Date, Effective Time, Completion, Earn-out Payment, EBITDA (as defined), Good Leaver, Bad Leaver, Relevant Period.
- **Sale and purchase.** Exactly what is sold: shares (which classes, what percentage), shareholder loans assigned with them, or assets and liabilities (schedules of included and excluded items).
- **Consideration and payment.** Completion payment, deferred payments, earn-out (with any floor, cap, acceleration and set-off), loan notes, consideration shares and any price protection on them, escrow and retention amounts, set-off rights, interest or ticker.
- **Price adjustment.** Completion accounts (net debt, working capital) or locked box (leakage covenant, ticker); dispute mechanism and timetable.
- **Conditions and the period before completion.** Conditions precedent, long-stop date, regulatory approvals, material adverse change clauses, conduct-of-business restrictions, access rights. Test whether any of them gives the buyer power over relevant activities before completion.
- **Completion.** Deliverables, payments to third parties (debt repayment, bonuses), resignations and appointments; in carve-outs, delayed local closings and wrong-pockets clauses.
- **Warranties, indemnities and tax covenant.** Specific indemnities (candidate indemnification assets), general warranties and their remedies, limitations and caps, warranty and indemnity insurance, escrow backing.
- **Restrictive covenants.** Non-compete and non-solicit: part of the exchange, or a separate transaction? Check what forfeits any payment linked to them.
- **Seller undertakings and employee provisions.** Transaction bonuses, retention, pensions.
- **Schedules.** Earn-out mechanics, completion accounts principles, disclosed matters, properties, intellectual property, key contracts, and any allocation of the price among assets (agreed for tax: evidence, never fair value).
- **Side letters and deeds of variation.** Ask for them explicitly wherever they are referenced.

---

## 3. Deal fact sheet: fixed term list

Every row appears in §6 of the report, reading "not stated" where the documents are silent. Consecutive rows that are all "not stated" or "not applicable" may be collapsed into one row that lists their numbers. The fixed list is what makes two reviews comparable.

1. Buyer (legal entity) and its ultimate parent
2. Sellers, and whether any become employees, consultants, directors or continuing shareholders
3. What is acquired: shares by class and percentage (and any shareholder loans assigned), or assets and liabilities
4. Ownership before and after; other shareholders remaining
5. Price mechanism: completion accounts, locked box or fixed
6. Headline price or enterprise value, and the bridge to equity value
7. Amount payable at completion
8. Deferred consideration: amounts, dates, interest, security
9. Contingent consideration: metric, period, cap or floor, settlement form, acceleration, set-off, leaver terms
10. Equity consideration: instrument, number, issuer, lock-up, any price protection
11. Loan notes or other instruments issued to sellers
12. Escrow, retention or holdback: amount, release conditions, beneficiary, who controls the account
13. Debt, debt-like items and seller liabilities settled at completion: who pays, to whom
14. Signing date
15. Conditions precedent and long-stop date
16. Completion date, and the evidence for it; any delayed local closings
17. Locked-box, effective or other economic dates
18. Buyer's rights over the target between signing and completion
19. Warranties, specific indemnities, tax covenant and caps; warranty and indemnity insurance
20. Restrictive covenants given by the sellers
21. Sellers' roles, pay and leaver terms after completion
22. Transaction, change-of-control and retention bonuses: who pays and who initiated
23. Acquiree share-based payment awards and their treatment on change of control: replaced, cashed out, accelerated or lapsed, and under whose decision
24. Options, puts, calls or forwards over any remaining interest
25. Pre-existing relationships between buyer and target: contracts, balances, disputes, instruments the buyer holds
26. Other agreements signed at or around completion: transitional services, leases, licences (including licence-backs), supply
27. Acquisition-related costs incurred by the buyer; costs borne by the target or the sellers
28. Governing law and dispute terms (relevant to enforceability flags)

---

## 4. The funds flow statement

The single most useful document for Stages 3–4, because it shows who was actually paid. Classify every line and reconcile the total to cash paid in §10 of the report.

| Typical line | Conclusion to test | Reference |
|---|---|---|
| Payment to sellers for shares | Consideration | 37 |
| Payment to sellers for shareholder loans assigned to the buyer | Commonly part of the payment for the business; the loan becomes intra-group [judgment] — `tricky-clauses.md` §1 | 37 |
| Escrow or retention funding | Consideration if held for the sellers; check release terms and who controls the account | 37, 39–40, 27 |
| Repayment of target bank debt | Judgment between two views — see `arrangements-and-consideration.md` §11 | 37, 51 |
| Repayment of seller loans to the target | Follow the legal flow: consideration if paid to sellers for their benefit, or settlement of an assumed liability | 37, 51 |
| Transaction bonuses paid through the target | Liability assumed if a pre-existing target obligation; separate if arranged for the buyer's benefit | 51–52, B50 |
| Buyer's adviser fees | Acquisition-related cost, expensed | 53 |
| Equity issue costs; debt arrangement fees | IAS 32; IFRS 9 | 53 |
| Sellers' adviser fees paid by the target | Usually leakage or a liability assumed; separate if in substance the buyer's cost | 51, 52(c) |
| Sellers' adviser fees or other seller costs paid by the buyer | Paid for the sellers' benefit: consideration | 37 |
| Warranty and indemnity insurance premium paid by the buyer | Acquisition-related cost; test whether any part is a prepayment for cover over time [judgment] | 53 |
| Stamp duty and transfer taxes | Acquisition-related cost in a business combination; capitalised in an asset acquisition | 53; `asset-acquisition.md` |
| Termination payment between buyer and target | Settlement of a pre-existing relationship | B52 |
| Cash-out of acquiree share options at completion | Pre-combination portion is consideration; any excess, and vesting the acquirer chose to accelerate, is post-combination expense | B56–B59 by analogy; 52(b) |

---

## 5. Keyword sweep

Run across the full text where the environment allows searching, and record the location of every hit. A hit is a lead, not a conclusion: check it against `tricky-clauses.md`.

- **Price and payment:** consideration, purchase price, enterprise value, equity value, completion payment, deferred, instalment, earn-out, earnout, additional consideration, contingent, milestone, ratchet, top-up, make-whole, price protection, guaranteed value, minimum payment, floor, cap, acceleration, anti-embarrassment, overage, contingent value right, CVR, clawback, profit guarantee, set-off, loan note, vendor loan, consideration shares, exchange ratio, lock-up, allocation of the purchase price, allocation statement.
- **Price adjustment:** completion accounts, closing accounts, net debt, cash-free debt-free, working capital, target working capital, locked box, leakage, permitted leakage, ticker, interest from.
- **Dates and control:** completion, closing, effective time, effective date, economic transfer, conditions, long stop, regulatory, antitrust, merger control, foreign investment, material adverse change, MAC, conduct of business, consent, veto, reserved matters, board appointment, deferred closing, local closing, wrong pockets, held on trust, hive-down.
- **People:** good leaver, bad leaver, leaver, for cause, termination, service agreement, employment, consultancy, handover, transition period, retention, bonus, transaction bonus, change of control, severance, garden leave, non-compete, restrictive covenant, non-solicit.
- **Equity and options:** option, RSU, share award, vesting, acceleration, single trigger, double trigger, cash-out, cancellation, replacement award, warrant, rollover, reinvestment, sweet equity, management equity, put option, call option, drag, tag, forward, pre-emption.
- **Protection:** warranty, indemnity, specific indemnity, tax covenant, tax deed, W&I, insurance, escrow, retention account, holdback, cap, de minimis, price reduction.
- **Relationships:** supply agreement, licence, licence-back, franchise, lease, transitional services, TSA, reverse TSA, shared contract, existing agreement, settlement, dispute, litigation, guarantee, release, assignment of loans.
- **Costs and tax:** fees, costs, expenses, reimburse, break fee, stamp duty, transfer tax, real estate transfer tax, tax losses, tax group, election.

---

## 6. Large packs: triage order

For any document over roughly 100 pages, or more than five documents, do not read linearly.

1. Get each document's structure first: contents, headings, schedules.
2. Read highest-yield first: funds flow and completion statement → SPA definitions → consideration, price adjustment and earn-out clauses and schedules → completion mechanics → sellers' service and consultancy agreements → share plan and replacement award documents → shareholders' agreement and option deeds → disclosure letter and indemnities → board and investment committee papers → valuation report → due diligence reports.
3. Keep a running register (facts, arrangements, candidate assets and liabilities, tricky-clause hits) in writing and update it as you go. Do not hold it in working memory across documents.
4. Finish one document before starting the next.
5. If the pack exceeds what can be processed at once, say so before starting, process in named batches and merge into one register. The output structure does not change.
6. Name precisely what was and was not read in §5 of the report.

---

## 7. Degraded modes

The analysis runs at every input level; only status and coverage change.

| Input available | Evidence | Status ceiling | Tell the user |
|---|---|---|---|
| Executed SPA with schedules, ancillary agreements, funds flow, completion accounts, valuation | D | Concluded | Full review |
| Executed SPA only | D | Concluded on routing, date and headline consideration; Conditional on arrangements and net assets | Name the missing ancillary documents and what they typically change |
| Draft SPA or term sheet | D (draft) | Conditional | Terms may change; re-run on the executed documents |
| Board papers or information memorandum only | D (secondary) | Conditional | These describe the deal; they are not the contract |
| User's description only | U | Conditional | Label the whole report a structured hypothesis, and list per conclusion the document that would substantiate it |
| A question with no facts | — | Express mode only | Give the requirement and the facts that would decide it |

"What they typically change" means the kind of conclusion a missing document can move (for example, "service agreements decide whether earn-outs are pay"), never a guess at what it says.

---

## 8. Quoting and evidence rules

- Quote verbatim wherever wording decides: leaver definitions, forfeiture language, control-transfer clauses, settlement form of contingent consideration, replacement-award obligations. A quotation is copied exactly; a paraphrase is labelled as one.
- Cite document, clause and page; for schedules, the schedule and paragraph.
- Where documents conflict (SPA and side letter, draft and executed version), record both and apply any order-of-precedence clause; otherwise flag the conflict.
- Mark user-stated facts U even when plausible. Mark every assumption A and list it in §5 of the report.
- If text is illegible, cut off or missing from a scan, say so and record the gap; never fill it in.

---

## 9. Documents in other languages

- Read and quote in the original language; add a translation marked "[translation]" where the user's language differs. A translation is an aid, never the source.
- Run the keyword sweep on the local equivalents as well as the English terms. Examples: German "Stichtag" or "wirtschaftlicher Übergang" (economic transfer date), "Vollzug" (completion), "Kaufpreisanpassung" (price adjustment), "Freistellung" (indemnity), "Garantie" (warranty), "Wettbewerbsverbot" (non-compete), "Syndikatsvertrag" (shareholders' agreement, Austria); French "date d'effet", "complément de prix" (earn-out), "garantie d'actif et de passif" (warranty and indemnity package). These lists are prompts, not a dictionary: the definitions in the document decide what a term means.
- Local legal effects of a clause (enforceability, mandatory transfer of employees, transfer taxes) are questions for the user's advisers, not conclusions of the review.

# Tricky clauses — deal terms that change the accounting

Use this file at Stage 0, after the keyword sweep (`document-intake.md` §5), and again at Stage 3. Check every hit against the entries below. Each entry says what the clause changes, how to resolve it and what decides it. A clause found in the documents becomes a card in §4 of the report and a line in the register it affects (arrangements §9, consideration §10, assets and liabilities §11). Report only clauses the documents actually contain: never describe a term as "typical" or "market standard", and never assume a clause exists because deals of this kind usually have one. If a clause that would matter is plausibly missing, ask for it in §17 instead.

Contents
1. Price and payment mechanics
2. Control and timing
3. People and pay
4. Protection and risk allocation
5. Relationships and side agreements
6. Tax clauses
7. NCI and earlier holdings
8. Deal structures
9. Industry pointers

---

## 1. Price and payment mechanics

- **Economic or effective date** ("effective date", "economic transfer date", locked-box date; in German documents often "Stichtag" or "wirtschaftlicher Übergang"). Prices the deal from an earlier date; it does not move the acquisition date (8–9). The acquiree's results before the acquisition date are never consolidated: the economics the buyer "gets" from the earlier date are reflected in the price or the completion accounts. *Decides:* the clause and evidence that transfer control, not the pricing date.
- **Locked box: ticker, leakage, permitted leakage.** The ticker accrued to completion is cash consideration. Leakage to be recovered from the sellers is a claim measured at the acquisition date that reduces consideration; recovered within the measurement period on acquisition-date facts, it adjusts goodwill (45–49). Permitted leakage reduces the net assets acquired. *Decides:* the SPA definitions of Leakage and Permitted Leakage; the leakage schedule.
- **Completion accounts finalised late or in dispute.** The expected settlement on acquisition-date facts is part of consideration. Finalisation within the measurement period adjusts goodwill; changes after it go to profit or loss unless they correct an error (50) [judgment on classification]. *Decides:* completion-accounts principles, the dispute timetable and the dates.
- **Guaranteed minimum earn-out (floor).** A floor payable whatever the performance, and not forfeited on leaving, is deferred consideration (financial liability at fair value, then amortised cost); only the excess above it is contingent consideration (39–40, 58) [judgment on whether to account for the floor and the excess as one unit]. If the floor is forfeited when a seller leaves employment, the whole payment, floor included, is remuneration (B55(a)). *Decides:* whether the floor depends on targets, and the leaver clause.
- **Earn-out acceleration** (on resale of the business, change of control of the buyer, breach of the buyer's operating covenants, or integration that makes the metric unmeasurable). An input the valuer must model in the fair value of contingent consideration. For B55, acceleration on dismissal without cause does not remove automatic forfeiture on resignation. *Decides:* the acceleration clause and the leaver definitions.
- **Earn-out settlement alternatives** (cash or shares; who chooses; fixed or variable number of shares). Classify under IAS 32 before measuring. A cash alternative at the sellers' option, or a variable number of shares worth a fixed amount, points to a financial liability at fair value through profit or loss; a fixed number of the acquirer's own shares with no cash alternative points to equity (40, 58) [ref: verify the IAS 32 paragraph for the specific terms]. Use a dedicated IAS 32 skill where available. *Decides:* the settlement clause, quoted verbatim.
- **Earn-out or consideration in shares of another group entity** (a Topco, a parent, or a subsidiary of the acquirer). Whose equity is issued decides the classification and how the cost reaches the reporting entity's statements, for example as a capital contribution; shares of a subsidiary of the acquirer also change NCI (IFRS 10.23) [judgment]. *Decides:* the issuer named in the instrument.
- **Set-off of earn-out or deferred consideration against warranty or indemnity claims.** The liability and any right of recovery are measured separately (`arrangements-and-consideration.md` §9); do not count the same expected claim twice. Settlement by set-off after the measurement period goes to profit or loss [judgment]. *Decides:* the set-off clause and any claims notified.
- **Anti-embarrassment clause** (the sellers share in the buyer's gain if it resells the business within a set period). An obligation to transfer more to the former owners if a specified future event occurs: contingent consideration (Appendix A), a liability at fair value through profit or loss (58(b)), disclosed under B64(g). *Decides:* trigger, period and formula.
- **Price protection on consideration shares** (top-up, make-whole or guaranteed value if the acquirer's share price falls). The shares issued are equity at fair value (37); the top-up obligation is separate contingent consideration, a financial liability if settled in cash or in a variable number of shares (40). *Decides:* the top-up formula and settlement form.
- **Contingent value rights (CVRs)** in public offers. Contingent consideration; a quoted price for traded CVRs is evidence of fair value (IFRS 13). *Decides:* the CVR terms and whether they are listed.
- **Deferred consideration with interest, payment-in-kind or a post-completion ticker; vendor loan notes.** A financial liability at fair value: a below-market rate puts fair value below nominal and reduces consideration (37). Interest after the acquisition date is finance cost. A conversion feature may make the notes a compound instrument (IAS 32.28). *Decides:* rate, ranking, security and conversion terms; the market rate comes from the valuer or treasury, never from this review.
- **Consideration in kind** (assets of the acquirer, licences granted to the sellers, future supplies to the sellers at a discount). Non-cash consideration at fair value, with any gain or loss on assets given in profit or loss; carrying amount where the asset stays in the group (38). A commitment to supply at a discount is a liability incurred, measured at fair value [judgment on later accounting]. *Decides:* what is given and who ends up controlling it.
- **Purchase price allocation schedule in the SPA or APA** (an allocation agreed for tax or transfer-tax purposes). A contractual allocation, not IFRS 13 fair value. Use it as evidence and as a question to the valuer, never as the purchase price allocation. *Decides:* nothing on its own.
- **Shareholder loans assigned to the buyer at completion** (one price split between shares and loans). In the consolidated statements the loan becomes intra-group and is eliminated. The total paid to the sellers for shares and loans is commonly treated as consideration for the business, and the loan is then neither a liability assumed nor a separate asset [judgment]. Show the split in the reconciliation (report §10) and present it consistently under B64(f). *Decides:* the assignment deed and the funds flow.
- **Debt and debt-like items settled at completion** (bank debt, seller loans, cash-pool balances with the seller's group, accrued bonuses, pension deficits in the price bridge). Two views with the same goodwill: `arrangements-and-consideration.md` §11. Record the view taken and apply it consistently.
- **Sellers' costs paid by the buyer** (sellers' advisers, sellers' lenders, sellers' taxes paid on their behalf). Paid for the sellers' benefit: consideration transferred (37), not the buyer's acquisition-related cost. *Decides:* the funds flow payee and the SPA payment direction.

## 2. Control and timing

- **Conditions precedent, regulatory, merger-control and foreign-investment approvals, long-stop dates, material adverse change (MAC) clauses.** None of these gives control. The acquisition date is completion unless a written agreement gives control earlier (9). A MAC clause protects the buyer before completion. *Decides:* the satisfaction notices and the completion certificate.
- **Buyer involvement before completion** (management services agreements, buyer appointees, early integration). A control question under IFRS 10. Rights the holder is barred from exercising by law or regulation, for example before merger clearance, are generally not substantive (IFRS 10.B22–B24) [ref: verify the limb]. Flag the legal question rather than resolving it.
- **Call options, forwards or conversion rights over the target held before completion.** Substantive potential voting rights can give control (IFRS 10.B47–B50). A derivative over the acquiree's shares held by the acquirer is effectively settled when control passes: remeasure it to fair value at the acquisition date and include that fair value in consideration transferred [judgment].
- **Staged or linked purchases, tender offers and squeeze-outs.** Control passes once; earlier holdings are previously held interests (41–42); NCI is recognised from the acquisition date until the squeeze-out, and later purchases are equity transactions (IFRS 10.23). Whether a mandatory offer forms part of the same transaction is a judgment where practice varies [ref: verify]. In a tender offer, the acquisition date is when control passes, which needs evidence of acceptances and of the offer becoming unconditional [judgment].
- **Deferred local closings and "wrong pockets" clauses in carve-outs.** Where some jurisdictions, licences or assets transfer after the main completion, control of each part may pass on a different date. Arrangements under which the seller holds assets on trust or for the buyer's account until a local closing need their own control analysis: who directs the activities and who bears the risks and returns in the meantime. Possible outcomes are control of everything at main completion, or later acquisition dates for delayed parts [judgment]. *Decides:* the delayed-closing and wrong-pockets clauses.
- **Pre-closing reorganisation by the seller** (hive-down of the business into a new entity). The acquiree's opening balance sheet is what was transferred into it. Read the hive-down agreement for excluded assets and liabilities and for any seller indemnities. The seller's reorganisation under its own common control does not change the buyer's accounting.

## 3. People and pay

- **Earn-outs and deferred payments linked to employment.** B55(a) first: `arrangements-and-consideration.md` §2.
- **Good and bad leaver gradations.** Read the definitions, not the labels. Payments kept only on death, disability or with the entity's consent are automatically forfeited on any other termination: the fact pattern of the April 2024 agenda decision. Forfeiture only on dismissal for cause is a judgment.
- **Forfeiture on breach of a non-compete, not on leaving employment.** B55(a) addresses termination of employment, so a payment lost only by competing is not automatically remuneration. Decide whether it pays for the non-compete (part of the exchange, or a separate transaction) or for services [judgment]. *Decides:* the forfeiture clause verbatim.
- **Payments to sellers who become consultants, non-executive directors or advisers.** Apply B54–B55 to the substance of the services. A consultancy at market rates is a separate executory contract; above-market pay is evidence under B55(c).
- **Seller-funded payments to employees** (bonuses paid by the sellers from their proceeds). Trace who negotiated the arrangement and whether it requires future service. If it rewards post-combination service and the acquirer arranged it, part of the price in effect funds remuneration: a separate transaction (52(b), B50) [judgment]. Share-based payments settled by shareholders fall within IFRS 2 (IFRS 2.3A).
- **Retention, transaction and change-of-control bonuses; single and double triggers.** A single-trigger payment under an acquiree contract that predates the negotiations is a liability assumed (IE58–IE59). One arranged by the acquirer is a separate transaction (IE60). A double trigger (change of control plus a later termination by the acquirer) is recognised after the combination, when the acquirer's action triggers it [judgment].
- **Replacement, cash-out and acceleration of acquiree share awards.** `arrangements-and-consideration.md` §5.
- **Management rollover, sweet equity, ratchets and leaver-linked returns.** `arrangements-and-consideration.md` §10.
- **Defined benefit pensions; price adjustments for pension deficits; buyer funding commitments.** The acquiree's plan is measured under IAS 19 at the acquisition date (26). A price adjustment for the deficit is part of consideration. Plan changes the acquirer makes after completion are post-combination events.

## 4. Protection and risk allocation

- **Specific indemnities** (tax, litigation, environmental, named claims). Indemnification assets (27–28, 57): `arrangements-and-consideration.md` §9. Check the seller's credit risk, caps, time limits and escrow backing.
- **General warranties and price-reduction remedies.** Some legal systems and drafting styles express warranty remedies as a reduction of the price. Apply the same analysis whatever the label: `arrangements-and-consideration.md` §9. *Decides:* the remedy clause verbatim.
- **Warranty and indemnity insurance.** Outside 27–28: `arrangements-and-consideration.md` §9.
- **Seller profit, EBITDA or revenue guarantees; clawbacks.** A right to the return of previously transferred consideration if specified conditions are met: a contingent consideration asset at fair value through profit or loss (Appendix A; 40, 58(b)). *Decides:* the guarantee formula and period.
- **Excluded or retained liabilities** (asset deals; carve-outs). Not assumed, not recognised. Check that the completion balance sheet leaves them out and that no indemnity is needed.

## 5. Relationships and side agreements

- **Contracts, disputes and balances between buyer and target.** Effective settlement under B52: `arrangements-and-consideration.md` §3.
- **Franchises and licences the buyer had granted to the target.** Reacquired rights: `arrangements-and-consideration.md` §4.
- **Transitional services agreements (TSA) and reverse TSAs at nil or off-market prices.** A free or cheap TSA from the seller means part of the price pays for future services: split it out (51–52) [judgment]. A reverse TSA, where the buyer serves the seller, on off-market terms is analysed the same way. *Decides:* the TSA pricing schedule against the cost or market evidence in the documents.
- **Supply, distribution and licence agreements with the seller's group.** Off-market terms mean part of the price relates to them (51–52).
- **Leases with the sellers.** Below-market rent can mean part of the contingent payments is rent (B55(h)).
- **IP licence-back to the seller, or IP shared with the seller.** The acquired intangible's fair value reflects the encumbrance; a below-market licence-back can be part of the exchange [judgment]. *Decides:* scope, territory, term and royalty of the licence-back.
- **Shared contracts in carve-outs** (one customer or supplier contract serving both the sold and the retained business). Recognise only the rights and obligations actually transferred; back-to-back arrangements with the seller may be separate contracts.
- **Change-of-control clauses in the target's own contracts** (customer termination rights, licence revocation, loan repayment on demand). An input for the fair value of customer intangibles. A licence that lapses on the change of control is not acquired. Borrowings repayable on demand because of the change of control affect fair value and classification [judgment].

## 6. Tax clauses

- **Share deal or asset deal for tax; step-up elections; tax-deductible goodwill.** The first item on the tax request list: it drives deferred tax (24–25) and B64(k).
- **Acquiree tax losses restricted by change-of-ownership rules.** Deferred tax assets on losses are recognised only to the extent recoverable under the tax law as it applies after the change of ownership (IAS 12.24, 66). Whether and how local rules restrict them is a question for the tax adviser, never answered from general knowledge.
- **Transfer taxes triggered by the deal** (stamp duty; real estate transfer taxes, which in some jurisdictions also arise on share deals). Acquisition-related costs expensed in a business combination (53), whichever group entity is liable; capitalised in an asset acquisition where the asset's Standard allows (`asset-acquisition.md` §1).
- **Tax covenants or tax deeds; the target leaving a tax group; group relief or tax-sharing payments.** Seller tax indemnities are indemnification assets (27). Exit charges are liabilities of the acquiree only if a present obligation exists at the acquisition date.
- **Indefinite-life intangibles** (brands, some licences). Deferred tax uses the rate and tax base consistent with the expected manner of recovery; an indefinite useful life does not by itself mean recovery through sale (agenda decision, November 2016).
- **Pillar Two.** No deferred tax for top-up taxes (IAS 12.4A); the acquiree's current exposures still need assessing [judgment].

## 7. NCI and earlier holdings

- **Puts, calls and forwards over the remaining shares.** Policy area: `recognition-and-measurement.md` §8. Exercise prices linked to a seller's continued employment are tested under B55 first.
- **Earlier equity interest, derivative or loan held by the buyer in the target.** An equity interest is a previously held interest (41–42); a derivative is settled at fair value into consideration (§2 above) [judgment]; a loan is a pre-existing relationship (B52).
- **NCI in the acquiree's own subsidiaries.** Also NCI of the group: include it and measure it under 19.

## 8. Deal structures

- **Statutory merger or amalgamation** (one legal entity absorbs the other). The surviving legal entity is not necessarily the acquirer (B15; reverse acquisitions B19–B27). Where the acquiree's net assets pass into the acquirer's own legal entity, IFRS 3 applies in the acquirer's own financial statements. A merger of a subsidiary into its parent is a common control transaction; in the parent's separate statements, parents generally do not apply the acquisition method (agenda decision, January 2024). Apply the entity's policy.
- **Carve-outs from a group.** Watch TSAs, deferred local closings, wrong pockets, shared contracts, hive-downs, cash-pool settlements and excluded liabilities (all above).
- **Acquisitions out of insolvency or from an administrator.** The price can be below the fair value of the net assets: perform the reassessment in 36 before any gain. Liabilities not legally assumed are not recognised. Employees who transfer by operation of law can be an organised workforce.
- **Public takeovers.** CVRs; equity consideration at the acquisition-date price, not the announcement price (37); acceptances over time; squeeze-out (§2 above).
- **Milestones and earn-outs in an asset acquisition.** No IFRS 3 measurement: `asset-acquisition.md` §5.

## 9. Industry pointers

Where to look first. Every deal still runs every stage.

| Industry | Look first at | Usual pressure points |
|---|---|---|
| Real estate | Leases, property management contracts, tenant incentives | Concentration test (Example A); in-place leases part of the property (B42); transfer taxes |
| Banks and lenders | Loan tapes, servicing, deposits | Loans at fair value with no allowance (B41); purchased credit-impaired assets (IFRS 9.5.5.13); deposit-relationship intangibles where identifiable; Example H for portfolios |
| Insurance | Portfolios and their terms | IFRS 17 at the acquisition date (31A) |
| Software and SaaS | Contract liabilities, capitalised development, customer contracts, RSU plans | Contract liabilities at the fair value of the remaining obligation; technology and customer intangibles; replacement awards |
| Life sciences | Licences, in-process research, milestone and royalty terms | Business or asset (Examples B–C); in-process research and development; CVRs and milestones |
| Energy and extractives | Licences, decommissioning, joint operating agreements | IFRS 11.21A and 42A; decommissioning at fair value then IAS 37; equal temporary differences in asset deals (IAS 12.22A) |
| Owner-managed services | Founders' service agreements, non-competes, client lists | B55(a); customer relationships; restrictive covenants |
| Consumer and retail | Brands, store leases, franchise agreements | Brand lives and deferred tax (November 2016 agenda decision); leases (28A–28B); reacquired rights |
| Agriculture | Biological assets, land, water rights | Fair value at acquisition, then fair value less costs to sell under IAS 41: costs to sell reach profit or loss at the next measurement [judgment] |
| Regulated utilities and telecoms | Licences, spectrum, regulatory settlements | Licences recognised with the related plant where useful lives are similar (B32(b)); change-of-control consents |

# Routing and the business test

Contents
1. Gate 1 — control
2. Gate 2 — scope exclusions and common control
3. Gate 3 — is it a business?
4. Special structures
5. Routing table: when the answer is another Standard

---

## 1. Gate 1 — control

IFRS 3 is triggered by obtaining control: a business combination is a transaction or other event in which an acquirer obtains control of one or more businesses (Appendix A), and control is identified using IFRS 10 (7). Record over what control is obtained (an entity, or a set of assets and activities), through what (shares, contract, voting agreement, potential voting rights) and from when.

Points that change the answer:

- **Percentage is evidence, not the test.** A 45% holder facing a dispersed shareholder base, or holding contractual board rights, can control. A 60% holder whose partner has substantive vetoes over relevant activities may not. Read the shareholders' agreement and the articles.
- **Potential voting rights.** Substantive call options, convertible instruments or forwards can give control before exercise (IFRS 10.B47–B50). If so, the acquisition date can precede completion of the share transfer — but only from the date the rights became substantive, never retrospectively.
- **Protective rights do not give control.** Consent rights over extraordinary transactions between signing and completion protect the buyer's investment; they do not let it direct relevant activities. Rights the holder is barred from exercising by law or regulation, for example before merger clearance, are generally not substantive [ref: verify the IFRS 10.B23 limb].
- **Already in control.** Buying more of an existing subsidiary is an equity transaction (IFRS 10.23): no goodwill and no remeasurement; the difference between the price and the NCI derecognised goes to parent equity, and transaction costs are generally recognised in equity.
- **Control without payment** is still a business combination (43): the acquiree buys back its own shares; minority vetoes lapse; articles or agreements are amended; businesses combine by contract alone. A change in facts triggers a reassessment of control (IFRS 10.8); the date control is obtained is the date of that change.
- **The reporting entity as seller** is outside this skill: loss of control is IFRS 10.25–26 and B97–B99.

---

## 2. Gate 2 — scope exclusions

Test each exclusion individually and record the result.

**2(a) Formation of a joint arrangement, in the joint arrangement's own financial statements.** Out of scope; the joint arrangement develops a policy.

**2(c) Common control (B1–B4).** All combining entities or businesses are ultimately controlled by the same party or parties both before and after the combination, and that control is not transitory (B1). A group of individuals counts as controlling where a contractual arrangement gives them collective power (B2). The combining entities need not be in the same consolidated financial statements (B3). The extent of NCI is irrelevant (B4).

- **"Transitory" is the pressure point:** a Newco inserted immediately before an IPO or sale, or a controlling party that exits as part of the same plan. The Interpretations Committee (March 2006) noted that common control is assessed for the combining entities that existed before the combination, excluding a newly formed entity — consistent with B18 — so the short life of the Newco's control does not by itself bring the reorganisation into IFRS 3. Record who controls before, immediately after, and once the wider plan completes, and state the judgment.
- **No IFRS requirements exist for the receiving entity.** The IASB decided in November 2023 not to develop them (project summary, April 2024). Entities select a policy under IAS 8.10–12 and apply it consistently. Two families exist in practice: a book-value (predecessor) method — carrying amounts taken from the transferred entity's statements or from the controlling party's consolidated statements, no new goodwill, the difference recognised in equity, with or without restated comparatives — and the acquisition method where the transaction has substance. Some jurisdictions prescribe one. Apply the entity's policy; if none exists, set out the options and their effects.
- **Merger of a subsidiary into its parent, in the parent's separate statements.** The Interpretations Committee (agenda decision, January 2024) found that parents generally do not apply the IFRS 3 acquisition method to such mergers and saw no diversity worth a project. Which carrying amounts are used is the entity's policy; record it.
- **Separate statements of a new parent (IAS 27.13–14).** Where a new parent obtains control of the original parent by issuing equity instruments in exchange for the existing ones, the assets and liabilities of the group are the same immediately before and after, and the owners' absolute and relative interests are unchanged, a new parent that carries the investment at cost measures that cost at the carrying amount of its share of the equity items in the original parent's separate statements at the date of the reorganisation. The same applies where the original entity was not a parent (IAS 27.14).

**2A Investment entities.** An investment entity acquiring a subsidiary that it must measure at fair value through profit or loss does not apply IFRS 3 (IFRS 10.31).

---

## 3. Gate 3 — is it a business?

A business is an integrated set of activities and assets capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income or generating other income from ordinary activities (Appendix A). It must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (B8). Outputs are not required. The Illustrative Examples work through nine fact patterns (IE73–IE123, Examples A–I); cite them as illustrations only.

### 3.1 The optional concentration test (B7A–B7C)

The election is made transaction by transaction (B7A). The test can only conclude "not a business"; failing it, or not electing it, sends you to 3.2.

It is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets (B7B).

1. **Gross assets** = fair value of consideration + fair value of NCI + fair value of any previously held interest + fair value of liabilities assumed other than deferred tax liabilities, then exclude cash and cash equivalents, deferred tax assets and goodwill resulting from the effects of deferred tax liabilities (B7B(a)–(b)). Adding only liabilities other than deferred tax liabilities keeps that goodwill out automatically. The NCI enters at fair value even if it will be measured at its proportionate share. If the fair value of gross assets is more than this total — typically where the price is below the fair value of the net assets — a more precise calculation may be needed (B7B(b); Example I).
2. **Single asset:** anything that would be recognised and measured as one identifiable asset in a business combination (B7B(c)). A tangible asset attached to another that cannot be removed and used separately without significant cost or loss of utility or fair value — land and buildings — is one asset (B7B(d)).
3. **Similar assets:** consider the nature of each asset and the risks of managing and creating outputs from it (B7B(e)). Never similar: a tangible and an intangible asset; tangible assets in different classes, unless they are a single asset under B7B(d); intangible assets in different classes; a financial and a non-financial asset; financial assets in different classes; assets in the same class with significantly different risk characteristics (B7B(f)).
4. **"Substantially all" has no percentage in IFRS 3.** Do not import a bright line from elsewhere. State the percentage and the judgment.

**Worked example (illustration only).** Consideration 100; liabilities assumed other than deferred tax 20; cash acquired 5; no NCI or previously held interest. Gross assets = 100 + 20 − 5 = 115. An office building and its land, fair value 110, is a single asset (B7B(d)). In-place leases form part of that single asset because they would be recognised and measured with the building in a business combination (B7B(c), B42) — the approach in Example A. 110 ÷ 115 = 95.7%. If judged "substantially all", the test is met: not a business, and no further assessment is needed.

Run `scripts/ifrs3_calc.py concentration` where code can run.

### 3.2 The substantive-process assessment (B8–B12D)

First establish whether the set has outputs at the acquisition date. A set generating revenue at that date has outputs, even if it will be integrated and stop selling to external customers (B12A). A set with no revenue yet (an early-stage entity) does not.

**Without outputs (B12B).** A process is substantive only if (a) it is critical to developing or converting acquired inputs into outputs, and (b) the inputs include both an organised workforce with the necessary skills, knowledge or experience to perform it and other inputs that workforce could develop or convert — intellectual property, other economic resources, or rights to access necessary materials or rights (for example technology, in-process research and development, real estate, mineral interests). No organised workforce, no business.

**With outputs (B12C).** A process is substantive if, when applied to acquired inputs, it (a) is critical to the ability to continue producing outputs and the inputs include an organised workforce able to perform it; or (b) significantly contributes to that ability and is unique or scarce, or cannot be replaced without significant cost, effort or delay.

**Supporting points (B12D).** An acquired contract is an input, not a substantive process, but a contract for outsourced property or asset management may give access to an organised workforce: assess whether the entity controls the process that workforce performs, weighing contract duration and renewal terms. Difficulty replacing a workforce indicates a critical process. A process is not critical if it is ancillary or minor in the context of all the processes needed to create outputs.

**Traps**

- Continuation of revenue does not on its own show that an input and a substantive process were acquired (B8A).
- Accounting, billing, payroll and other administrative systems are typically not processes used to create outputs (B7(b)).
- Whether the seller ran the set as a business, and whether the acquirer intends to, are irrelevant; the question is what a market participant could do with it (B11).
- A business need not include all the inputs or processes the seller used (B8).
- How employees transfer — by contract or by operation of law, as under transfer-of-undertakings rules — does not matter; what matters is whether they form an organised workforce that performs the process.

**Recurring patterns.** Each still depends on the facts; the example letters point to the Illustrative Examples.

| Pattern | Where it usually lands |
|---|---|
| Let property with in-place leases, no employees, management outsourced (Example A) | Concentration test often met; otherwise the leases are inputs, and whether an outsourced process is acquired turns on the contract's duration and renewal terms (B12D(a)) — a short, freely cancellable management contract rarely gives control of the process |
| A single drug candidate or licensed molecule, no research team (Example B) | Concentration test often met; otherwise B12B fails for lack of a workforce |
| Early-stage company with a research team and in-process research and development (Example C) | B12B usually met |
| Operating factory with workforce, supply contracts and customer orders | B12C(a) usually met |
| Closed facility, or brands and licences without the people who exploit them (Examples E–G) | Look hard for a substantive process; often not a business |
| Loan portfolio with no servicing staff (Example H) | Concentration test turns on similarity of risk characteristics (B7B(f)(vi)); if not met, look for a substantive process |

---

## 4. Special structures

**Reverse acquisitions (B19–B27).** The entity issuing shares (the legal acquirer) is identified as the acquiree for accounting purposes under B13–B18. The accounting acquiree must meet the definition of a business (B19). Consideration is measured from the number of shares the legal subsidiary would have had to issue to give the legal parent's owners the same percentage of the combined entity (B20; IE1–IE15). The consolidated statements continue those of the legal subsidiary, with equity restated to reflect the legal parent's legal capital (B21–B22); NCI in B23–B24; earnings per share in B25–B27.

- **Accounting acquiree not a business** (a listed shell; many SPAC mergers): not a business combination. The Interpretations Committee (agenda decision, March 2013) concluded that IFRS 2 applies, with the reverse acquisition guidance used by analogy to identify the accounting acquirer and measure the shares deemed issued. The entire difference between the fair value of the shares deemed issued and the fair value of the shell's identifiable net assets is a payment for a stock exchange listing service, recognised as an expense, regardless of the level of assets involved; no part of it is a cost of raising capital.
- **SPAC warrants (agenda decision, October 2022).** Decide whether the operating entity assumed the SPAC's warrants as part of the acquisition or replaced them in a separate transaction, considering all the agreements associated with the acquisition; no Standard specifically applies, so the policy is developed under IAS 8.10–11, with reference to B50 of IFRS 3. Apply IFRS 2 to the instruments issued for the listing service, measured as the fair value of the instruments issued less the fair value of the identifiable net assets acquired (IFRS 2.13A), and IAS 32 to the instruments issued to acquire the cash and to assume any liability for the SPAC warrants.

**Newco (B18).** A new entity formed to issue equity interests is not necessarily the acquirer; identify one of the pre-existing combining entities under B13–B17. A new entity that transfers cash or other assets or incurs liabilities may be the acquirer — typically a private equity structure funded by external debt and equity.

**Mergers of equals and statutory mergers.** Still business combinations with an acquirer (Appendix A). Weigh B15–B17 factor by factor; relative size (B16), and who initiated where more than two entities combine (B17). In a statutory merger the legal survivor is not necessarily the acquirer; where the acquiree's net assets pass into the acquirer's own legal entity, IFRS 3 applies in that entity's own financial statements.

**Combination by contract alone (43(c), 44).** Stapling and dual-listed structures. No consideration; the acquiree's net assets are attributed to its owners, so all its equity may be presented as NCI. The Interpretations Committee (May 2014) noted that the acquirer identified under IFRS 3 in a stapling arrangement is the parent for IFRS 10 purposes and prepares consolidated statements.

**Control without consideration (43).** Measure goodwill using the acquisition-date fair value of the acquirer's interest in the acquiree in place of consideration (33, B46).

**Mutual entities (B47–B49).** The fair value of the acquiree's member interests may be more reliable than that of the interests transferred (B47); the acquiree's net assets are recognised as a direct addition to capital or equity, not retained earnings (B47); fair value reflects expected member benefits (B49).

**Joint operations.** A party to a joint operation that is a business which obtains control of it has a business combination achieved in stages and remeasures its entire previously held interest (42A). Acquiring an interest in a joint operation that is a business without obtaining control applies IFRS 3 principles to the share acquired under IFRS 11.21A (goodwill, deferred tax, expensed costs); a previously held interest is not remeasured where the party retains or obtains joint control (IFRS 11.B33C–B33CA). Where the joint operation is not a business, previously held interests are generally not remeasured (agenda decision, January 2016).

**Staged or linked purchases.** Where several purchases together give control, the business combination occurs when control passes; earlier holdings are previously held interests (41–42). For mandatory offers to remaining shareholders after control passes, consider whether they are part of the same transaction; practice varies [ref: verify].

**Carve-outs with delayed local closings.** Where parts of the business transfer on different dates, establish when control of each part passes before choosing one acquisition date: `tricky-clauses.md` §2.

**The acquiree's own financial statements.** IFRS has no pushdown accounting. The acquiree's own statements are unaffected by the purchase price allocation.

---

## 5. Routing table: when the answer is another Standard

| Situation | Route | Key consequence |
|---|---|---|
| Increase in holding in an existing subsidiary | IFRS 10.23 | Equity transaction; no goodwill or remeasurement |
| Decrease in holding without losing control | IFRS 10.23 | Equity transaction |
| Loss of control | IFRS 10.25–26, B97–B99 | Derecognise; retained interest at fair value; gain or loss |
| Significant influence obtained | IAS 28 | Equity method; notional allocation of cost (IAS 28.32) |
| Joint control of a joint venture | IFRS 11, IAS 28 | Equity method |
| Interest in a joint operation that is a business, no control | IFRS 11.21A | IFRS 3 principles applied to the share acquired |
| Common control | Entity policy under IAS 8.10–12 | Book-value or acquisition method |
| Merger of a subsidiary into its parent (parent's separate statements) | Entity policy (agenda decision, January 2024) | Acquisition method generally not applied; carrying amounts per policy |
| New parent inserted by share exchange (separate statements) | IAS 27.13–14 | Cost at carrying amount of share of the original parent's equity |
| Joint arrangement's own statements on formation | Entity policy | 2(a) |
| Investment entity acquiring a subsidiary | IFRS 10.31, IFRS 9 | Fair value through profit or loss |
| Assets and activities that are not a business | 2(b); `asset-acquisition.md` | Relative fair value allocation of cost; no goodwill |
| Reverse acquisition where the accounting acquiree is not a business | IFRS 2 (agenda decision, March 2013) | Listing expense |
| Financial asset only, no control, joint control or influence | IFRS 9 | Fair value |

# Arrangements and consideration

Contents
1. The general test and the B50 factors
2. Payments to sellers and employees (B54–B55)
3. Pre-existing relationships (B51–B53)
4. Reacquired rights
5. Share-based payment awards: replaced, unreplaced and cashed out (B56–B62B)
6. Acquisition-related costs and reimbursements (52(c), 53)
7. Bonuses and severance
8. Side agreements with sellers
9. Indemnities, warranties, escrow and warranty and indemnity insurance
10. Management rollover and sweet equity
11. Consideration catalogue
12. Worked reconciliation

The worked numbers in this file are illustrations of the mechanics. Never carry them into a review.

---

## 1. The general test

Only the consideration transferred for the acquiree, and the assets acquired and liabilities assumed in exchange for it, go into the acquisition accounting (51). A transaction entered into by or on behalf of the acquirer, or primarily for the benefit of the acquirer or the combined entity rather than the acquiree or its former owners, is likely to be separate (52). The three named examples are transactions that settle pre-existing relationships, remunerate employees or former owners for future services, and reimburse the acquiree or its former owners for the acquirer's acquisition-related costs (52(a)–(c)).

Record the B50 factors for every arrangement. They are neither mutually exclusive nor individually conclusive.

- **Reasons.** Who benefits? An arrangement made primarily for the acquirer or the combined entity is less likely to be part of the exchange.
- **Who initiated.** Acquirer-initiated arrangements are more likely separate; acquiree- or seller-initiated ones more likely part of the exchange.
- **Timing.** An arrangement struck during negotiations may have been made in contemplation of the combination to benefit the acquirer.

The evidence usually sits in board minutes, negotiation correspondence, successive term-sheet drafts and the dates on side agreements. Where it is not in the documents, the B50 factor reads "not stated" — never infer who initiated an arrangement from its drafting.

---

## 2. Payments to sellers and employees (B54–B55)

**Order of analysis**

1. Find every payment to anyone who is or becomes an employee, director or consultant of the combined group, including payments the documents label "consideration", "deferred purchase price" or "earn-out".
2. **Test B55(a) first.** A contingent consideration arrangement in which the payments are automatically forfeited if employment terminates is remuneration for post-combination services. The Standard decides this; B55(b)–(h) cannot override it.
   - The Interpretations Committee's January 2013 agenda decision (continuing employment): an arrangement in which contingent payments are automatically forfeited if employment terminates leads to the conclusion that it is compensation for post-combination services rather than additional consideration, unless the service condition is not substantive.
   - Its April 2024 agenda decision (handover periods) considered payments contingent on performance targets and on the sellers staying employed for a handover period, kept only on death, disability or termination with the entity's agreement and forfeited in any other circumstance, with the sellers' other pay comparable to that of other executives. The Committee found no significant diversity: entities account for such payments as compensation for post-combination services unless the service condition is not substantive. It added no project.
3. **No split of a forfeitable payment.** The request behind the April 2024 decision proposed an "in-substance" split: a service component measured at market pay, with the remainder treated as consideration. The Committee did not take up that approach: it observed that entities account for such payments as compensation unless the service condition is not substantive, and added no project. Do not divide a forfeitable payment into "price" and "pay" — whether by reference to market pay or to what sellers who do not stay receive. Two genuinely separate payments, one forfeitable and one not, are each analysed on their own terms (step 7).
4. **Leaver variants.** Read the definitions, not the labels.
   - Forfeiture on resignation, or on any termination other than listed good-leaver events (death, disability, dismissal without cause, the acquirer's consent), is forfeiture on termination: B55(a) applies. The April 2024 fact pattern — payments kept only on death, disability or termination with the entity's agreement — is of this kind, and the request had asked whether good- and bad-leaver provisions amount to automatic forfeiture.
   - Forfeiture only on dismissal for cause (fraud, gross misconduct) does not require the seller to keep working to earn the payment. Whether B55(a) applies is a judgment; a common view is that the clause is then not decisive and B55(b)–(h) are weighed. Record the view taken and its basis.
   - Forfeiture only on breach of a non-compete or other restrictive covenant is not forfeiture on termination of employment: `tricky-clauses.md` §3 [judgment].
   - Evidence that a service condition is not substantive: it is not enforced in practice, breach forfeits nothing in fact, or the required period is trivial relative to the payment [judgment]. Quote the wording and record the reasoning; do not assume.
5. **Only where there is no automatic forfeiture**, weigh B55(b)–(h):

| Indicator | Points to remuneration | Points to consideration |
|---|---|---|
| (b) Duration of employment | Required employment coincides with or is longer than the payment period | Shorter or no required employment |
| (c) Level of remuneration | Other pay below a reasonable level for the role | Other pay reasonable against other key employees |
| (d) Incremental payments | Sellers who become employees get more per share than those who do not; the increment is remuneration | Same per-share amount for all sellers |
| (e) Number of shares owned | Sellers who owned substantially all the shares continue as key employees (profit-sharing in substance); consider holdings of related parties such as family members | Continuing sellers owned few shares and all sellers receive the same per-share amount |
| (f) Linkage to the valuation | Formula consistent with prior profit-sharing arrangements | Initial price at the low end of a valuation range, with the formula tied to that valuation |
| (g) Formula | A specified percentage of earnings | A multiple of earnings |
| (h) Other agreements and tax treatment | Below-market leases, consultancy or non-compete terms with the seller, suggesting the payments are for something else | Side agreements at market terms |

6. **Accounting when it is remuneration.** Recognise over the required service period as post-combination expense; nothing goes into consideration or goodwill. Cash payments are employee benefits under IAS 19 (short-term or other long-term benefits, depending on when they fall due); payments in shares, or in cash based on the price of shares, are share-based payments under IFRS 2 [ref: verify the classification for each arrangement]. A payment funded by the sellers rather than the group can still be the group's expense if it pays for services to the group [judgment; IFRS 2.3A where share-based].
7. **Mixed arrangements.** Where only part of a payment is forfeitable, or only some sellers stay, split it: the non-forfeitable portion, and payments to sellers who do not become employees, are contingent consideration; the forfeitable portion is remuneration. Show the split in the arrangements register.

---

## 3. Pre-existing relationships (B51–B53)

A pre-existing relationship may be contractual (vendor and customer, licensor and licensee) or non-contractual (plaintiff and defendant) (B51). A combination that in effect settles it produces a separate gain or loss (B52):

- **Non-contractual** (for example a lawsuit): measured at fair value.
- **Contractual:** the lesser of (i) the amount by which the contract is favourable or unfavourable from the acquirer's perspective compared with current market terms, and (ii) any stated settlement provision available to the counterparty to whom the contract is unfavourable. If (ii) is less than (i), the difference is included in the business combination accounting.
- The gain or loss recognised depends partly on any related asset or liability the acquirer already carries (B52).
- An unfavourable contract is not necessarily an onerous one (B52(b)(i)).
- **Direction.** If the contract is unfavourable to the acquirer, part of the price is in effect paid to exit it: recognise a loss and exclude the settlement amount from consideration transferred. If it is favourable to the acquirer, the acquiree is worth less to other buyers because of it, so the acquirer in effect receives the settlement through a lower price: recognise a gain and add the settlement amount to consideration transferred.

**Worked example** (illustration; the pattern of IE54–IE57). The acquirer buys components from the target under a contract priced above market. The off-market element is 8 from the acquirer's perspective; the acquirer could terminate by paying a penalty of 5. Settlement loss = lesser of 8 and 5 = 5, recognised in profit or loss; consideration for the acquiree = amount paid − 5; the remaining 3 is part of the business combination accounting. If the acquirer already carried a liability of 2 for the contract, derecognising it reduces the loss recognised to 3.

**Balances and instruments between the parties** (trade receivables and payables, loans, bridge funding provided before completion, the acquirer's debt held by the acquiree) are also settled by the combination: the acquiree's side is measured at fair value in the acquisition accounting and eliminated on consolidation against the acquirer's side; any difference from the acquirer's carrying amount is a settlement gain or loss (B52).

Run `scripts/ifrs3_calc.py settlement` where code can run.

---

## 4. Reacquired rights

A right the acquirer had previously granted the acquiree to use its assets — a franchise, a trade name licence, a technology licence — is an identifiable intangible asset recognised separately from goodwill (B35). It is measured on the remaining contractual term, ignoring renewals a market participant would assume (29), and amortised over the remaining contractual period (55). Where the contract terms are favourable or unfavourable relative to current market terms, recognise a settlement gain or loss under B52 (B36, B53); the intangible asset then reflects the right on market terms. If the acquirer later sells the right to a third party, its carrying amount enters the gain or loss on sale (55).

---

## 5. Share-based payment awards: replaced, unreplaced and cashed out

**Obligation first (B56).** The acquirer is obliged to replace acquiree awards if the acquiree or its employees can enforce replacement — through the acquisition agreement, the terms of the acquiree's awards, or applicable laws or regulations. If acquiree awards would expire as a consequence of the combination and the acquirer replaces them without being obliged to, the whole market-based measure of the replacement awards is post-combination remuneration and none of it is consideration.

**The split (B57–B59).** Measure both the replacement awards and the acquiree awards at the acquisition date under IFRS 2 (the "market-based measure", 30).

- **Pre-combination portion (consideration)** = market-based measure of the acquiree award × (vesting period completed ÷ the greater of the total vesting period and the original vesting period of the acquiree award) (B58). The total vesting period is the period completed plus any post-combination service the replacement requires. The period completed can never exceed the original vesting period: for a fully vested award it equals the original period, however long ago the award was granted (Example 2 in IE61–IE71).
- **Post-combination portion (remuneration)** = market-based measure of the replacement award − the pre-combination portion (B59). Any excess of the replacement award over the acquiree award is therefore always post-combination. If the replacement requires post-combination service, a portion is post-combination even if the acquiree award had fully vested (B59).
- **Forfeitures (B60).** Both portions reflect the best estimate of the number of awards expected to vest. Later changes in that estimate, and the outcome of performance conditions, go to remuneration cost, never to consideration.
- **Classification (B61–B62).** The split is the same whether the award is equity- or liability-classified under IFRS 2; later changes in liability-classified awards go to post-combination profit or loss; tax effects follow IAS 12.
- **Change-of-control acceleration.** If the acquiree award's own terms end the vesting period on a change of control, the vesting period is complete at the acquisition date and the whole market-based measure is pre-combination. If the acquirer chooses to accelerate vesting that the original terms did not provide, the ratio uses the original vesting period and the rest is post-combination expense, recognised immediately when no further service is required (both illustrated in IE61–IE71). A double trigger (change of control plus a later termination by the acquirer) accelerates only when the acquirer acts, after the combination [judgment].

**Worked example** (illustration; see IE61–IE71). Acquiree award market-based measure 100; original vesting period 4 years; 3 years completed at the acquisition date. The replacement award has a market-based measure of 110 and requires 1 further year of service, so the total vesting period is 4. Pre-combination = 100 × 3/4 = 75, included in consideration. Post-combination = 110 − 75 = 35, expensed over the remaining year. If the replacement instead required 2 further years (total 5): pre-combination = 100 × 3/5 = 60; post-combination = 50. If only 95% are expected to vest, multiply both portions by 0.95.

Run `scripts/ifrs3_calc.py replacement-award` where code can run.

**Acquiree awards that are not replaced (B62A–B62B).** If vested, they are part of NCI at their market-based measure. If unvested, they are measured at their market-based measure as if the acquisition date were the grant date; the portion reflecting the vesting period completed (on the same ratio as B58) is allocated to NCI and the balance to post-combination service.

**Acquiree awards settled in cash at completion (option cash-outs).** IFRS 3 does not address a cash settlement directly; apply the same attribution by analogy [judgment]. The portion attributable to pre-combination service is consideration transferred; any payment above the acquiree award's market-based measure, and the value of any vesting the acquirer chose to accelerate, is post-combination expense (52(b)). A voluntary payment for awards that would otherwise lapse on the combination follows B56: all expense. Trace who funds the payment — the acquirer, the acquiree before completion, or the sellers from their proceeds — before concluding.

---

## 6. Acquisition-related costs and reimbursements

| Cost | Treatment | Reference |
|---|---|---|
| Finder's fees; advisory, legal, accounting, valuation and due diligence fees | Expense as incurred and as services are received | 53 |
| Internal acquisitions department and general administrative costs | Expense | 53 |
| Costs of issuing equity securities | Deduct from equity | 53, IAS 32.37 |
| Costs of issuing debt | Include in the effective interest rate | 53, IFRS 9 |
| Stamp duty and transfer taxes on the acquisition, including transfer taxes levied at the target's level because of the deal | Expense in a business combination | 53 |
| Acquirer's costs paid by the acquiree or sellers and recovered through the price | Separate transaction: expense the cost and reduce consideration by the reimbursement | 52(c) |
| Sellers' own costs borne by the acquiree before completion | Part of the acquiree's net assets (a reduction in them), or leakage; not the acquirer's cost | 51 |
| Sellers' own costs paid by the acquirer | Paid for the sellers' benefit: consideration | 37 |

Costs incurred in a period before the combination are still expensed in the period incurred, and disclosed under B64(m).

---

## 7. Bonuses and severance

- **Change-of-control obligation the acquiree already had** (for example an executive contract signed before negotiations began, triggered by any acquisition): a liability assumed and part of the exchange (IE58–IE59).
- **A payment arranged or suggested by the acquirer during negotiations:** primarily for the acquirer's benefit; a separate transaction and post-combination expense (IE60).
- **Retention bonuses requiring future service:** post-combination remuneration.
- **Severance for terminations the acquirer plans:** not a liability at the acquisition date (11); recognise after the combination under IAS 19 or IAS 37 as the obligation arises.
- **Transaction bonuses the sellers pay from their own proceeds:** follow the substance. If the acquirer bears no obligation and the payment rewards past service, it is the sellers' matter; if it requires future service, test it as remuneration [judgment].

---

## 8. Side agreements with sellers

- **Non-compete given by the sellers in the SPA:** in practice usually treated as part of the exchange and recognised as a contractual intangible asset — the Illustrative Examples list non-competition agreements among marketing-related intangibles (IE18). A separately priced non-compete, or one paid to a continuing employee, may be a separate transaction or remuneration [judgment].
- **Consultancy and service agreements:** at market terms they are separate executory contracts; above-market pay is evidence under B55(c), or remuneration outright.
- **Leases with sellers (B55(h)):** below-market rent can mean part of the contingent payments is really rent for the property, recognised separately after the combination.
- **Transitional services, supply and licence agreements** agreed at completion: separate executory contracts at market terms; off-market terms, including a nil-priced TSA or a cheap licence-back to the seller, mean part of the price relates to them (`tricky-clauses.md` §5).

---

## 9. Indemnities, warranties, escrow and warranty and indemnity insurance

- **Seller indemnities for specific items (27–28, 57):** recognise an indemnification asset at the same time as the indemnified item and on the same basis, subject to collectibility and contractual caps. For an indemnified contingent liability that is not recognised, recognise and measure the asset on assumptions consistent with the indemnified item (28).
- **General warranties** are not indemnification assets unless they cover the outcome of a contingency relating to a specific asset or liability (27). A right to recover part of the price for a breach is in substance a right to the return of previously transferred consideration if specified conditions are met — a contingent consideration asset (40, 58), usually of nil fair value where no breach is known at the acquisition date [judgment; some treat it as a contingent asset recognised only when virtually certain]. Either way, a later recovery adjusts goodwill only as a measurement-period adjustment reflecting facts that existed at the acquisition date; otherwise it goes to profit or loss. Remedies drafted as a "price reduction" are analysed the same way.
- **Warranty and indemnity insurance from a third-party insurer:** not an indemnification asset under IFRS 3, which covers indemnities from the seller; apply IAS 37's reimbursement requirement, including the "virtually certain" threshold (IAS 37.53). The premium is an acquisition-related cost unless it is in substance for cover over time [judgment].
- **Escrow and retentions.** Cash paid into an escrow account for the sellers' benefit is consideration transferred at the acquisition date even though release is deferred; check who controls the account and whether the acquirer keeps any claim to it. A retention the acquirer keeps and pays later is deferred or contingent consideration — a liability at fair value. The acquirer's right to recover from escrow or a retention is an indemnification asset where tied to specific indemnified items, and a contingent consideration asset where tied to future events or general warranties [judgment].

---

## 10. Management rollover and sweet equity

- **Rollover.** Sellers who exchange target shares for shares in the acquirer or its parent, at the same price and on the same terms as other investors, receive equity consideration measured at fair value — provided nothing links it to future service.
- **Sweet equity, ratchets and leaver-dependent returns.** Instruments issued to managers at a discount, or with returns forfeited on leaving, are remuneration under IFRS 2, separate from the combination.
- Where the entity issuing the shares is not the reporting entity (for example a Topco above the acquirer), identify whose equity was issued and how it reaches the acquirer's statements, such as a capital contribution [judgment].

---

## 11. Consideration catalogue

| Component | Acquisition-date measurement | Classification | Subsequent accounting | Reference |
|---|---|---|---|---|
| Cash at completion | Amount paid | — | — | 37 |
| Deferred consideration, fixed (including a guaranteed minimum earn-out not forfeited on leaving) | Fair value: normally the present value at a market rate reflecting the acquirer's credit risk | Financial liability | Amortised cost; the discount unwinds to finance cost | 37; IFRS 9 |
| Contingent consideration payable in cash (earn-outs, CVRs, anti-embarrassment and top-up obligations) | Fair value, reflecting probability and time value | Financial liability | Fair value through profit or loss, including changes from own credit risk (IFRS 9.4.2.1(e)); only measurement-period adjustments go to goodwill | 39–40, 58(b) |
| Contingent consideration in a fixed number of acquirer shares | Fair value | Equity if IAS 32's fixed-for-fixed condition is met | Not remeasured; settlement within equity | 40, 58(a); IAS 32.16, 22 [ref: verify for tiered or variable share numbers and settlement alternatives] |
| Contingent consideration in a variable number of shares worth a fixed amount | Fair value | Financial liability | Fair value through profit or loss | 40, 58(b); IAS 32.11 |
| Right to the return of consideration (clawback, seller profit guarantee) | Fair value | Asset | Fair value through profit or loss | 40, 58 |
| Acquirer shares issued | Acquisition-date fair value — for quoted shares, quoted price × number, with no blockage discount — not the announcement-date price | Equity | — | 37; IFRS 13.69, 80; 33 where only equity is exchanged and the acquiree's equity is more reliably measurable |
| Non-cash assets or a business of the acquirer | Fair value, with the remeasurement gain or loss in profit or loss | — | — | 38 (carrying amount where the acquirer keeps control of them) |
| Derivative over the acquiree's shares held by the acquirer and settled by the combination | Fair value at the acquisition date, after remeasuring the derivative through profit or loss | Part of consideration | — | 37–38 [judgment] |
| Completion-accounts adjustment (net debt, working capital) | Expected settlement based on acquisition-date facts | Financial asset or liability | Finalisation within the measurement period that reflects acquisition-date facts adjusts goodwill; other changes go to profit or loss [judgment on classification] | 37, 45–49 |
| Locked-box ticker | Amount accrued to completion | Part of cash consideration | — | 37 |
| Leakage claim | Fair value of the claim at the acquisition date | Financial asset | Measurement-period item if it reflects pre-completion leakage | 37, 45–49 |
| Cash paid into escrow for the sellers | Cash transferred | Consideration transferred; any right of recovery recognised separately (§9) | — | 37 |
| Retention kept by the acquirer | Fair value of the expected payment | Financial liability | Amortised cost if fixed; fair value through profit or loss if contingent | 37, 39–40, 58(b) |
| Loan notes issued to sellers | Fair value | Financial liability, or compound instrument | IFRS 9; split under IAS 32 where compound | 37; IAS 32.28 |
| Shareholder loans bought from the sellers with the shares | Amount paid | Commonly part of the payment for the business; the loan is eliminated on consolidation [judgment] | — | 37; `tricky-clauses.md` §1 |
| Replacement awards, pre-combination portion | Market-based measure × ratio | Equity or liability under IFRS 2 | IFRS 2 | 30, B56–B58 |
| Consideration in a foreign currency | Translated at the acquisition-date spot rate | — | A deferred or contingent amount payable in a foreign currency is retranslated afterwards | IAS 21.21, 23 |

A lock-up on consideration shares reduces their fair value only if it is a characteristic of the shares rather than an arrangement specific to the holder [judgment; IFRS 13.11].

**Target debt repaid at completion.** Two views, with the same goodwill:

- **Consideration view.** The SPA obliges the buyer to pay the target's lenders on the sellers' behalf as part of the price (the bridge from enterprise value to equity value), releasing the sellers' guarantees. Include the payment in consideration transferred; the borrowing is not a liability assumed.
- **Assumed-liability view.** The borrowing is the acquiree's liability at the moment control passes, and the acquirer funds its repayment afterwards. Treat it as a liability assumed; the repayment is a separate financing cash flow after the combination.

Decide on the legal flow of funds and who the obligor was when control passed, record the view in the judgments register and apply it consistently. It changes the consideration disclosed under B64(f) and the cash flow presentation, not goodwill.

**Hedges of the price.** A firm commitment to acquire a business can be a hedged item only for foreign currency risk (IFRS 9.B6.3.1). How the hedge result affects the combination depends on the relationship designated; practice on carrying a cash flow hedge result into goodwill varies [ref: verify].

---

## 12. Worked reconciliation

An illustration of the mechanics, using the assumed-liability view of target debt.

| Line | Amount | Source |
|---|---|---|
| SPA headline equity price | 500 | SPA cl. 3.1 |
| + Locked-box ticker to completion | 4 | SPA cl. 3.4 |
| − Leakage recovered at completion | (2) | Leakage schedule |
| = Cash paid to sellers at completion (agrees to funds flow line 1) | 502 | Funds flow |
| − Portion of the price settling the pre-existing supply contract (B52; A-04) | (5) | Report §9 |
| + Fair value of the earn-out payable to all sellers whether or not employed (A-02) | 30 | Valuation §6 |
| = **Consideration transferred** | **527** | |
| Founders' earn-out forfeited on leaving (A-03): remuneration, never in consideration | — | B55(a) |
| Target bank debt repaid at completion (funds flow line 3): liability assumed of 60. Under the consideration view, consideration would be 587 and the debt would not be a liability assumed; goodwill is unchanged | 60 | Funds flow; judgments register |

Cash flow presentation (IAS 7.39–42): cash paid to sellers 502 less cash and cash equivalents acquired 25 = 477. Cash attributed to a separate transaction is classified by its nature [judgment]: if the 5 that settles the supply contract is presented as operating, the net outflow on obtaining control is 472. Under the assumed-liability view the 60 debt repayment is a financing outflow.

# Recognition and measurement

Contents
1. Recognition: what gets in
2. Balance-sheet walk
3. Intangibles catalogue
4. Items not recognised
5. Exceptions (21A–31A)
6. Classification and designation (15–17)
7. Deferred tax
8. NCI and options over NCI
9. Previously held interests
10. Goodwill and bargain purchase
11. Measurement period
12. Reviewing a valuation report

---

## 1. Recognition

At the acquisition date the acquirer recognises, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any NCI (10), provided they meet the Conceptual Framework definitions of assets and liabilities at that date (11) and are part of what was exchanged (12). This can bring in items the acquiree never recognised: internally generated brands, patents and customer relationships (13).

Two filters catch most errors:

- **Is it an asset or liability of the acquiree at the acquisition date?** Costs the acquirer expects but is not obliged to incur — exiting activities, terminating or relocating employees — are not liabilities at that date (11). Synergies are not assets.
- **Is it part of the exchange?** Anything concluded "separate" in the arrangements register stays out.

---

## 2. Balance-sheet walk

Map every line of the acquiree's completion balance sheet, then add the items it never recognised.

| Item | Treatment | Watch for |
|---|---|---|
| Cash | Face value | Restricted cash; cash held in escrow for the acquirer |
| Trade and other receivables, loans | Fair value; no separate valuation allowance or expected-credit-loss allowance at the acquisition date (B41) | Disclose fair value, gross contractual amounts and the amount not expected to be collected (B64(h)). An expected-credit-loss allowance at the next reporting date hits profit or loss. Assets credit-impaired at acquisition are purchased or originated credit-impaired: credit-adjusted effective interest rate, and only changes in lifetime expected credit losses recognised afterwards (IFRS 9.5.5.13) |
| Inventory | Fair value (IFRS 13); for finished goods typically selling price less costs to sell and a reasonable profit for the selling effort | The step-up unwinds through cost of sales in the first inventory cycle |
| Property, plant and equipment; investment property | Fair value on a highest-and-best-use basis (IFRS 13.27–30) | Assets the acquirer will not use are still valued as market participants would use them (B43) |
| Right-of-use assets and lease liabilities, acquiree as lessee | Lease liability at the present value of the remaining payments as if a new lease; right-of-use asset at the same amount adjusted for off-market terms (28A–28B) | Optional exemptions: lease term ends within 12 months of the acquisition date; low-value assets. No separate intangible or liability for off-market terms |
| Assets leased out, acquiree as lessor | Fair value of the underlying asset taking the lease terms into account; no separate asset or liability for favourable or unfavourable operating lease terms (B42) | Lease classification kept from inception (17(a)) |
| Intangible assets | Fair value; see §3 | The acquiree's own goodwill is not an identifiable asset |
| Contracts on off-market terms (supply, customer, employment) | Favourable to the acquiree → intangible asset; unfavourable → liability assumed (IE34) | Not for leases (B42, 28B) or contracts with the acquirer, which are settled under B52 |
| Capitalised costs to obtain or fulfil contracts (IFRS 15) | Not carried over as such: their value sits in the customer-related intangible or the fair value of the contract [judgment] | Avoid counting the same economics twice |
| Investments in associates and joint ventures held by the acquiree | Fair value, which becomes the cost of the equity-accounted investment | Notional allocation of that cost inside the investment (IAS 28.32) |
| Other investments and derivatives | Fair value | Classification reassessed (16(a)); hedge relationships designated afresh (16(b)) |
| Borrowings and other financial liabilities | Fair value | Change-of-control repayment clauses; current or non-current classification; afterwards amortised cost from the acquisition-date fair value, with a new effective interest rate |
| Contract liabilities (deferred revenue) | Fair value of the remaining performance obligation, often below the acquiree's carrying amount | Do not carry over the acquiree's deferred revenue by default |
| Deferred income that is not a contract liability (for example government grants presented as deferred income) | Recognised only to the extent it is a present obligation at the acquisition date — for example to repay the grant if conditions are not met — measured at fair value [judgment] | A deferral with no obligation behind it is not a liability |
| Provisions and levies | Present obligation assessed under IAS 37.15–22 or IFRIC 21 (21A–21C), measured at fair value | The acquiree's own restructuring provisions only if IAS 37 is met at the acquisition date. After the combination the IAS 37 amount applies, so a difference from fair value emerges in profit or loss |
| Contingent liabilities | Recognised if a present obligation from past events with a reliably measurable fair value, even if an outflow is not probable (23) | A present obligation not recognised because its fair value cannot be measured reliably: B64(j). A possible obligation is not recognised; it is disclosed under IAS 37.86 in the group's contingent liabilities note unless remote |
| Contingent assets | Not recognised (23A) | Insurance recoveries and claims assessed separately |
| Employee benefits | IAS 19 (26) | Plan changes made by the acquirer are post-combination events |
| Share-based payment | Market-based measure (30) | See `arrangements-and-consideration.md` §5 |
| Assets held for sale | Fair value less costs to sell (31) | Classified as held for sale at the acquisition date if the one-year requirement is met and the other criteria are highly probable of being met within a short period, usually three months (IFRS 5.11) |
| Biological assets | Fair value (18) | Measured at fair value less costs to sell under IAS 41 afterwards, so costs to sell reach profit or loss at the next measurement [judgment] |
| Insurance contracts | IFRS 17.39 and B93–B95F (31A) | Classified on the terms and conditions at the acquisition date |
| Income taxes | IAS 12 (24–25); uncertain tax treatments under IFRIC 23 | See §7 |
| The acquiree's own contingent consideration from its past acquisitions | Liability assumed, at fair value | Not the acquirer's contingent consideration under 58; subsequent classification and measurement under IFRS 9 is a judgment [ref: verify] |
| NCI in the acquiree's own subsidiaries | Part of the NCI recognised in the combination | Measured under 19 (§8) |
| The acquiree's goodwill, deferred tax balances, equity and reserves | Eliminated; deferred tax recomputed | The acquiree's OCI reserves do not survive |

---

## 3. Intangibles catalogue

An asset is identifiable if it is separable or arises from contractual or other legal rights (Appendix A, B31–B34). The Illustrative Examples list typical items by category (IE16–IE44): marketing IE18–IE22, customer IE23–IE31, artistic IE32–IE33, contract-based IE34–IE38, technology IE39–IE44.

| Category | Examples | Usual identifiability basis | Common valuation approach | Inputs the valuer needs |
|---|---|---|---|---|
| Marketing | Trademarks, trade names, trade dress, newspaper mastheads, internet domain names, non-compete agreements | Contractual-legal (registration or contract) | Relief from royalty; with-and-without for non-competes | Revenue attributable to the brand, royalty rates, useful life, competitive effect |
| Customer | Customer contracts and relationships, order or production backlog, customer lists, non-contractual customer relationships | Contractual-legal where there is a contract or a practice of contracting; lists and non-contractual relationships separable where there is exchange evidence | Multi-period excess earnings; backlog at contract margin | Revenue by customer cohort, attrition, margins, contributory asset charges |
| Artistic | Books, music, films, pictures and photographs, television programmes | Contractual-legal (copyright) | Income approach | Royalty and exploitation forecasts |
| Contract | Licensing, royalty and standstill agreements; franchises; operating and broadcast rights; use rights (drilling, water, timber, routes); servicing contracts; favourable supply or employment contracts; construction permits | Contractual-legal | Income approach; cost approach; greenfield method for licences | Contract terms, renewal history, market terms |
| Technology | Patented and unpatented technology, software, databases, trade secrets, in-process research and development | Contractual-legal (patent) or separable | Relief from royalty, excess earnings, cost to recreate | Development costs, obsolescence, revenue attribution |

The valuation approaches and inputs in this table describe what a valuer typically needs; they are a request list, never a basis for this review to estimate a value.

Points that change answers:

- A customer relationship can arise from contract even with no contract in force at the acquisition date, where the acquiree has a practice of contracting with that customer; a customer contract and the related relationship may be two distinct assets; an order backlog meets the contractual-legal criterion even if the orders can be cancelled (IE23–IE31).
- A customer list is not separable if confidentiality or other agreements prohibit selling, leasing or exchanging information about the customers (B33).
- An item that is not separable on its own may be separable together with a related contract, asset or liability (B34).
- Fair value reflects renewals that market participants would expect, and the renewals need not be identifiable themselves (B40); reacquired rights are the exception (29).
- Servicing rights inherent in acquired financial assets are part of the fair value of those assets, not a separate intangible (contract-based examples, IE34–IE38).
- In-process research and development that meets the definition of an intangible asset is recognised at fair value (IAS 38.34); later spending on it follows IAS 38.42–43.
- An intangible and a related tangible asset with similar useful lives may be recognised together, as with an operating licence and the plant it relates to (B32(b)); a group of complementary intangible assets with similar useful lives, such as a brand, may be recognised as a single asset (IAS 38.37).
- Change-of-control clauses that let customers terminate, or that revoke licences, are inputs to these valuations; a licence that lapses on the change of control is not acquired (`tricky-clauses.md` §5).

---

## 4. Items not recognised

| Item | Reason | Reference |
|---|---|---|
| Assembled workforce | Not identifiable; subsumed into goodwill | B37 |
| Potential contracts under negotiation | Not assets at the acquisition date | B38 |
| Synergies, market position, going-concern element | Not identifiable | 32, B64(e) |
| Acquirer's restructuring or exit costs | Not liabilities at the acquisition date | 11 |
| Contingent assets | Not recognised | 23A |
| Possible (not present) obligations | Not liabilities | 23 |
| Customer lists under confidentiality that prohibits exchange | Fail separability | B33 |
| The acquiree's existing goodwill | Not identifiable | Appendix A |

The value of potential contracts is not reclassified out of goodwill because of later events, but events shortly after the acquisition can show that a separately recognisable intangible existed at the acquisition date (B38).

---

## 5. Exceptions (21A–31A)

| Paragraphs | Item | Recognition | Measurement |
|---|---|---|---|
| 21A–21C | Liabilities and contingent liabilities that would be within IAS 37 or IFRIC 21 | Present obligation assessed under IAS 37.15–22 or IFRIC 21 | Fair value (18) |
| 22–23 | Contingent liabilities | Recognised if a present obligation with reliably measurable fair value, even if an outflow is not probable | Fair value (18) |
| 23A | Contingent assets | Not recognised | — |
| 24–25 | Income taxes | IAS 12 | IAS 12 |
| 26 | Employee benefits | IAS 19 | IAS 19 |
| 27–28 | Indemnification assets | At the same time as the indemnified item | Same basis as the indemnified item, subject to collectibility and caps |
| 28A–28B | Leases, acquiree as lessee | Right-of-use asset and lease liability; optional exemptions | Remaining payments as if a new lease |
| 29 | Reacquired rights | — | Remaining contractual term, ignoring renewals |
| 30 | Share-based payment | — | IFRS 2 market-based measure |
| 31 | Assets held for sale | — | Fair value less costs to sell |
| 31A | Insurance contracts | — | IFRS 17 |

The exceptions can create or change a bargain purchase gain (35).

---

## 6. Classification and designation (15–17)

Classify and designate on the basis of contractual terms, economic conditions, the acquirer's operating or accounting policies and other pertinent conditions as they exist at the acquisition date (15). Examples (16): the classification of financial assets and liabilities under IFRS 9; designation of a derivative as a hedging instrument — the acquiree's hedge relationships do not carry over and must be designated afresh; and whether an embedded derivative must be separated. The exception (17): a lease in which the acquiree is lessor keeps its classification based on the terms at inception, or at a later modification.

---

## 7. Deferred tax

All rates, tax bases, loss positions and local rules come from the documents or the tax adviser; none is supplied from general knowledge.

- **Where differences come from.** Compare the new carrying amounts with the tax bases. In a share deal the target's tax bases usually carry over, so fair value step-ups create temporary differences. In an asset deal, or where a tax election resets bases, tax bases often move to the price paid and fewer differences arise. Confirm with the tax adviser; this is the first item on the tax request list.
- **Rates.** Use the rates enacted or substantively enacted at the acquisition date for the periods in which the differences will reverse (IAS 12.47), in each jurisdiction concerned.
- **Manner of recovery.** Measure deferred tax consistently with how the carrying amount is expected to be recovered (IAS 12.51). For an indefinite-life intangible such as a brand, the absence of amortisation does not by itself mean recovery through sale; the entity determines the expected manner of recovery and applies the matching rate and tax base (agenda decision, November 2016).
- **Goodwill.** No deferred tax liability on the initial recognition of goodwill (IAS 12.15(a)). Later taxable differences on tax-deductible goodwill are recognised (IAS 12.21B). Where the carrying amount of goodwill is less than its tax base, the deferred tax asset is recognised as part of the combination if recoverable (IAS 12.32A).
- **Acquiree losses and deductible differences.** Recognise deferred tax assets as identifiable assets to the extent recoverable (IAS 12.24, 66), considering the taxable profits against which tax law allows them to be used — including the combined group's where that is permitted, and any restriction that applies because ownership changed. Whether such a restriction exists is a question for the tax adviser.
- **The acquirer's own deferred tax assets** that become recoverable because of the combination are not part of it: recognise them in the acquirer's profit or loss (IAS 12.67).
- **Acquiree deferred tax assets recognised later:** within the measurement period and resulting from new information about acquisition-date facts, reduce goodwill, with any excess in profit or loss; otherwise profit or loss (IAS 12.68).
- **Outside basis differences** on the investment itself: IAS 12.39 and 44.
- **Uncertain tax treatments** of the acquiree: IFRIC 23, within the IAS 12 exception. Tax indemnities from the sellers are indemnification assets measured consistently with the indemnified item (27).
- **Pillar Two.** No deferred tax is recognised or disclosed for Pillar Two top-up taxes (IAS 12.4A); the acquiree's current top-up tax exposures still need assessing [judgment].

---

## 8. NCI and options over NCI

**Measurement (19–20).** For each combination, components of NCI that are present ownership interests and entitle their holders to a proportionate share of net assets in liquidation are measured at either fair value or the proportionate share of the recognised amounts of the acquiree's identifiable net assets. All other components — for example preference shares without that entitlement and equity components of convertibles issued by the acquiree — are measured at fair value unless another basis is required; unreplaced acquiree share-based payment awards are measured at their market-based measure (30, B62A–B62B). The Illustrative Examples from IE44A illustrate. NCI already present in the acquiree's own subsidiaries is part of the NCI recognised.

| Consequence | Fair value basis | Proportionate share basis |
|---|---|---|
| Goodwill | Includes the NCI's share | Parent's share only |
| Impairment testing | Direct | Goodwill notionally grossed up for testing (IAS 36 Appendix C) |
| Later purchase of NCI (IFRS 10.23) | Larger NCI carrying amount removed | Smaller NCI carrying amount removed; larger charge to parent equity |
| Evidence needed | Quoted price or valuation, considering any control premium or discount for lack of control (B44–B45) — never simply the price per share the acquirer paid | Net assets only |

**Puts, forwards and calls over the remaining interest.** A written put or forward over the NCI creates a financial liability for the present value of the redemption amount (IAS 32.23). What happens to the NCI, and where remeasurements go, is not settled in IFRS. Practice includes approaches that continue to recognise the NCI (its holders keep present access to returns) and approaches that treat the interest as already acquired (the liability forms part of consideration and no NCI is recognised). The IASB's financial instruments with characteristics of equity project addresses this — tentative decisions in September 2026 include recognising remeasurements of the liability in profit or loss — but nothing is in force. Apply the entity's policy; if there is none, present the options and their effect on goodwill, NCI and future profit or loss. If the exercise price depends on the seller's continued employment, test B55 first — part may be remuneration. Where a dedicated IAS 32 skill is available, use it for the classification.

**Calls held by the acquirer** over the NCI: a derivative asset or an equity instrument; also test whether they give present access or control (Gate 1).

---

## 9. Previously held interests

| How the interest was held | Remeasure at the acquisition date? | Where the gain or loss goes | Amounts previously in OCI |
|---|---|---|---|
| Financial asset at fair value through profit or loss | Yes (42) | Profit or loss | None |
| Equity investment at fair value through OCI | Yes (42) | OCI | Never reclassified to profit or loss; may be transferred within equity (IFRS 9.5.7.5, B5.7.1) |
| Associate or joint venture | Yes (42) | Profit or loss | Reclassified or transferred as if disposed of (for example, the translation reserve is reclassified to profit or loss; a revaluation surplus is transferred to retained earnings) |
| Party to a joint operation that is a business | Yes, the entire previously held interest (42A) | Profit or loss | As for an associate |
| Interest in a group of assets that is not a business | No IFRS 3 requirement; generally not remeasured (agenda decision, January 2016, for joint operations) | — | See `asset-acquisition.md` |

The fair value of the previously held interest need not equal the per-share price just paid, which may include a control premium that market participants would not pay for the earlier holding (by analogy with B45) [judgment]. The fair value comes from the documents or the valuer.

Run `scripts/ifrs3_calc.py step-acquisition` where code can run.

---

## 10. Goodwill and bargain purchase

Goodwill (32) = (a) consideration transferred + NCI + acquisition-date fair value of any previously held interest, less (b) the net of the identifiable assets acquired and liabilities assumed. With no consideration transferred, use the fair value of the acquirer's interest in the acquiree (33, B46).

What goodwill comprises, to be described qualitatively (B64(e)) from the documents (board papers, the valuation report): expected synergies, assembled workforce, market position, the going-concern element, deferred tax on fair value step-ups, and any overpayment. Goodwill that is large relative to the recognised intangibles is a signal to re-run the intangibles sweep.

**Before a valuation exists**, "consideration transferred less the acquiree's book net assets" may be shown to give a sense of scale, labelled "excess over book net assets — not goodwill; to be allocated by the purchase price allocation". It is never presented or booked as goodwill by this review.

**Bargain purchase (34–36; illustrated within IE45–IE53).** Where (b) exceeds (a), first reassess whether every asset acquired and liability assumed has been identified, then review the procedures used to measure the net assets, NCI, any previously held interest and the consideration (36). Only then recognise the remaining gain in profit or loss at the acquisition date, attributed to the acquirer (34). Genuine causes include a forced sale (35) and the recognition and measurement exceptions (35); NCI measured at a fair value below its share of the net assets also enlarges a gain. Record the reassessment in §12 of the report and the reasons for disclosure (B64(n)).

Run `scripts/ifrs3_calc.py goodwill` where code can run.

---

## 11. Measurement period

- Report provisional amounts for items whose accounting is incomplete at the reporting date (45).
- Adjust within the measurement period for new information about facts and circumstances that existed at the acquisition date, and recognise additional assets or liabilities on the same basis (45). The period ends when the acquirer receives the information it was seeking or learns that no more is obtainable, and never exceeds one year from the acquisition date.
- Consider all pertinent factors, including when the information arrived and whether a reason for the change can be identified: information obtained shortly after the acquisition date is more likely to reflect conditions at that date, and a quick sale at a very different price usually indicates an error in the provisional amount (47).
- Adjustments are made against goodwill (48) — or the bargain purchase gain — and recognised as if the accounting had been completed at the acquisition date, revising comparatives, including depreciation and amortisation (49). The catch-up effects go into the revised comparatives, not into a current-period gain or loss (the measurement-period example within IE45–IE53).
- After the period ends, revise only to correct an error under IAS 8 (50).
- Changes in the fair value of contingent consideration caused by events after the acquisition date, such as meeting an earnings target, are not measurement-period adjustments (58).

---

## 12. Reviewing a valuation report

Accountants usually receive the valuation rather than prepare it. Check:

- **Basis.** Fair value under IFRS 13 from market participants' perspective, not investment value to this acquirer; highest and best use; assets held defensively still valued (B43).
- **Starting point.** The price the valuer reconciles to must be the consideration transferred after unbundling (§10 of the report), not the headline price: an earn-out that is remuneration, or a payment that settles a pre-existing relationship, must not be in it.
- **Completeness.** Every item from the intangibles sweep is valued or its omission explained; the assembled workforce appears only as a contributory asset, not a recognised one.
- **Consistency.** Forecasts agree with the deal model and board papers; useful lives agree with the planned amortisation; attrition is consistent with history.
- **Returns.** The weighted average return on assets reconciles to the internal rate of return implied by the price and to the weighted average cost of capital; asset-specific rates rank sensibly, lowest for working capital and highest for intangibles and goodwill.
- **Tax.** Tax amortisation benefits are included only where market participants would obtain them; deferred tax is computed on the step-ups.
- **Contingent consideration and NCI.** Methods and key inputs are documented for B64(g) and B64(o).
- **Dates.** The valuation date is the acquisition date, not signing or the locked-box date.
- **Bargain purchase or unusually small goodwill.** The reasons are documented.

Record findings as questions to the valuer in §17 of the report. Never substitute your own numbers.

# Asset acquisition track

Applies when Gate 3 concludes that the acquired set is not a business (2(b)) — including where the concentration test is met — whether the assets are bought directly or through the shares of an entity that holds them.

Contents
1. What changes compared with a business combination
2. Cost of the group
3. Allocating the cost
4. Deferred tax
5. Variable and contingent payments
6. NCI and previously held interests
7. Shares of a single-asset entity
8. Presentation, disclosure and entries

---

## 1. What changes

| Topic | Business combination | Asset acquisition |
|---|---|---|
| Goodwill | Recognised | Never (2(b)) |
| Bargain purchase gain | Recognised after reassessment | None; any discount is spread through the relative fair value allocation (items later measured at fair value can still produce a gain or loss under their own Standard — §3) |
| Transaction costs | Expensed (53) | Capitalised where the asset's Standard includes directly attributable costs (IAS 16.16–17, IAS 38.27, IAS 40.20) |
| Deferred tax on initial recognition | Recognised | Initial recognition exception (IAS 12.15(b), 24), subject to the exception for equal taxable and deductible differences (§4) |
| Contingent liabilities | Recognised under 23 | Not on that basis; IAS 37 applies |
| Contingent or variable payments | Fair value, remeasured (58) | No specific guidance; policy (§5) |
| Measurement period | Up to one year (45) | None |
| Intangibles | Recognised under IFRS 3's identifiability criteria | Recognised under IAS 38 as separately acquired |
| Shares issued as payment | Consideration at fair value (37) | IFRS 2 for goods received — non-financial assets measured at the fair value of the goods received unless that cannot be estimated reliably (IFRS 2.5, 10, 13); instruments issued for cash or financial assets fall under IAS 32 |
| Previously held interest | Remeasured to fair value (42) | Generally not remeasured (§6) |

---

## 2. Cost of the group

Cost = consideration (cash, the fair value of non-cash items given, liabilities incurred) + directly attributable transaction costs where the relevant Standard allows them. Exchanges of non-monetary assets follow the exchange rules of the relevant Standard (IAS 16.24–26; IAS 38.45–47). Liabilities assumed are part of the group, so the allocation covers all identifiable assets and liabilities.

Unbundle as in Stage 3: amounts paid for the seller's future services, or to settle a relationship between the parties, are not part of the cost of the assets.

---

## 3. Allocating the cost

2(b) requires the cost of the group to be allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. The Interpretations Committee (November 2017) described two reasonable readings for groups that include items initially measured at an amount other than cost (for example financial instruments at fair value), or where the sum of the individual fair values differs from the price. The entity applies its reading consistently to all such acquisitions and discloses it where that would assist users (IAS 1.117–124; IAS 8.27A once IFRS 18 applies).

- **Approach 1.** Allocate the whole cost to every item by relative fair value to establish an individual transaction price; then apply each item's initial measurement requirements, accounting for any difference between that measurement and the individual transaction price under the relevant Standard.
- **Approach 2.** First measure the items initially measured at an amount other than cost at the amount their Standard specifies; deduct those amounts from the cost; then allocate the residual to the remaining items by relative fair value.

Where the price for the group initially appears to differ from the sum of the individual fair values, first review the procedures used to determine those fair values to assess whether the difference truly exists (November 2017).

**Worked example (illustration only).** Building, fair value 80; equipment, fair value 20; receivable, fair value 10 (measured at fair value under IFRS 9). Cost 100 (price 99 plus transaction costs 1).

- Approach 2: receivable 10; residual 90 allocated to building 72.00 and equipment 18.00.
- Approach 1: building 100 × 80/110 = 72.73; equipment 18.18; receivable 9.09, then measured at 10 under IFRS 9, with the 0.91 difference accounted for under IFRS 9's requirements for a difference between fair value and transaction price at initial recognition (IFRS 9.B5.1.2A).

**Liabilities assumed.** In practice they are commonly measured at the amount their Standard requires, with the rest of the cost allocated to the assets — Approach 2 mechanics. A literal Approach 1 allocation scales every item, including liabilities, by cost ÷ net fair value; review whether the result is sensible before using it, and record the entity's approach.

**Items later measured at fair value.** An investment property carried under the fair value model, or a biological asset, is measured at its allocated cost on initial recognition and at fair value at the next measurement date; any difference goes to profit or loss under that Standard. This is common when a single-asset entity is bought at a price that reflects its latent tax (§7).

Enter liabilities with negative amounts. Run `scripts/ifrs3_calc.py allocate` where code can run.

---

## 4. Deferred tax

No deferred tax is recognised on the initial recognition of an asset or liability in a transaction that is not a business combination, affects neither accounting profit nor taxable profit, and does not give rise to equal taxable and deductible temporary differences (IAS 12.15(b), 24). The last condition, added in 2021, matters where the acquired group includes leases or decommissioning obligations (IAS 12.22A). Temporary differences left unrecognised at acquisition stay unrecognised as they unwind (IAS 12.22(c)); new differences arising later, such as from fair value remeasurement, are recognised. Record the tax bases of the acquired items for the tax adviser to confirm.

---

## 5. Variable and contingent payments

IFRS has no specific requirements for variable payments in an asset acquisition — milestones and royalties in a licence deal are the common case; the IASB and the Interpretations Committee have considered the issue without resolving it [ref: verify current status]. Practice includes:

- **Cost accumulation.** Recognise the variable payment when the obligation is incurred (or becomes probable, depending on policy) and add it to the asset's cost — unless it relates to future use or output of the asset, in which case expense it or apply another Standard.
- **Financial liability.** Where an obligation to pay cash already meets the definition of a financial liability at acquisition, recognise it at fair value under IFRS 9, with remeasurements in profit or loss or, under some policies, against the asset's cost.

Apply the entity's policy. If it has none, present the approaches with their effects and ask.

---

## 6. NCI and previously held interests

Obtaining control of an entity that is not a business can create NCI, but IFRS 3's choice in 19 does not apply. NCI is commonly measured at its proportionate share of the net assets as allocated; some entities use fair value [policy].

No IFRS requirement remeasures a previously held interest in an asset acquisition. For joint operations that are not businesses, the Interpretations Committee (January 2016) described a cost-based approach under which previously held interests are generally not remeasured; the same approach is common for other holdings, adding the carrying amount of the earlier interest to the cost accumulated [policy]. Record both policies in the judgments register.

---

## 7. Shares of a single-asset entity

In the consolidated statements, buying the shares of an entity that holds one property, licence or vessel is still an asset acquisition if the set is not a business. The entity's other assets and liabilities (a bank balance, a tax payable, a lease) join the allocation.

**Deferred tax (agenda decision, March 2017).** On acquiring a single-asset entity that is not a business — in the fact pattern, an investment property measured under the fair value model, bought at a price below its fair value because of the latent tax — the acquirer applies the initial recognition exception: it recognises no deferred tax liability for the difference between the asset's allocated cost and its tax base inside the entity, and allocates the entire purchase price to the property. As a consequence, where the asset is then carried at fair value, the next remeasurement produces a gain or loss in profit or loss, and deferred tax arises on changes after acquisition.

In the investor's separate statements, the investment is at cost, under IFRS 9 or using the equity method (IAS 27.10).

---

## 8. Presentation, disclosure and entries

- Disclose through the relevant asset Standards (additions in the IAS 16, IAS 38 or IAS 40 reconciliations) and the entity's accounting policy for asset acquisitions. The IFRS 3 disclosures do not apply.
- Cash flows: IAS 7.39 covers obtaining control of "subsidiaries or other businesses", so a subsidiary holding a single asset is literally within it; some entities present the outflow as a purchase of the underlying asset class instead. Both are investing; choose, disclose and apply consistently [judgment].
- In the report, §10 becomes the cost of the group, §11B reads "Not applicable: asset acquisition", §12 becomes the allocation table with the statement "No goodwill arises (2(b))", and §14A and §15 carry their asset-acquisition placeholders. In §1 the goodwill row of the key numbers reads "Cost allocated — no goodwill arises (2(b))".

```
Dr  [Asset A]                     [allocated cost]
Dr  [Asset B]                     [allocated cost]
    Cr  [Liabilities assumed]     [amounts under their Standards]
    Cr  Cash                      [price plus capitalised costs]
Ref: IFRS 3.2(b); IFRIC agenda decision November 2017, Approach [1 / 2]
```

# Disclosures and day-two accounting

Contents
1. B64 map
2. B65–B67 and 63
3. Other Standards
4. Draft note
5. Day-two plan
6. Goodwill after the acquisition
7. Separate financial statements
8. IFRS 18 presentation

---

## 1. B64 map

Required for each business combination in the period, to meet the objective in 59 (60). For every item record the content, its status (available, partly available, missing, not applicable), the source and draft wording. IE72 illustrates a complete note.

| Item | Content | Usual source |
|---|---|---|
| (a) | Name and description of the acquiree | SPA, board papers |
| (b) | Acquisition date | Completion certificate |
| (c) | Percentage of voting equity interests acquired | SPA, share register |
| (d) | Primary reasons for the combination and how control was obtained | Board papers, announcement |
| (e) | Qualitative description of the factors that make up goodwill | Board papers, valuation report |
| (f) | Acquisition-date fair value of total consideration and of each major class: cash; other tangible or intangible assets, including a business or subsidiary of the acquirer; liabilities incurred, such as contingent consideration; equity interests, with the number issued or issuable and how their fair value was measured | Report §10 |
| (g) | Contingent consideration and indemnification assets: amount recognised; description of the arrangement and basis for the payment; undiscounted range of outcomes, or why a range cannot be estimated; whether the maximum is unlimited | SPA schedules, valuation |
| (h) | Acquired receivables by major class: fair value, gross contractual amounts, best estimate at the acquisition date of contractual cash flows not expected to be collected | Completion accounts, credit data |
| (i) | Amounts recognised for each major class of assets acquired and liabilities assumed | Report §11 |
| (j) | For each contingent liability recognised under 23, the IAS 37.85 information; for those not recognised because fair value cannot be measured reliably, the IAS 37.86 information and the reasons | Disclosure letter, legal due diligence |
| (k) | Total goodwill expected to be deductible for tax | Tax adviser |
| (l) | Transactions recognised separately: description, accounting, amounts and line items, and for settlements of pre-existing relationships the method used to measure the settlement | Report §9 |
| (m) | Acquisition-related costs, the amount expensed and the line items; issue costs not expensed and how they were recognised | Invoices; report §9 |
| (n) | Bargain purchase: gain and line item; reasons the transaction produced a gain | Report §12 |
| (o) | Less than 100% held: NCI recognised and its measurement basis; for NCI at fair value, valuation techniques and significant inputs | Report §12; valuation |
| (p) | Combination achieved in stages: acquisition-date fair value of the previously held interest; remeasurement gain or loss and line item | Report §12 |
| (q) | Revenue and profit or loss of the acquiree since the acquisition date; revenue and profit or loss of the combined entity as though every combination in the period had occurred at the start of the annual period; or that disclosure is impracticable, and why | Management accounts |

---

## 2. B65–B67 and 63

- **B65.** For combinations that are individually immaterial but material together, disclose B64(e)–(q) in aggregate.
- **B66.** Where the acquisition date falls after the reporting period but before the statements are authorised, give the B64 information unless the initial accounting is incomplete, in which case say which disclosures cannot be made and why. The combination is a non-adjusting event (IAS 10.22(a)).
- **B67 (current and later periods).** For each material combination, or in aggregate for those individually immaterial but material together: for provisional accounting, the reasons, the items affected, and the nature and amount of measurement-period adjustments recognised in the period; for contingent consideration until settled, changes in recognised amounts, including differences on settlement, changes in the undiscounted range and why, and valuation techniques and key inputs; for contingent liabilities recognised, the IAS 37.84–85 information; a goodwill reconciliation showing gross amount and accumulated impairment at the start and end, additions, deferred tax adjustments, held-for-sale transfers and derecognitions, impairment, exchange differences and other changes; and any material gain or loss relating to assets acquired or liabilities assumed in a current or previous combination.
- **63.** Disclose whatever else is needed to meet the objectives in 59 and 61.

---

## 3. Other Standards

| Standard | Disclosure or presentation |
|---|---|
| IAS 7.39–42 | Aggregate cash flows from obtaining control presented separately in investing activities, net of cash acquired; total consideration, the cash portion, cash in the acquiree, and other assets and liabilities by major category (IAS 7.40) |
| IAS 36.133 | Goodwill not yet allocated to cash-generating units at the reporting date, and the reasons |
| IFRS 12.12 | Subsidiaries with NCI material to the reporting entity |
| IFRS 13.93 | Recurring Level 3 fair value disclosures for contingent consideration liabilities and assets |
| IAS 24 | Sellers who become key management personnel, and transactions with them |
| IAS 1.117–124 (IAS 8.27A and 27G once IFRS 18 applies) | Accounting policies, including the asset-acquisition allocation approach and the NCI policy, and significant judgments — routing, acquirer identification, B55 conclusions |
| IAS 1.125 (IAS 8.31A once IFRS 18 applies) | Estimation uncertainty in fair values and contingent consideration |
| IAS 10.22(a) | Combinations after the reporting date |
| IAS 34.16A(i) | Interim reports: the IFRS 3 disclosures for combinations in the interim period |
| IFRS 19 | Reduced disclosures for eligible subsidiaries from 2027 [ref: verify paragraph] |

---

## 4. Draft note

Bracket every fact that is not in the documents. The wording below is a template; every number and fact in it comes from §10–§14 of the report or stays in brackets.

> **[Note X] Business combination — acquisition of [Acquiree]**
>
> On [acquisition date] [the Group] acquired [x]% of the voting equity interests of [Acquiree], [description], and obtained control through [the purchase of shares / a contractual arrangement]. [Primary reasons for the acquisition.]
>
> **Consideration transferred**
>
> | | [CU] |
> |---|---|
> | Cash | [ ] |
> | Deferred consideration | [ ] |
> | Contingent consideration | [ ] |
> | [Number] ordinary shares of [Acquirer], measured at the quoted price of [ ] on [acquisition date] | [ ] |
> | Total consideration transferred | [ ] |
>
> **Contingent consideration.** [Description, metric and period.] The Group will pay between [ ] and [ ] (undiscounted) [or: there is no maximum]. Its acquisition-date fair value of [ ] was estimated using [technique and key inputs].
>
> **Acquisition-related costs** of [ ] were recognised as expenses in [line item]. Costs of [ ] attributable to issuing shares were deducted from equity.
>
> **Identifiable assets acquired and liabilities assumed.** [Table by major class.] Receivables with a fair value of [ ] have gross contractual amounts of [ ], of which [ ] is not expected to be collected.
>
> **Goodwill** of [ ] reflects [expected synergies, the assembled workforce and other factors]. [ ] is expected to be deductible for tax purposes.
>
> **Non-controlling interest** of [ ] was measured at [its proportionate share of the acquiree's identifiable net assets / fair value, using [technique and significant inputs]].
>
> **[Previously held interest.]** The Group's [ ]% interest held immediately before the acquisition was remeasured to its fair value of [ ], giving a [gain / loss] of [ ] recognised in [line item].
>
> **[Transactions recognised separately.]** [Description, accounting, amounts and line items.]
>
> **Contribution.** Since the acquisition date [Acquiree] has contributed revenue of [ ] and [profit / loss] of [ ]. Had the acquisition occurred on [start of the annual period], Group revenue would have been [ ] and [profit / loss] [ ].
>
> **[Provisional amounts.]** The fair values of [items] are provisional pending [information] and may be adjusted until [date].

---

## 5. Day-two plan

| Item | Subsequent requirement | Where recognised | Reference |
|---|---|---|---|
| Contingent consideration, liability or asset | Fair value at each reporting date; for a liability, all changes including own credit risk | Profit or loss | 58(b); IFRS 9.4.2.1(e) |
| Contingent consideration, equity | Not remeasured; settlement within equity | Equity | 58(a) |
| Deferred or contingent consideration in a foreign currency | Retranslated at the closing rate | Profit or loss | IAS 21.23, 28 |
| Contingent liabilities recognised | Higher of the IAS 37 amount and the initial amount less cumulative income recognised under IFRS 15, until settled, cancelled or expired | Profit or loss | 56 |
| Provisions measured at fair value at acquisition | IAS 37 best estimate from the next measurement | Profit or loss | 54; IAS 37 |
| Indemnification assets | Same basis as the indemnified item, subject to caps and collectibility; derecognised on collection, sale or loss of the right | Profit or loss | 57 |
| Reacquired rights | Amortised over the remaining contractual period | Profit or loss | 55 |
| Post-combination remuneration (earn-outs treated as pay, replacement awards, retention) | Over the service period | Profit or loss | IAS 19, IFRS 2 |
| Deferred consideration | Discount unwinds | Finance cost | IFRS 9 |
| Acquired borrowings | Amortised cost using the effective interest rate set from the acquisition-date fair value | Finance cost | IFRS 9 |
| Inventory step-up | Released as the inventory is sold | Cost of sales | IAS 2 |
| Step-ups on property, plant and equipment and intangibles | Depreciated or amortised over useful lives; indefinite-life intangibles tested annually | Profit or loss | IAS 16, IAS 38, IAS 36 |
| Acquired in-process research and development | Later research spending expensed; development spending capitalised only if IAS 38.57 is met | Profit or loss or asset | IAS 38.42–43 |
| Contract liabilities recognised at fair value | Released as the performance obligations are satisfied | Revenue | IFRS 15 |
| Acquired receivables | Expected-credit-loss allowance from the next reporting date | Profit or loss | IFRS 9 |
| Biological assets | Fair value less costs to sell from the next measurement | Profit or loss | IAS 41 [judgment on presentation of the first difference] |
| Deferred tax on step-ups | Unwinds with the step-ups | Tax expense | IAS 12 |
| Options over NCI | Per the entity's policy | Profit or loss or equity | Policy |
| Later payments of deferred or contingent consideration | IAS 7 does not specify the classification; practice varies (for example, investing or financing for the amount recognised at the acquisition date, operating for any excess). State the policy and apply it consistently | Statement of cash flows | [judgment] |
| Goodwill | Allocated to cash-generating units; tested annually and whenever there is an indication | Profit or loss for impairment | IAS 36 |
| Goodwill and fair value adjustments of a foreign operation | Treated as the foreign operation's assets and liabilities and retranslated at the closing rate; restated under IAS 29 where the foreign operation reports in a hyperinflationary currency [ref: verify] | OCI | IAS 21.47 |

---

## 6. Goodwill after the acquisition

- Goodwill is measured at the amount recognised at the acquisition date less accumulated impairment losses, and is not amortised (B63(a); IAS 36).
- Allocate it to the cash-generating units, or groups of units, expected to benefit from the synergies, at a level no higher than an operating segment before aggregation (IAS 36.80).
- If the initial allocation cannot be completed by the end of the annual period in which the combination occurs, complete it before the end of the first annual period beginning after the acquisition date (IAS 36.84), and disclose the unallocated amount (IAS 36.133).
- Test annually and whenever there is an indication of impairment (IAS 36.90). A unit containing goodwill from a combination in the current period is tested before the end of that period (IAS 36.96).
- With NCI measured at its proportionate share, gross up goodwill notionally for impairment testing (IAS 36 Appendix C).

---

## 7. Separate financial statements

The acquirer's investment in the subsidiary is measured at cost, under IFRS 9 or using the equity method (IAS 27.10). IFRS 3 does not govern these statements. Whether transaction costs are included in cost, and how contingent consideration affects cost, are policy areas: record the entity's policy; including directly attributable costs in cost is common practice [ref: verify]. Dividends from the subsidiary are recognised in profit or loss when the right is established (IAS 27.12). When a dividend is recognised, evidence that it exceeds the subsidiary's total comprehensive income for the period, or that the investment's carrying amount exceeds the consolidated carrying amount of the subsidiary's net assets including goodwill, is an impairment indicator (IAS 36.12(h)).

---

## 8. IFRS 18 presentation

For annual periods beginning on or after 1 January 2027 (earlier application permitted), the line items referred to in B64(l)–(p) follow the IFRS 18 statement of profit or loss and its categories. Determine the category — operating, investing or financing — for acquisition-related costs, bargain purchase gains, remeasurement gains on previously held interests, contingent consideration remeasurements and the unwinding of deferred consideration, using IFRS 18's requirements [ref: verify]. IAS 8 is retitled *Basis of Preparation of Financial Statements*; the policy, judgment and estimation-uncertainty disclosures sit in IAS 8.27A, 27G and 31A.

# Output template — mandatory structure

Three parts, eighteen sections, always in this order and with these headings. The reader gets the answer first, then the reasoning, then the working papers.

- **Part 1 — Overview** (§1–§2): what the transaction is, the numbers, and what to do next. Readable in two minutes.
- **Part 2 — Understanding** (§3–§4): the deal and its accounting in plain words, and the clauses that drive the answer.
- **Part 3 — Working papers** (§5–§18): the full, source-referenced analysis a reviewer or auditor will check.

No section is dropped, merged, renamed or reordered, whatever the input. A section with no content carries its placeholder line; where the transaction is routed out of IFRS 3, every section not completed reads `Not applicable: transaction routed to [Standard] in §7.` Content scales with the deal; structure never does. This is what lets a reviewer compare a first pass on a thin pack with a second pass once the executed documents and the valuation arrive, or compare two deals. For a small or simple deal most Part 3 sections will be one or two lines — that is the right answer, not a gap.

Express mode does not use this template (see SKILL.md). File memo mode wraps it: memo front matter before §1 (purpose, scope, sources relied on, version basis), an issue-by-issue analysis (issue, requirement, analysis, conclusion) inside the relevant Part 3 sections, draft accounting policy wording after §16, and a preparer and reviewer block after §18.

Open with one title line:
`IFRS 3 acquisition review — [acquirer] / [acquiree or asset set] — acquisition date [date / not established] — [Standard / File memo] — documents reviewed: [n]`

IDs are stable for the run: T-nn tricky terms, A-nn arrangements, C-nn consideration components, R-nn recognition items, J-nn journal entries, P-nn provisional items, Q-nn judgments.

## Presentation rules

- **Language.** Write in the user's language. Quote documents in their original language; add a translation marked "[translation]" where the original is not in the user's language. IFRS paragraph references stay as they are.
- **Plain language in Parts 1–2.** Short sentences; one idea per bullet; jargon defined once; paragraph references in brackets at the end of a line, not in the middle of it.
- **Tables.** At most six columns. Put long reasoning in a note under the table, keyed by ID, not inside a cell.
- **Amounts.** State the currency and unit once per table (for example "EUR thousand"). Negative amounts in parentheses. Round as the source documents do. An amount that is not available is written "[not available: missing input]", never estimated.
- **Status labels.** Concluded / Conditional / Cannot conclude, exactly as defined in SKILL.md. Provisional / final for amounts.
- **Consistency.** Every number and conclusion in Parts 1–2 must appear, identically, in Part 3. Parts 1–2 introduce nothing new.
- **Limits.** Stated once, in §18. No disclaimers anywhere else.

---

# Part 1 — Overview

## §1 — Summary

**Bottom line.** Three to six bullets, plain language, most important first. Each bullet ends with its status and where the analysis sits.

Example of form (not of content): `• You obtained control on [date], at completion — not on the [date] effective date in the SPA, which only affects the price. (Concluded — §8)`

**Key conclusions.** Fixed rows in this order.

| Question | Answer | Status | Basis (requirement; evidence) | Pivot fact |
|---|---|---|---|---|
| What is the transaction? | Business combination / asset acquisition / common control / [other Standard] | | | |
| Acquirer | | | | |
| Acquisition date | | | | |
| Consideration transferred | Amount, or "not computable: [missing input]" | | | |
| Arrangements treated as separate | Number and total, cross-referenced to §9 | | | |
| NCI measurement basis | | | | |
| Previously held interest | Remeasurement gain or loss, or "none" | | | |
| Goodwill / bargain purchase / cost allocated | | | | |
| Provisional items | Number, and the measurement period end date | | | |
| Most significant judgment | | | | |

**Key numbers.** Fixed rows; amounts only from §10–§14.

| Item | Amount | Status | Where |
|---|---|---|---|
| Consideration transferred | | final / provisional / not computable | §10 |
| Net identifiable assets (of which intangibles the acquiree had not recognised) | | | §11 |
| Non-controlling interest | | | §12 |
| Goodwill, or (bargain purchase gain) | | | §12 |
| Recognised in profit or loss at or around the acquisition date (acquisition-related costs, settlement gains or losses, remeasurement of a previously held interest, immediately expensed post-combination portions) | | | §9, §12 |
| To be expensed after the acquisition (earn-outs and other payments treated as pay, retention, replacement awards), with the period | | | §9, §14 |
| Contingent consideration: amount recognised; undiscounted range or "unlimited" | | | §10 |
| Net cash outflow on obtaining control | | | §10 |

*Asset acquisitions:* replace the goodwill row with `Cost allocated to the assets and liabilities — no goodwill arises (2(b))` and show costs capitalised.

**Comparison with your treatment.** Only where the user supplied a proposed treatment or draft purchase price allocation, and only after the independent analysis:

| Area | Your treatment | This analysis | Reference | Consequence if this analysis is right |
|---|---|---|---|---|

*Placeholder if no treatment was supplied:* `No proposed treatment was supplied. Supplying one produces a two-way comparison here.`

## §2 — Next steps: open points that could change the answer

Three to seven items where a single fact flips a conclusion or the amount at stake is largest, ranked. One line each: what is missing, who holds it, what changes.

Format: `1. A-03 Founders' earn-out — need service agreement cl. 12 (legal counsel) — if resignation forfeits the payment, [amount] moves from goodwill to post-deal expense over [period] (B55(a)).`

Then one line: `Measurement period ends no later than [acquisition date + 1 year] (45).` (or `Not applicable` for an asset acquisition or a route out of IFRS 3).

*Placeholder:* `No open point changes a conclusion — see §17 for routine information requests.`

---

# Part 2 — Understanding

## §3 — The deal and its accounting in plain words

**What happened.** At most 150 words: who bought what from whom, how it was paid, which special terms matter. Every fact must be in §6; nothing new.

**Timeline.** One line per date that appears in the documents, in order:

| Date | Event | Accounting relevance |
|---|---|---|
| | Signing | Not the acquisition date |
| | Locked-box / effective date | Pricing only |
| | Completion | Acquisition date, if control passed then |
| | Measurement period end (computed: acquisition date + 1 year at most) | Last date for provisional adjustments |
| | Earn-out measurement and payment dates | Remeasurement or expense |

**From price to goodwill.** The bridge that explains the number. Amounts only from Part 3; placeholders otherwise.

| Step | Amount | Why (one line) | Where |
|---|---|---|---|
| Headline price per the SPA | | | §10 |
| ± Price adjustments (completion accounts, locked-box ticker, leakage) | | | §10 |
| − Amounts that pay for something other than the business (separate transactions) | | | §9 |
| + Fair value of deferred, contingent and equity consideration not in the headline price | | | §10 |
| = Consideration transferred | | | §10 |
| + Non-controlling interest; + fair value of any previously held interest | | | §12 |
| − Acquiree's net assets at book value, excluding its own goodwill | | | §11 |
| − Fair value adjustments, net (intangibles not previously recognised, step-ups, less additional liabilities) | | | §11 |
| + Net deferred tax liability on those adjustments (a net asset reduces goodwill) | | | §11 |
| = Goodwill, or (bargain purchase) | | | §12 |

If no valuation exists yet, stop the bridge at "consideration transferred less book net assets" and label that line `Excess over book net assets — not goodwill; to be allocated by the purchase price allocation`. Never call it goodwill.

**Why the answer comes out this way.** Three to six bullets, one per conclusion that drives the numbers, each with the deciding clause and requirement. Example of form: `• The founders' earn-out (A-03) is pay, not price: clause 7.3 forfeits it if they resign (B55(a)). It is expensed over the three-year earn-out period, not added to goodwill.`

*Asset acquisitions:* the bridge ends at `Cost allocated to identifiable assets and liabilities by relative fair value — no goodwill (2(b))`.
*Placeholder if routed out of IFRS 3:* `Not an IFRS 3 transaction — see §7. [One paragraph on the Standard that applies and why.]`

## §4 — Tricky terms found in the documents

One card per clause from `tricky-clauses.md` (or any other clause) that changes the accounting or needs a judgment, most significant first. Cards are short lists, not code blocks, so they wrap on any screen.

**T-01 — [Clause name]** ([document, clause, page])
- *What it says:* "[verbatim quote]" [translation if needed]
- *Why it matters:* [effect on route, date, consideration, net assets or profit or loss — with the amount if known]
- *Treatment:* [conclusion and requirement] — [Concluded / Conditional on … / Cannot conclude]
- *See:* [A-/C-/R-/Q- IDs]

*Placeholder:* `No clause beyond the standard purchase terms changes the accounting — the sweep in tricky-clauses.md found no hits.`

---

# Part 3 — Working papers

## §5 — Scope, inputs, coverage and assumptions

One line each unless the content needs more.

- **Reporting entity and financial statements:** consolidated / separate / own statements (trade-and-assets deal or statutory merger) / acquiree's own
- **Reporting period end and authorisation date:**
- **Framework and version basis:** IFRS 3 as in issue; amendment position verified as at [date]; local endorsement where relevant; IFRS 18 adopted or not; IFRS 19 applied or not
- **Mode:** Standard / File memo
- **Currency and units; functional currencies of acquirer and acquiree:**
- **Inputs reviewed:**

| # | Document | Date | Executed or draft | Coverage (fully / partly, with the part / not read, with the reason) |
|---|---|---|---|---|

- **Referenced but not supplied:**
- **Entity policies relied on:** NCI basis; asset-acquisition allocation approach; options over NCI; common control method; variable payments in asset acquisitions; cash flow classification of later consideration payments — each "stated by user", "evidenced in [document]" or "not stated"
- **Assumptions:**

| # | Assumption | Conclusion affected | Consequence if wrong |
|---|---|---|---|

- **Basis of this report:** documented review / partly user-stated / structured hypothesis from a description only

*Placeholder if no documents:* `No documents supplied. This report is a structured hypothesis based on the user's description, not a review of source material.`

## §6 — Deal fact sheet

All 28 terms from `document-intake.md` §3, in order. Consecutive rows that are all "not stated" or "not applicable" may be collapsed into one row that lists their numbers (for example `Rows 8–13 — not stated: the SPA provides only a fixed cash price`), so the table stays complete without padding.

| # | Term | Extract (verbatim where wording decides) | Source | Evidence (D / U / A) |
|---|---|---|---|---|

## §7 — Routing: control, scope and business test

- **Gate 1 — Control:** over what control is obtained, how (IFRS 10), from when; evidence; alternatives rejected
- **Gate 2 — Exclusions:** 2(a); 2(c) with B1–B4; 2A — each tested and stated
- **Gate 3 — Business test:**
  - Concentration test: elected / not elected; if elected, the computation (gross assets, exclusions, single asset or group of similar assets, percentage) and the judgment
  - Outputs at the acquisition date: yes / no (B12A)
  - Inputs acquired; processes acquired; organised workforce — acquired, or accessed through a contract (B12D(a))
  - Substantive-process test: B12B or B12C, limb by limb
  - Conclusion
- **Special structures checked:** reverse acquisition; Newco; contract alone; mutual entities; joint operation; statutory merger; carve-out with delayed closings — each "not applicable" or analysed
- **Route:** the track followed and the reference file used

## §8 — Acquirer and acquisition date

- **Acquirer:** conclusion; IFRS 10 analysis; B14–B18 factors where needed, each with evidence and direction
- **Reverse acquisition:** tested / not relevant because no shares were issued
- **Acquisition date:** conclusion and evidence (completion certificate, condition satisfaction notice)
- **Other dates in the documents:**

| Date | What it is | Why it is not the acquisition date |
|---|---|---|

*Placeholder if routed out of IFRS 3:* `Not applicable: transaction routed to [Standard] in §7.`

## §9 — Arrangements register

Every funds-flow line and every agreement around the deal.

| ID | Arrangement and source | Who initiated, who benefits (B50) | Conclusion | Accounting | Pivot fact |
|---|---|---|---|---|---|

Conclusion is one of: part of the exchange / separate transaction / split (state the split). The amount and the reference go in the Accounting column.

For each payment to a seller who becomes an employee, director or consultant, add a **B55 card**:

**A-nn — B55 card — [arrangement]**
- *Operative clause:* "[verbatim]" ([source])
- *Leaver terms:* what forfeits the payment — resignation / any termination other than listed good-leaver events / only dismissal for cause / breach of a covenant only
- *B55(a):* automatic forfeiture yes / no / cannot tell. If yes, remuneration — stop unless the service condition is not substantive, and say why. No part of a forfeitable payment is carved out as "price".
- *B55(b)–(h):* only if there is no automatic forfeiture — each indicator with its evidence and direction
- *Conclusion:* remuneration / consideration / split — accounting under IAS 19 or IFRS 2 — amount per period where stated

*Placeholder:* `No arrangements other than the purchase of the acquiree were identified in the documents supplied.`

## §10 — Consideration transferred

| ID | Component and terms (source) | Acquisition-date amount and basis | Classification | Later accounting |
|---|---|---|---|---|

**Reconciliation — the three numbers**

| Line | Amount | Source |
|---|---|---|
| SPA headline price | | |
| ± Price adjustments (completion accounts / locked box) | | |
| − Amounts attributed to separate transactions (§9) | | |
| + Fair value of deferred, contingent and equity components not in the headline price | | |
| = Consideration transferred | | |
| Cash paid at completion per the funds flow | | |
| − Cash and cash equivalents acquired | | |
| = Net cash outflow on obtaining control (IAS 7.39–42) | | |

Explain every difference. State the view taken on any target debt repaid at completion and on any shareholder loans acquired.

*Asset acquisitions:* this section becomes the cost of the group (`asset-acquisition.md` §2).

## §11 — Identifiable assets acquired and liabilities assumed

**11A — Recognition and measurement register**

| ID | Item (in acquiree's books? Y/N) | Basis: recognition / measurement | Amount | Status | Input still needed, and from whom |
|---|---|---|---|---|---|

Recognition basis for intangibles: separable / contractual-legal (B31–B34). Measurement basis: fair value (18) or the exception paragraph. Status: final / provisional.

**11B — Exceptions checklist.** Every row, marked applicable or not applicable, with one line.

| Paragraphs | Item | Applicable? | Treatment |
|---|---|---|---|
| 21A–21C | Liabilities within IAS 37 / IFRIC 21 | | |
| 22–23 | Contingent liabilities | | |
| 23A | Contingent assets | | |
| 24–25 | Income taxes | | |
| 26 | Employee benefits | | |
| 27–28 | Indemnification assets | | |
| 28A–28B | Leases, acquiree as lessee | | |
| 29 | Reacquired rights | | |
| 30 | Share-based payment | | |
| 31 | Assets held for sale | | |
| 31A | Insurance contracts | | |

**11C — Classification and designation at the acquisition date (15–17)**

**11D — Deferred tax:** share or asset deal for tax purposes; temporary differences by class; acquiree losses and any change-of-ownership restriction (from the tax adviser); goodwill; items kept outside the combination (IAS 12.67)

**11E — Considered and not recognised**

| Item | Reason | Reference |
|---|---|---|

*Placeholder for 11E:* `No candidate item was rejected.` This is rare: an assembled workforce is present in almost every business combination.

*Asset acquisitions:* 11A lists the identifiable items to which cost is allocated; 11B reads `Not applicable: asset acquisition`; 11D applies the initial recognition exception.

## §12 — NCI, previously held interest and goodwill

| Line | Fair value NCI | Proportionate NCI | Source |
|---|---|---|---|
| (a)(i) Consideration transferred | | | |
| (a)(ii) Non-controlling interest | | | |
| (a)(iii) Fair value of previously held interest | | | |
| (a) Total | | | |
| (b) Net identifiable assets | | | |
| Goodwill / (bargain purchase) | | | |

Show one column once the basis is chosen. Then: the previously held interest remeasurement (carrying amount, fair value, gain or loss, where recognised, OCI reclassified or transferred); options over NCI and the policy applied; for a bargain purchase, the record of the reassessment in 36 and the reasons (B64(n)); a qualitative description of what goodwill represents (B64(e)), drawn from the documents.

*Asset acquisitions:* replace with the allocation table from `asset-acquisition.md` §3 and the line `No goodwill arises (2(b)).`

## §13 — Journal entries

Numbered, one block per event, stating which books: consolidation / acquirer's own books / separate financial statements. Amounts only from §10–§12; placeholders otherwise.

```
J-01  Acquisition of [acquiree] — [acquisition date] — consolidation
Dr  [Identifiable assets, by class]            [amount / placeholder]
Dr  Goodwill                                   [amount / placeholder]
    Cr  [Liabilities assumed, by class]        [amount / placeholder]
    Cr  Cash                                   [amount]
    Cr  Deferred consideration                 [amount]
    Cr  Contingent consideration               [amount]
    Cr  Non-controlling interest               [amount]
    Cr  Gain on remeasurement of previously held interest   [amount]
Ref: IFRS 3.32; §10–§12
```

Separate transactions get their own entries: acquisition-related costs, settlement of pre-existing relationships, post-combination remuneration.

*Placeholder if routed out of IFRS 3:* `Not applicable: see the routing note in §7.`

## §14 — Measurement period and day-two plan

**14A — Provisional items**

| ID | Item | Why provisional | Information awaited | Owner | Deadline |
|---|---|---|---|---|---|

The deadline is no later than one year after the acquisition date (45).

**14B — Day-two plan**

| Item | Subsequent requirement | When | Where recognised | Reference |
|---|---|---|---|---|

*Placeholder for 14A:* `No provisional amounts: the initial accounting is complete on the documents supplied.`
*Asset acquisitions, 14A:* `Not applicable: there is no measurement period in an asset acquisition.`

## §15 — Disclosures

| Requirement | Content | Status | Source | Draft wording |
|---|---|---|---|---|

Status: available / partly available / missing / not applicable. Every B64 item (a)–(q) appears. Then the applicability of B65–B67, the other Standards (IAS 7.40, IAS 36.133, IFRS 12, IFRS 13, IAS 24, IAS 34 for interim reports, IFRS 19 where applied, accounting policies and significant judgments), and the draft note, with every missing fact in brackets.

*Asset acquisitions:* `IFRS 3 disclosures do not apply; disclose through [IAS 16 / IAS 38 / IAS 40] and the entity's accounting policy for asset acquisitions.`

## §16 — Judgments and policy choices

| ID | Judgment or policy choice | Type | Options and effect of the alternative | Treatment applied and basis | Reference |
|---|---|---|---|---|---|

Type is one of: Standard decides / judgment / policy choice. Where practice diverges, state both readings and resolve neither.

## §17 — Questions and information requests

Grouped by recipient so each list can be sent as it stands. Within each group, ranked by effect. Each request names what is needed, the conclusion it resolves and, where known, the deadline.

- **Management / deal team:**
- **Legal counsel:**
- **Valuer:** the inputs for each provisional item in 11A
- **Tax adviser:** tax bases, losses and any change-of-ownership restriction, elections, deductibility of goodwill, rates enacted at the acquisition date
- **Sellers (through management):** documents referenced but not supplied

Format: `1. Does clause 7.3 of the service agreement forfeit the earn-out on any resignation? Resolves A-03 under B55(a).`

*Placeholder:* `No open questions — every conclusion is supported by the documents supplied.`

## §18 — Reconciliation, self-check and basis of preparation

- **Documents supplied:** N — fully read F, partly read P, not read X
- **Tricky-clause sweep:** N hits = carried to §4 + dismissed with a reason in §9 or §11
- **Arrangements identified:** N = part of the exchange + separate + split
- **Candidate assets and liabilities:** N = recognised + subsumed into goodwill + rejected
- **Exceptions checklist:** 11 of 11 rows completed
- **Self-check:** all 20 items passed, or the exceptions listed

Then, once, in at most two sentences: the basis (documents and user statements listed in §5, version basis and the date the amendment position was verified) and the limits (fair values are those in the documents or supplied by the user; enforceability, policy choices and final judgments rest with management and its advisers).

#!/usr/bin/env python3
"""
ifrs3_calc.py - deterministic arithmetic for IFRS 3 reviews.

Commands (each takes ONE JSON object, inline or as @path/to/file.json):

  goodwill           Goodwill or bargain purchase on both NCI bases (IFRS 3.19, 32-34)
  concentration      Optional concentration test (B7A-B7C)
  replacement-award  Pre- and post-combination split of replacement awards (B56-B60)
  pv                 Present value of fixed deferred payments
  allocate           Relative fair value allocation of cost in an asset acquisition
                     (IFRS 3.2(b); IFRIC agenda decision November 2017, approaches 1 and 2)
  settlement         Effective settlement of a pre-existing relationship (B52)
  step-acquisition   Remeasurement of a previously held interest (IFRS 3.41-42A)

Pass only figures taken from the documents or supplied by the user. The script
never estimates a fair value, rate or percentage: a missing required input is an
error, never a default. Run a command with --example to see its input format.

goodwill: where no consideration is transferred (IFRS 3.43-44), enter the
acquisition-date fair value of the acquirer's interest in the acquiree as
'consideration' (33, B46). Optional 'proportionate_share_base' overrides the net
assets used for the proportionate NCI share where other instruments have a prior
claim on net assets in liquidation (a judgment to record).

Examples:
  python ifrs3_calc.py goodwill '{"consideration": 800, "net_identifiable_assets": 900,
                                  "nci_percent": 20, "nci_fair_value": 210}'
  python ifrs3_calc.py concentration @inputs.json
  python ifrs3_calc.py allocate --example
"""
import argparse
import json
import sys
from decimal import Decimal, InvalidOperation, ROUND_HALF_UP, getcontext

getcontext().prec = 34
PLACES = 2

EXAMPLES = {
    "goodwill": {
        "consideration": 800,
        "net_identifiable_assets": 900,
        "nci_percent": 20,
        "nci_fair_value": 210,
        "previously_held_fair_value": 0,
        "other_nci_components_fair_value": 0,
    },  # optional: "proportionate_share_base"
    "concentration": {
        "consideration_fair_value": 100,
        "nci_fair_value": 0,
        "previously_held_fair_value": 0,
        "liabilities_assumed_excluding_deferred_tax": 20,
        "cash_and_cash_equivalents_acquired": 5,
        "deferred_tax_assets_acquired": 0,
        "concentrated_asset_fair_value": 110,
    },
    "replacement-award": {
        "acquiree_award_market_based_measure": 100,
        "replacement_award_market_based_measure": 110,
        "vesting_period_completed": 3,
        "post_combination_service_required": 1,
        "original_vesting_period": 4,
        "expected_to_vest_percent": 100,
        "acquirer_obliged_to_replace": True,
        "acquiree_awards_expire_on_combination": False,
    },
    "pv": {
        "annual_rate_percent": 5,
        "payments": [{"amount": 100, "years": 1}, {"amount": 100, "years": 2}],
    },
    "allocate": {
        "cost": 100,
        "approach": 2,
        "items": [
            {"name": "Building", "fair_value": 80},
            {"name": "Equipment", "fair_value": 20},
            {"name": "Receivable", "fair_value": 10, "measured_at": 10},
        ],
    },
    "settlement": {
        "relationship": "contractual",
        "direction": "unfavourable_to_acquirer",
        "off_market_amount": 8,
        "stated_settlement_amount": 5,
        "previously_recognised_liability": 2,
        "previously_recognised_asset": 0,
    },
    "step-acquisition": {
        "holding": "associate_or_joint_venture",
        "carrying_amount": 350,
        "fair_value": 420,
        "oci_reclassifiable": 15,
        "oci_not_reclassifiable": 5,
    },
}


class InputError(ValueError):
    pass


def num(data, key, default=None):
    """Required numeric input as Decimal; if absent, the default (if one is given)."""
    value = data.get(key)
    if value is None:
        if default is None:
            raise InputError(f"missing required input '{key}'")
        return Decimal(str(default))
    if isinstance(value, bool):
        raise InputError(f"input '{key}' must be a number, not true/false")
    try:
        return Decimal(str(value))
    except (InvalidOperation, ValueError):
        raise InputError(f"input '{key}' is not a number: {value!r}")


def opt(data, key):
    """Optional numeric input: Decimal, or None when absent."""
    return None if data.get(key) is None else num(data, key)


def flag(data, key, default):
    value = data.get(key, default)
    if not isinstance(value, bool):
        raise InputError(f"input '{key}' must be true or false")
    return value


def r(x):
    return float(Decimal(x).quantize(Decimal(1).scaleb(-PLACES), rounding=ROUND_HALF_UP))


# --------------------------------------------------------------------------- goodwill
def cmd_goodwill(d):
    consideration = num(d, "consideration")
    net_assets = num(d, "net_identifiable_assets")
    phi = num(d, "previously_held_fair_value", 0)
    nci_pct = num(d, "nci_percent", 0)
    other_nci = num(d, "other_nci_components_fair_value", 0)
    nci_fv = opt(d, "nci_fair_value")
    base = opt(d, "proportionate_share_base")
    if not Decimal(0) <= nci_pct < Decimal(100):
        raise InputError("'nci_percent' must be at least 0 and below 100")
    if nci_fv is not None and nci_pct == 0:
        raise InputError("'nci_fair_value' is the fair value of the present ownership interests held by NCI: "
                         "supply 'nci_percent' (their percentage) as well, or omit 'nci_fair_value'")
    if base is not None and nci_pct == 0:
        raise InputError("'proportionate_share_base' only applies when 'nci_percent' is above 0")

    def compute(nci_amount):
        total_a = consideration + nci_amount + phi
        diff = total_a - net_assets
        return {
            "a_i_consideration_transferred": r(consideration),
            "a_ii_non_controlling_interest": r(nci_amount),
            "a_iii_previously_held_interest_fair_value": r(phi),
            "a_total": r(total_a),
            "b_net_identifiable_assets": r(net_assets),
            "goodwill": r(diff) if diff > 0 else 0.0,
            "bargain_purchase": r(-diff) if diff < 0 else 0.0,
        }

    notes, results = [], {}
    if nci_pct == 0 and other_nci == 0 and nci_fv is None:
        results["no_nci"] = compute(Decimal(0))
    else:
        share_base = net_assets if base is None else base
        results["proportionate_share_basis"] = compute(nci_pct / 100 * share_base + other_nci)
        if nci_fv is not None:
            results["fair_value_basis"] = compute(nci_fv + other_nci)
        else:
            notes.append("Fair value basis not computed: 'nci_fair_value' not supplied (IFRS 3.19(a)).")
        notes.append("The proportionate share applies only to present ownership interests that entitle holders "
                     "to a proportionate share of net assets in liquidation (IFRS 3.19). 'nci_fair_value' is the "
                     "fair value of those interests only; other components go in "
                     "'other_nci_components_fair_value'.")
        if other_nci:
            notes.append("Other NCI components are included at the amount supplied on both bases: fair value, or the IFRS 2 "
                         "market-based measure for unreplaced acquiree share-based payment awards (IFRS 3.19, 30, B62A-B62B).")
        if base is not None:
            notes.append("Proportionate share computed on the 'proportionate_share_base' supplied rather than on "
                         "'net_identifiable_assets': record the judgment on prior claims (IFRS 3.19; IE44A onwards).")
        elif other_nci and nci_pct:
            notes.append("Other NCI components exist alongside ordinary NCI. If any has a prior claim on net assets "
                         "in liquidation, consider whether the proportionate share should be computed on net assets "
                         "after that claim (supply 'proportionate_share_base') and record the judgment.")
        if net_assets < 0:
            notes.append("Net identifiable assets are negative: the proportionate NCI is negative; review with care.")
    if phi:
        notes.append("A previously held interest is included at its acquisition-date fair value (32(a)(iii)); compute "
                     "its remeasurement gain or loss with the 'step-acquisition' command (42).")
    if any(v["bargain_purchase"] > 0 for v in results.values()):
        notes.append("Bargain purchase: perform and document the IFRS 3.36 reassessment before recognising any "
                     "gain (34); the gain is attributed to the acquirer.")
    return {"command": "goodwill", "results": results, "notes": notes}


# ---------------------------------------------------------------------- concentration
def cmd_concentration(d):
    consideration = num(d, "consideration_fair_value")
    nci = num(d, "nci_fair_value", 0)
    phi = num(d, "previously_held_fair_value", 0)
    liabilities = num(d, "liabilities_assumed_excluding_deferred_tax")
    cash = num(d, "cash_and_cash_equivalents_acquired", 0)
    dta = num(d, "deferred_tax_assets_acquired", 0)
    concentrated = num(d, "concentrated_asset_fair_value")
    precise = opt(d, "gross_assets_precise")

    formula_total = consideration + nci + phi + liabilities - cash - dta
    gross = precise if precise is not None else formula_total
    if gross <= 0:
        raise InputError("gross assets are not positive; check the inputs")
    ratio = concentrated / gross * 100

    notes = [
        "B7B(b): consideration + NCI + previously held interest (all at fair value) + liabilities other than "
        "deferred tax liabilities, less cash and cash equivalents and deferred tax assets. Using liabilities other "
        "than deferred tax liabilities excludes goodwill arising from deferred tax automatically (B7B(a)). NCI "
        "enters at fair value even if it will be measured at its proportionate share.",
        "IFRS 3 sets no percentage for 'substantially all'. State the percentage and record the judgment.",
        "The test can only conclude 'not a business'. If it is not met, run the substantive-process "
        "assessment (B8-B12D).",
    ]
    if precise is None and concentrated > formula_total:
        notes.append("The concentrated asset exceeds the formula total: the fair value of gross assets may be "
                     "more than that total, and a more precise calculation may be needed (B7B(b)).")
    return {
        "command": "concentration",
        "gross_assets_formula_total": r(formula_total),
        "gross_assets_used": r(gross),
        "gross_assets_basis": "precise calculation supplied" if precise is not None else "B7B(b) formula",
        "concentrated_asset_fair_value": r(concentrated),
        "concentration_percent": r(ratio),
        "judgment_required": True,
        "notes": notes,
    }


# ------------------------------------------------------------------- replacement award
def cmd_replacement(d):
    acquiree = num(d, "acquiree_award_market_based_measure")
    replacement = num(d, "replacement_award_market_based_measure")
    expected = num(d, "expected_to_vest_percent", 100)
    obliged = flag(d, "acquirer_obliged_to_replace", True)
    expire = flag(d, "acquiree_awards_expire_on_combination", False)
    if not Decimal(0) <= expected <= Decimal(100):
        raise InputError("'expected_to_vest_percent' must be between 0 and 100")
    factor = expected / 100
    notes = []

    if not obliged and expire:
        pre_gross, post_gross, ratio, denominator = Decimal(0), replacement, None, None
        notes.append("B56: acquiree awards would expire and the acquirer is not obliged to replace them, so the "
                     "whole market-based measure of the replacement awards is post-combination remuneration.")
    else:
        completed = num(d, "vesting_period_completed")
        original = num(d, "original_vesting_period")
        service = opt(d, "post_combination_service_required")
        total_in = opt(d, "total_vesting_period")
        if completed < 0 or original <= 0:
            raise InputError("'original_vesting_period' must be positive and 'vesting_period_completed' not negative")
        if completed > original:
            raise InputError("'vesting_period_completed' cannot exceed 'original_vesting_period': for a fully vested "
                             "award enter the original vesting period, not the time since grant (IFRS 3 IE61-IE71, "
                             "Example 2)")
        if service is None and total_in is None:
            raise InputError("supply 'post_combination_service_required' (preferred) or 'total_vesting_period'")
        if service is not None:
            if service < 0:
                raise InputError("'post_combination_service_required' cannot be negative")
            total = completed + service
            if total_in is not None and total_in != total:
                raise InputError("'total_vesting_period' must equal 'vesting_period_completed' + "
                                 "'post_combination_service_required'")
        else:
            total = total_in
            if total < completed:
                raise InputError("'total_vesting_period' (completed plus post-combination service required) "
                                 "cannot be shorter than 'vesting_period_completed'")
        if total <= 0:
            raise InputError("the total vesting period must be positive; for an award vested at the acquisition "
                             "date with no further service, enter the original vesting period as completed")
        denominator = max(total, original)
        ratio = completed / denominator
        pre_gross = acquiree * ratio
        post_gross = replacement - pre_gross
        notes.append("B58: pre-combination portion = acquiree award market-based measure x (period completed / "
                     "greater of total vesting period and original vesting period). B59: post-combination "
                     "portion = replacement award market-based measure less the pre-combination portion.")
        if total - completed == 0 and completed < original and post_gross > 0:
            notes.append("No post-combination service is required but the original vesting period was not complete: "
                         "the post-combination portion is expensed immediately (IE61-IE71). If the acquiree award's own "
                         "terms ended vesting on a change of control, enter the original vesting period as completed "
                         "(IE61-IE71).")
        if post_gross < 0:
            notes.append("The replacement award is worth less than the pre-combination portion. IFRS 3 does not "
                         "address this case directly: record the judgment.")
    if expected != 100:
        notes.append("B60: both portions reflect the awards expected to vest; later changes in that estimate go "
                     "to remuneration cost, not consideration.")
    return {
        "command": "replacement-award",
        "vesting_ratio": None if ratio is None else float(round(ratio, 6)),
        "ratio_denominator_used": None if denominator is None else float(denominator),
        "pre_combination_portion_consideration": r(pre_gross * factor),
        "post_combination_portion_remuneration": r(post_gross * factor),
        "before_expected_vesting_adjustment": {"pre": r(pre_gross), "post": r(post_gross)},
        "notes": notes,
    }


# ------------------------------------------------------------------------------ pv
def cmd_pv(d):
    rate = num(d, "annual_rate_percent")
    payments = d.get("payments")
    if not isinstance(payments, list) or not payments:
        raise InputError("'payments' must be a non-empty list of {\"amount\": ..., \"years\": ...}")
    base = 1 + rate / 100
    if base <= 0:
        raise InputError("'annual_rate_percent' must be above -100")
    rows, total = [], Decimal(0)
    for i, p in enumerate(payments, 1):
        if not isinstance(p, dict):
            raise InputError(f"payment {i} must be an object")
        amount, years = num(p, "amount"), num(p, "years")
        if years < 0:
            raise InputError(f"payment {i}: 'years' cannot be negative")
        discount_factor = 1 / (base ** years)
        pv = amount * discount_factor
        total += pv
        rows.append({"payment": i, "amount": r(amount), "years": float(years),
                     "discount_factor": float(round(discount_factor, 6)), "present_value": r(pv)})
    return {
        "command": "pv",
        "annual_rate_percent": float(rate),
        "payments": rows,
        "total_present_value": r(total),
        "notes": ["Annual compounding; years may be fractional. The rate must come from the documents or the "
                  "valuer (for deferred consideration, a market rate reflecting the acquirer's credit risk): the "
                  "script does not choose it."],
    }


# ------------------------------------------------------------------------- allocate
def cmd_allocate(d):
    cost = num(d, "cost")
    approach = d.get("approach")
    if approach not in (1, 2):
        raise InputError("'approach' must be 1 or 2 (IFRIC agenda decision, November 2017)")
    items = d.get("items")
    if not isinstance(items, list) or not items:
        raise InputError("'items' must be a non-empty list of {\"name\", \"fair_value\", optional \"measured_at\"}")
    parsed = []
    for i, it in enumerate(items, 1):
        if not isinstance(it, dict) or not it.get("name"):
            raise InputError(f"item {i} needs a 'name'")
        parsed.append({"name": it["name"], "fv": num(it, "fair_value"), "fixed": opt(it, "measured_at")})

    notes, rows = [], []
    if approach == 2:
        fixed_total = sum((p["fixed"] for p in parsed if p["fixed"] is not None), Decimal(0))
        residual = cost - fixed_total
        pool = [p for p in parsed if p["fixed"] is None]
        if not pool:
            raise InputError("approach 2 needs at least one item without 'measured_at'")
        pool_fv = sum((p["fv"] for p in pool), Decimal(0))
        if pool_fv <= 0:
            raise InputError("the items receiving the residual must have a positive total fair value")
        for p in parsed:
            if p["fixed"] is not None:
                rows.append({"item": p["name"], "fair_value": r(p["fv"]), "initial_measurement": r(p["fixed"]),
                             "basis": "measured under its own Standard"})
            else:
                amount = residual * p["fv"] / pool_fv
                rows.append({"item": p["name"], "fair_value": r(p["fv"]), "initial_measurement": r(amount),
                             "basis": "share of residual cost by relative fair value"})
        notes.append(f"Approach 2: residual cost {r(residual)} allocated after deducting items measured under "
                     "their own Standards (enter liabilities assumed here, with negative 'measured_at').")
        if residual < 0:
            notes.append("The residual is negative: check the inputs and the measurement of the fixed items.")
    else:
        total_fv = sum((p["fv"] for p in parsed), Decimal(0))
        if total_fv <= 0:
            raise InputError("the total fair value of the items must be positive")
        if any(p["fv"] < 0 for p in parsed):
            notes.append("Approach 1 with liabilities scales every item, including liabilities, by cost / net fair "
                         "value. Liabilities are commonly measured under their own Standards instead, with the rest "
                         "allocated to the assets (approach 2 mechanics): review whether this result is sensible "
                         "before using it.")
        for p in parsed:
            price = cost * p["fv"] / total_fv
            row = {"item": p["name"], "fair_value": r(p["fv"]), "individual_transaction_price": r(price)}
            if p["fixed"] is not None:
                row["initial_measurement"] = r(p["fixed"])
                row["difference_to_account_for_under_its_Standard"] = r(p["fixed"] - price)
            else:
                row["initial_measurement"] = r(price)
            rows.append(row)
        notes.append("Approach 1: cost allocated to every item by relative fair value; items measured under "
                     "their own Standards show the difference to account for under those Standards (for "
                     "financial instruments, IFRS 9.B5.1.2A).")
    fv_sum = sum((p["fv"] for p in parsed), Decimal(0))
    if fv_sum != cost:
        notes.append(f"The sum of the fair values ({r(fv_sum)}) differs from cost ({r(cost)}): before allocating, "
                     "review the fair value measurements to confirm that the difference truly exists (IFRIC, "
                     "November 2017).")
    notes.append("Enter liabilities with negative fair values and measurements. Rounded amounts may not add "
                 "exactly to cost.")
    notes.append("No goodwill and no bargain purchase gain arise in an asset acquisition (IFRS 3.2(b)).")
    return {"command": "allocate", "approach": approach, "cost": r(cost), "allocation": rows, "notes": notes}


# ----------------------------------------------------------------------- settlement
def cmd_settlement(d):
    relationship = d.get("relationship", "contractual")
    direction = d.get("direction")
    if relationship not in ("contractual", "non_contractual"):
        raise InputError("'relationship' must be 'contractual' or 'non_contractual'")
    if direction not in ("unfavourable_to_acquirer", "favourable_to_acquirer"):
        raise InputError("'direction' must be 'unfavourable_to_acquirer' or 'favourable_to_acquirer'")
    liability = num(d, "previously_recognised_liability", 0)
    asset = num(d, "previously_recognised_asset", 0)
    if liability < 0 or asset < 0:
        raise InputError("enter previously recognised amounts as positive numbers")
    notes = []
    if relationship == "non_contractual":
        settlement = num(d, "fair_value")
        if settlement < 0:
            raise InputError("enter 'fair_value' as a positive number; 'direction' carries the sign")
        remainder = Decimal(0)
        notes.append("B52(a): a non-contractual relationship (for example a lawsuit) is settled at fair value.")
    else:
        off_market = num(d, "off_market_amount")
        stated = opt(d, "stated_settlement_amount")
        if off_market < 0 or (stated is not None and stated < 0):
            raise InputError("enter amounts as positive numbers; 'direction' carries the sign")
        settlement = off_market if stated is None else min(off_market, stated)
        remainder = off_market - settlement
        notes.append("B52(b): the lesser of (i) the off-market amount and (ii) any stated settlement provision "
                     "available to the counterparty to whom the contract is unfavourable.")
        if remainder > 0:
            notes.append("B52: (ii) is less than (i), so the difference is included in the business combination "
                         "accounting.")
    sign = Decimal(-1) if direction == "unfavourable_to_acquirer" else Decimal(1)
    pnl = sign * settlement + liability - asset
    notes.append("B52: the gain or loss recognised reflects any related asset or liability the acquirer had "
                 "already recognised, which is derecognised.")
    if direction == "unfavourable_to_acquirer":
        notes.append("Unfavourable to the acquirer: part of the price is in effect paid to exit the relationship, "
                     "so a loss is recognised and the settlement amount is excluded from consideration transferred "
                     "(IE54-IE57).")
    else:
        notes.append("Favourable to the acquirer: the acquiree is worth less to other buyers because of the "
                     "relationship, so the acquirer in effect receives the settlement through a lower price; a gain "
                     "is recognised and the settlement amount is added to consideration transferred.")
    return {
        "command": "settlement",
        "settlement_amount": r(settlement),
        "profit_or_loss_effect": r(pnl),
        "profit_or_loss_effect_meaning": "positive = gain, negative = loss",
        "adjustment_to_consideration_transferred": r(sign * settlement),
        "remainder_included_in_business_combination_accounting": r(remainder),
        "notes": notes,
    }


# ------------------------------------------------------------------ step acquisition
HOLDINGS = ("fvtpl", "fvoci_equity", "associate_or_joint_venture", "joint_operation")


def cmd_step(d):
    holding = d.get("holding")
    if holding not in HOLDINGS:
        raise InputError("'holding' must be one of: " + ", ".join(HOLDINGS))
    carrying = num(d, "carrying_amount")
    fair_value = num(d, "fair_value")
    oci_reclass = num(d, "oci_reclassifiable", 0)
    oci_other = num(d, "oci_not_reclassifiable", 0)
    remeasurement = fair_value - carrying
    notes = []

    if holding == "fvtpl":
        if oci_reclass or oci_other:
            raise InputError("a holding at fair value through profit or loss has no OCI balances; check the inputs")
        recognised_in = "profit or loss"
        reclassified, transferred, pnl_total = Decimal(0), Decimal(0), remeasurement
    elif holding == "fvoci_equity":
        if oci_reclass:
            raise InputError("amounts on an equity investment at fair value through OCI are never reclassified to "
                             "profit or loss (IFRS 9.5.7.5, B5.7.1); enter the cumulative OCI as "
                             "'oci_not_reclassifiable'")
        recognised_in = "other comprehensive income"
        reclassified, pnl_total = Decimal(0), Decimal(0)
        transferred = oci_other + remeasurement
        notes.append("IFRS 3.42 and IFRS 9.B5.7.1: the remeasurement is recognised in OCI; the cumulative OCI "
                     "(including this remeasurement) may be transferred within equity but never to profit or loss.")
    else:
        recognised_in = "profit or loss"
        reclassified, transferred = oci_reclass, oci_other
        pnl_total = remeasurement + oci_reclass
        notes.append("IFRS 3.42: amounts previously recognised in OCI are recognised on the same basis as if the "
                     "interest had been disposed of directly: reclassifiable items (for example translation "
                     "differences, cash flow hedges) to profit or loss; others (for example a revaluation surplus) "
                     "transferred within equity.")
        if holding == "joint_operation":
            notes.append("IFRS 3.42A: remeasure the entire previously held interest in the joint operation.")
    notes.append("The acquisition-date fair value of the previously held interest enters goodwill at 32(a)(iii); "
                 "it comes from the documents or the valuer, not from this script.")
    return {
        "command": "step-acquisition",
        "holding": holding,
        "carrying_amount": r(carrying),
        "acquisition_date_fair_value": r(fair_value),
        "remeasurement_gain_or_loss": r(remeasurement),
        "remeasurement_recognised_in": recognised_in,
        "oci_reclassified_to_profit_or_loss": r(reclassified),
        "amount_transferable_within_equity": r(transferred),
        "total_profit_or_loss_effect": r(pnl_total),
        "sign_convention": "positive = gain or credit, negative = loss or debit",
        "notes": notes,
    }


COMMANDS = {
    "goodwill": cmd_goodwill,
    "concentration": cmd_concentration,
    "replacement-award": cmd_replacement,
    "pv": cmd_pv,
    "allocate": cmd_allocate,
    "settlement": cmd_settlement,
    "step-acquisition": cmd_step,
}


def load(arg):
    text = arg
    if arg.startswith("@"):
        with open(arg[1:], encoding="utf-8") as f:
            text = f.read()
    data = json.loads(text)
    if not isinstance(data, dict):
        raise InputError("input must be a single JSON object")
    return data


def main(argv=None):
    parser = argparse.ArgumentParser(description=__doc__, formatter_class=argparse.RawDescriptionHelpFormatter)
    parser.add_argument("command", choices=sorted(COMMANDS))
    parser.add_argument("input", nargs="?", help="JSON object, or @file.json")
    parser.add_argument("--example", action="store_true", help="print an example input and its result")
    args = parser.parse_args(argv)
    try:
        if args.example:
            data = EXAMPLES[args.command]
            print(json.dumps({"example_input": data, "result": COMMANDS[args.command](data)}, indent=2))
            return 0
        if not args.input:
            raise InputError("supply a JSON object or @file.json (or use --example)")
        print(json.dumps(COMMANDS[args.command](load(args.input)), indent=2))
        return 0
    except (InputError, json.JSONDecodeError, OSError) as exc:
        print(json.dumps({"error": str(exc)}), file=sys.stderr)
        return 2


if __name__ == "__main__":
    sys.exit(main())