CONSIDERATIONS REGARDING IFRS 3 – BUSINESS [616905]

CONSIDERATIONS REGARDING IFRS 3 – BUSINESS
COMBINATION
Autors:
1.Grosu Veronica
University of Suceava
Faculty of Economic Sciences and Public Administration,
Universtății street, no 9, Suceava
e-mail – [anonimizat]
Telephone – [anonimizat]
2.Horga Petric ă
West University „Vasile Goldi ș”Arad
Faculty of Economic Studies,
Boulevard Revolution, no 94,
e-mail -[anonimizat]
Telephone 0744/524556
Abstract
IFRS 3 describes and defines the accounting treatm ent for the Business Combination, so- called
method “purchase method” that imposes the pu rchase price allocation to the assets and the
liabilities identifiable by the society that makes the acquisitions object and the accounting of the operations that take place. Business combination me ans a fusion of distinct societies that are in
one economic unity or derived from the fusi on of one company with another one, either by
obtaining the control over the net assets and over the administration of a company. This standard defines “business” as a whole system of tangible, intangible and financial assets involved in the development of an economic ac tivity; if a company acquires a set of assets or
even another entity, but it does not respect the definition of “business”, the transaction cannot be accounted as a Business Combination.
Keywords : International Financial Reporting Standar d 3(IFRS 3), business combination,”
purchase method”, fair value
According to the international conceptual frame , a reporting entity is represented by „companies
for which there are certain users defined that re ly on the financial statements as an important
source of financial information for them.” Practi cally, a group of companies consists of bringing
together separate units or businesses, in one reporting unit. The objective of the IFRS 3 standard is to obtain a superior quality and unification on an international level of the accounting of the
groups companies’ trying to focus in the same tim e on the analysis of the following main issues:
12 the accounting method used by the groups of companies;13 the initial assessment of the identifiable assets.
Within the contemporary economy we can notice a phenomenon of developm ent and flowering of

many groups of societies that have sometimes one fixed purpose or other times, multiple and
diverse objectives. The consequence of this phenome non is that in the modern society, there is no
activity sector of activity where there are not pr esent multinational groups with a world or even
globalization attempt. In order to accomplish the development strategies, these societies create a
real network of multilateral relationships, that va ry from the most simple to the more complex
ones, from the most profound to the most superficial, their organizational chart being, most of the times, not intelligible or even to difficult to read by a beginner.The groups of societies
omnipresent in all the sectors of activity have im posed themselves as an economic reality hard to
neglect, although from a juridical point of view they are not considered to be a juridical reality. The entity groups manifest as an economic entity formed by a group of societies, each having its own juridical personality, brought together by diffe rent connections, in virtue of which one of
them holds the unity of the decision and has an in fluence or a control over the others, determining
them; so to say the decision unity of the determ ination society can manifest only if there is a
relation of dependency of the other societies to wards this one. So this difference can be: a
financial difference- as a consequence of the majority of the voting rights in the General
Assembly, the majority obtained directly by owning more than 50% of the voting rights, or indirectly through one or more societies havi ng the right to control over another one; the
directorial dependency of having the majority of the persons in the management level; the
contractual dependency- as a consequence, either of renting together with a society an exclusivity
contract or the designation of the administrators , or as a consequence of some statutory clauses;
the economic dependency – resulted from the detain ing of a group of the monopole of the activity.
The specific forms of the group of companies are:
– the holding – society that either has as jointures th e majority of the assets or of the social
parts of some or more societies; either is c ontrolling the composition of the administration council
of other societies;1 the trust – is a legislative creation of the English and American Law and designates an
independent patrimony affected to one interest. The number of founders and of the beneficiaries
of the trust is unlimited. According to the existi ng regulations, the trust can be used in various
domains, but especially for the organization of th e interests and of the groups in already made
collectivities. As far as the connection between the trust and the group of societies if concerned,
on one hand, the group of societies is not formed always for a monopoly interest, and on the other
hand the idea of monopoly is opposed to the free and loyal competition encouraged and protected by the legislation and the contemporary doctrine;2 the industry group – is a concept introduced by the Eu ropean economists and legal advisers,
which, unlike the trust, which is founded on the idea of monopoly, if based on the idea of productivity. The industrial groups have been created for the purpose of reaching the maximum productivity, with the purpose of stimulating the competitors, opposed to the trust;2 the concern – is a variant of the industrial group, being regulated since 1973, being also
completed with a part that regulates the subordi nated societies and define the concern as being
one of the group of societies quoted grouped under the unique direction of a dominant society.
The society subordinated is the society that is juridical independent, found in subordination to
another dominant company that can exert a direct or indirect influence. The difference from the
group of societies lies in the nature of the domina tion relation that can appear and from a contract
existing between the two companies, that has clau ses in this sense, by which the dominant society
is authorized to give directives to the dominant society and to make the group interest manifest;
3 the group of economic interests – is a notion of French origin, but which has been adopted by
all the community countries. The idea on which th e constitution of these groups lies is that to
allow the members to develop common actions and to face competition, respecting the independence of each of them;4 the joint ventures group – is one of the oldest forms of groups and it is based on a contract of
association of the societies. It has no juridical personality; but it is a reality in fact. This type of

group is made on the free consent expressed voluntarily, in a written interest, the purpose of the
group being to obtain and share benefits. In order to reflect the nature of the control, it is
necessary to calculate the percentage of control he ld by the dominant society, taking into account
the dependency connection between the dominant societ y and the rest of the societies; that is the
voting rights detained. This connection of power must not be mistaken for the financial
dependency power, which results from the detaining of a part of the equity ownership of the
22society, dependency which is m easured with the help of another instrument named interest
percentage.
The control percentage – is calculated by summing up all the voting rights held directly or
indirectly through a society placed under the exclusive control of the dominant society. The interest percentage – taking into account the pr actical existence of different types of actions,
we can found out that between owning a fraction of the capital and the rights that are attached there might exist a gap. While obtaining a right to vote reflects the exertion of a power, holding a share as a part of an equity ownership reflects the financial implication of a society in the high society. The financial implication is measured with the help of the interest percentage, calculated
by multiplying the parties held directly with those de tained indirectly in the equity of one society,
gathered on each branch. The utility of the interest percentage results from the fact that it allows
the calculation of the rights of the society th at belong to the whole to assemble, for the
distribution of the equity ownership and of the result between the interests of the group and the
interests of those outside the group. A lot of economic operations take place within the context of a group structure that includes companies and entities that interrelate one with the other. The general frame IFRS for the
approach of the equity ownership and of othe r investments in custody accounts are presented as
follows:
Accounting approach of various acquisitions of custody account
Joint percentages according to IFRS 3 are as follows:
Under 20% – they are evaluated at their just value according to IAS 39;
5 between 20-50% they are evaluated by the method of putting in equivalence
according to IAS 28;
6 over 50% – consolidation and busin ess combination according to IAS 27;
7 Others – joint association’s business combinations evaluated according to IFRS 3.
The aspects taken into account in the IFRS 3 standard refer to:
8 accounting treatment at the date of the acquisition;9 for all the business combination, it is accounted by applying the method of the
acquisition;
10 the initial assessment of the acquired assets and of the liabilities, including the
contingent ones, assumed, identifiabl e in a company at the just value;
11 recognition of the liabilities for the closure or reduction of activities;12 the accounting for the goodwill and of the intangible assets acquired in a business
combination;
In the same time, this standard does not apply in the following cases:
13 the business combination that imply entities that are under common control;14 business combination that imply two or more mutual entities;15 business combination that have been gathered in order to build an entity that reports
just in one contract without obtaining an interest in jointure;
The accounting treatment applied by the IFRS 3 standard stipulates the identification of the
acquiring part in any business combination that is under its incidence; the acquiring part is that
part that obtains the control over the othe r entities within the business combination. The

acquisition must be accounted using the acquisition method. Since the date of the acquisition the
acquiring part must integrate into the profit a nd loss account the results of the acquired entity’s
activities and to recognize the assets in the bala nce sheet, the liabilities and the contingent
identifiable liabilities of the acquired entity as well as the goodwill generated by the acquisitions.
Applying this method involves taking the following steps: identification of the acquiring part;
evaluation of the cost of acquisition; allocation at the date of acquisition of the combination cost
on acquired assets and liabilities, including assumed contingents.The acquisition cost supported
by the acquiring part represents the sum of the just value of the transferred assets, of the liabilities
taken and of the instruments of shareholders’ equ ity issued by the acquiring part, in exchange of
the control over the entity acquired, at the date of the transaction. This in cludes the costs that can
be direct, but not the professional fees or the emission costs of the shareholders’ equity investments or liabilities used for the payment of the obligations. The assets, the liabilities and the identifiable conti ngent liabilities that have been acquired must
be the ones belonging to the acquired entity and that existed at the date of the acquisition. The
intangible assets must be recognized as acquired assets in the case which they correspond to the
definition of the intangible asset according to the IAS 38. In the case which, for the accounting of
a business combination, the values can be determ ined only provisory, the acquiring part must
account the combination using the respective provisory values. The acquiring part must recognize the adjustments of the provisory values as a result of finalization of the initial accounting in term
of one year from the date of the acquisition. The assets, the liabilities and the identifiable
contingent liabilities that have been acquired must be evaluated at the just value of the assets and
identifiable liabilities are described as goodwill and are recognized as asset. The goodwill is annually tested through depreciation and it is not amortized.
The positive difference between the interest of th e acquiring part from the just value of the assets
and the acquired identifiable liabilities and the cost of acquisition represents an earning and it is
recognized in the profit and loss account. This diffe rence is not recognized in the balance sheet as
negative goodwill. However, before recognizing any earning, the acquiring part must reassess the cost of the acquisition and the just values allo cated to the assets, the identifiable contingent
liabilities belonging to the acquired entity. By acquiring significant package of shares we can notice the fact that a society can acquire contro l over the other societies by forming groups of
societies, but also between independent entities th ere could be developed operations of gathering
for the formation of groups of societies.
Within the contemporary economy we can notice a phenomenon of developm ent and flowering of
many groups of societies that have sometimes one fixed purpose or other times, multiple and
diverse objectives. The consequence of this phenome non is that in the modern society, there is no
activity sector of activity where there are not pr esent multinational groups with a world or even
globalization attempt. In order to accomplish the development strategies, these societies create a
real network of multilateral relationships, that va ry from the most simple to the more complex
ones, from the most profound to the most superficial, their organizational chart being, most of the times, not intelligible or even to difficult to read by a beginner. The groups of societies
omnipresent in all the sectors of activity have im posed themselves as an economic reality hard to
neglect, although from a juridical point of view they are not considered to be a juridical reality. The entity groups manifest as an economic entity formed by a group of societies, each having its own juridical personality, brought together by diffe rent connections, in virtue of which one of
them holds the unity of the decision and has an in fluence or a control over the others, determining
them; so to say the decision unity of the determ ination society can manifest only if there is a
relation of dependency of the ot her societies towards this one.
So this difference can be: a financial difference- as a consequence of the majority of the voting

rights in the General Assembly, the majority obtai ned directly by owning more than 50% of the
voting rights, or indirectly through one or more societies having the right to control over another
one; the directorial dependency of having the majo rity of the persons in the management level;
the contractual dependency- as a consequence, e ither of renting together with a society an
exclusivity contract or the designation of the administrators, or as a consequence of some
statutory clauses; the economic dependency – r esulted from the detaining of a group of the
monopole of the activity.
Conclusions:
If an entity wants to obtain the control over a net asset (Net asset = Total assets – liabilities)
belonging to another entity, there are a series of modalities through which we can accomplish this control from the juridical point of view, fusion, consolidation, offer. Through an acquisition of
net assets, part of the assets and liabilities of an entity are directly acquisitioned by another entity or through the acquisition of participation to the equity ownership, an entity mother acquires the
control over 50 % of the ordinary shares with right to vote of another entity. Both entities can continue exist as separate juridical entities, each one producing an independe nt set of financial
statements, or they can fusion in a certain way. The interest percentage is different from the
control percentage – the first represents the part that goes to the society mother, directly and
indirectly from the equity ownership of the controlled society, obtaining them through the multiplication of the interest percentages held direc tly or indirectly on each branch that finally are
gathered. The interest percentage lowers as there are more societies in the chain of participation.
The just value of the long term debt taken from a combination of companies is the value up dated
of the equity ownership and the interest on the period left until the settling day, the updating
being made at the current rate of interest existing on the market.
The acquisition cost of the long term acquisition is compared to the just value of the assets, the
liabilities, the contingent liabilities of the en tity acquired, and the positive difference is
recognized as goodwill. If the just value of market of the assets, of the liabilities and contingent
liabilities of the entity acquired is bigger than th e cost of acquisition, IFRS 3 foresees that the
positive difference should be reported as earning.
References
1. Adriana Tiron Tudor – „Combin ări de întreprinderi – fuziuni și achiziții”, Editura Accent, Cluj
Napoca, 2005.2. Luigi Rinaldi – „Il bilancio consolidata” Il Sole 24 ore, Milano, 2006.3. Stefano Azzali – L'informativa di bilancio secondo i principi contabili internazionali, G.
Giappichelli Editore, Torino, 2005.4. Paolo Andrei, Economia Aziendale – G.Giapicheli Editore, Torino, 2005.
5. Stefanno Azzali, A. Gaetano, M. Pizza, A. Quagli – Principi contabili internazionali, G.Giapicheli Editore, Torino, 2006Xxx – Interpretarea și Aplicarea Standardelor Interna ționale de Raportare Financiar ă, Editura
CECCAR, 2005.

CONSIDERATIONS CONCERNING THE JUST VAL U
THE FINANCIAL INSTRUMENTS ACCORDING T O
IAS 32 AND IAS 39

Dorel MATES West University of Timisoara, Pestalozzi Street, No.16, 0
dorel.mates@yahoo.com
Veronica GROSU „Stefan cel Mare” University of Suceava, Universitatii Street, No.9, 0
doruveronica@yahoo.it ,
Marian SOCOLIUC „Stefan cel Mare” University of Suceava, Universitatii Street, N
520236, marians@seap.usv.ro

Abstract

Since 2005 the societies quoted have started to apply the international financi a
standards IAS/IFRS for the drawing up and the publishing of the balance sheet. The obj e
IFRS, except for the fact that they aim at the harmonization of the ways of drawing up t h
statements, is that of drawing near the patrimony value close to its current value.
Applying the standards IAS 32 and IAS 39, which introduce, in particu
classification of the financial instruments has new significations within the
administration of the security operations made by the use of the derived financial i n
Particularly, the IAS 39 focuses on the assessment of the financial instruments sp e
application and utility area of the just value, as well as of the evaluation criterion. W e
detail the situations when an assessment at the just value takes place and to the acquisi t
the liquidated cost underlying in the same time all the security operations at the acco u
described in this standards.

Keywords: financial instruments, jute value, IAS 32, IAS 39, IFRS, financial risk

Introduction- The necessity and importance of the introduction of the internation a
reporting standards IAS/IFRS
The world economic frame has suffered in the past few years an inevitable and
process of transformation. The main directions of these changes are directed to the glob
the markets, the technological process, the informational and communication system, th
of the borders of the EU and to a series of reforms from the social and fiscal area that hav
e
context of reference more complex and more unstable. These new modifications have t
the borders of the markets, canceling the physical and geographical distances as w
commercial and financial barriers, allowing the free circulation of goods services, c
information.
In the process of internationalizing the economic interests of the entities, determ
growth factors, the competitively and the competition, the operative horizons of th e
entities have extended, that have been put in the situation of facing the capital circulat i
commercial operations with connotations on the international market. The applica t
international level of a series of accounting standards for the drawing up and the present a
annual financial statements re presents an im portant and un questionabl e step, that com po

CONSIDERATIONS CONCERNING THE JUST VAL U
THE FINANCIAL INSTRUMENTS ACCORDING T O
IAS 32 AND IAS 39

Dorel MATES West University of Timisoara, Pestalozzi Street, No.16, 0
dorel.mates@yahoo.com
Veronica GROSU „Stefan cel Mare” University of Suceava, Universitatii Street, No.9, 0
doruveronica@yahoo.it ,
Marian SOCOLIUC „Stefan cel Mare” University of Suceava, Universitatii Street, N
520236, marians@seap.usv.ro

Abstract

Since 2005 the societies quoted have started to apply the international financi a
standards IAS/IFRS for the drawing up and the publishing of the balance sheet. The obj e
IFRS, except for the fact that they aim at the harmonization of the ways of drawing up t h
statements, is that of drawing near the patrimony value close to its current value.
Applying the standards IAS 32 and IAS 39, which introduce, in particu
classification of the financial instruments has new significations within the
administration of the security operations made by the use of the derived financial i n
Particularly, the IAS 39 focuses on the assessment of the financial instruments sp e
application and utility area of the just value, as well as of the evaluation criterion. W e
detail the situations when an assessment at the just value takes place and to the acquisi t
the liquidated cost underlying in the same time all the security operations at the acco u
described in this standards.

Keywords: financial instruments, jute value, IAS 32, IAS 39, IFRS, financial risk

Introduction- The necessity and importance of the introduction of the internation a
reporting standards IAS/IFRS
The world economic frame has suffered in the past few years an inevitable and
process of transformation. The main directions of these changes are directed to the glob
the markets, the technological process, the informational and communication system, th
of the borders of the EU and to a series of reforms from the social and fiscal area that hav
e
context of reference more complex and more unstable. These new modifications have t
the borders of the markets, canceling the physical and geographical distances as w
commercial and financial barriers, allowing the free circulation of goods services, c
information.
In the process of internationalizing the economic interests of the entities, determ
growth factors, the competitively and the competition, the operative horizons of th e
entities have extended, that have been put in the situation of facing the capital circulat i
commercial operations with connotations on the international market. The applica t
international level of a series of accounting standards for the drawing up and the present a
annual financial statements re presents an im portant and un questionabl e step, that com po