ASBE No. 20
Active
Business Combinations
Business Combinations is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
Two fundamentally different accounting models, depending on control history
ASBE No. 20 governs the RECOGNITION and MEASUREMENT of BUSINESS COMBINATIONS – SPLIT into TWO fundamentally DIFFERENT categories DEPENDING on WHETHER the COMBINING entities were UNDER common CONTROL both BEFORE and AFTER the COMBINATION (see the COMPANION ASBE No. 2 poster for the PREDECESSOR-cost treatment) or NOT (WHERE the ACQUISITION method – CLOSELY converged with IFRS 3 – applies).
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Two Categories of Business Combination
Common control vs arm's-length acquisitions
CategoryMeasurement approach
Under common controlPREDECESSOR cost (CARRYING amount) method – NO goodwill RECOGNISED (see the COMPANION ASBE No. 2 poster)
Not under common controlACQUISITION method – FAIR value MEASUREMENT, GOODWILL (or BARGAIN purchase GAIN) recognised
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The Acquisition Method – Combinations Not Under Common Control
Identifying the acquirer, measuring net assets at fair value
FOR combinations NOT under COMMON control, the ACQUISITION method APPLIES – IDENTIFYING the ACQUIRER, DETERMINING the ACQUISITION date, and RECOGNISING the IDENTIFIABLE assets ACQUIRED, liabilities ASSUMED, and any NON-CONTROLLING interest at FAIR VALUE at the ACQUISITION date – CONSISTENT with IFRS 3's OWN acquisition method internationally.
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Measuring and Recognising Goodwill
Consideration transferred plus NCI, less net identifiable assets
GOODWILL is MEASURED as the EXCESS of (a) the CONSIDERATION transferred PLUS the AMOUNT of any NON-CONTROLLING interest, OVER (b) the FAIR value of the ACQUIREE'S identifiable NET assets ACQUIRED – CONSISTENT with IFRS 3's OWN goodwill CALCULATION internationally.
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Goodwill – Impairment-Only, Genuinely Aligned With IFRS 3
No systematic amortisation – a point of genuine international alignment
GOODWILL recognised UNDER this Standard is MEASURED at COST LESS accumulated IMPAIRMENT losses (see the COMPANION ASBE No. 8 poster) – WITH NO systematic AMORTISATION, TESTED for IMPAIRMENT AT LEAST annually – CONSISTENT with the IMPAIRMENT-only approach applied UNDER IFRS 3/IAS 36 internationally. This is a GENUINE point of ALIGNMENT with IFRS, in CONTRAST to Japan GAAP'S mandatory GOODWILL amortisation requirement (see the COMPANION ASBJ Statement No. 21 poster EARLIER in this SERIES).
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Negative Goodwill (Bargain Purchase Gain)
Recognised immediately, after reassessment
WHERE the FAIR value of the ACQUIREE'S net IDENTIFIABLE assets EXCEEDS the CONSIDERATION transferred (a "BARGAIN purchase"), the ACQUIRER first RE-ASSESSES whether it has CORRECTLY identified ALL assets ACQUIRED and LIABILITIES assumed, and CORRECTLY measured THEIR fair VALUES – WITH any REMAINING excess recognised IMMEDIATELY as a GAIN in PROFIT or LOSS, CONSISTENT with IFRS 3's OWN treatment internationally.
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Acquisition-Related Costs – Expensed as Incurred
Not capitalised into the cost of the combination
COSTS the ACQUIRER incurs in CONNECTION with a BUSINESS combination (LEGAL fees, DUE diligence COSTS, advisory FEES) are EXPENSED as INCURRED – EXCEPT costs of ISSUING debt or EQUITY securities, WHICH are accounted FOR under THEIR own RESPECTIVE standards – CONSISTENT with IFRS 3'S own treatment internationally.
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Step Acquisitions
Remeasuring a previously held interest to fair value
WHERE an ACQUIRER already HELD an EQUITY interest in the ACQUIREE BEFORE obtaining CONTROL (a "STEP acquisition"), the PREVIOUSLY held INTEREST is REMEASURED to FAIR value at the ACQUISITION date, WITH the RESULTING difference RECOGNISED in PROFIT or LOSS – CONSISTENT with IFRS 3'S own step-acquisition TREATMENT internationally.
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Common Control Combinations – Recap and the Restatement Practice
Comparative financial statements often restated as if combined from the start
AS discussed in the COMPANION ASBE No. 2 poster, COMBINATIONS UNDER common CONTROL use a PREDECESSOR-cost method, WITH NO goodwill RECOGNISED. A GENUINELY distinctive ADDITIONAL feature of THIS treatment: COMPARATIVE financial STATEMENTS are OFTEN RESTATED as IF the COMBINATION had OCCURRED from the BEGINNING of the EARLIEST period PRESENTED (an "AS-IF pooling" restatement APPROACH) – a PRACTICE without a DIRECT parallel under IFRS 3, WHICH has NO equivalent common-CONTROL exception REQUIRING comparable RESTATEMENT.
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The Measurement Period
Retrospective adjustments within a limited window
WHERE the INITIAL accounting for a BUSINESS combination is INCOMPLETE by the END of the REPORTING period in WHICH the combination OCCURS, PROVISIONAL amounts are USED, WITH retrospective ADJUSTMENTS permitted WITHIN a SPECIFIED "measurement PERIOD" following the ACQUISITION date – CONSISTENT with IFRS 3's OWN measurement period CONCEPT internationally.
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Worked Example – Recognising Goodwill in an Arm's-Length Acquisition
The standard goodwill calculation
Example: An acquisition of an unrelated company
A company acquires 100% of an unrelated target for RMB 600,000,000 cash. The target's identifiable net assets have a fair value of RMB 480,000,000.
GOODWILL = RMB 600,000,000 − RMB 480,000,000 = RMB 120,000,000, recognised on the BALANCE Sheet, SUBJECT to ANNUAL impairment TESTING, with NO systematic AMORTISATION.
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Worked Example – a Bargain Purchase Gain
Recognising a gain rather than goodwill
Example: An acquisition below the target's net asset fair value
A company acquires 100% of a distressed but fundamentally sound target for RMB 200,000,000. After reassessment, the target's identifiable net assets have a fair value of RMB 235,000,000.
The company recognises a BARGAIN purchase GAIN of RMB 235,000,000 − RMB 200,000,000 = RMB 35,000,000, recognised IMMEDIATELY in PROFIT or LOSS.
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Disclosure Requirements
What ASBE No. 20 requires
Name and description of the acquiree, acquisition date, and consideration transferredAmounts recognised for identifiable assets acquired, liabilities assumed, and goodwill (or bargain purchase gain)Whether the combination was under common control, and the measurement basis applied
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether a combination is genuinely under common controlIdentifying the acquirer in a combination
SIGNIFICANT ESTIMATES
Fair value of identifiable assets acquired and liabilities assumedFair value of any non-controlling interest and previously held equity interest
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Relationship to IFRS 3
Comparison – ASBE 20 vs IFRS 3
FeatureASBE 20IFRS 3
Acquisition method (arm's-length combinations)Same frameworkSame framework – converged
Common control combinationsPredecessor cost, no goodwill, often restated comparativesNO exception – acquisition method applies regardless
Goodwill subsequent treatmentImpairment-onlyImpairment-only – converged
FOR arm's-length COMBINATIONS, this is a GENUINELY thoroughly CONVERGED standard – the COMMON-control EXCEPTION remains the SINGLE most SIGNIFICANT, well-KNOWN divergence, as DISCUSSED in the COMPANION ASBE No. 2 poster.
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Statement Mapping
Where every business combination event lands
EventStatement(s) affectedNotes
Goodwill recognition (arm's-length)BSSubject to annual impairment testing
Bargain purchase gainISRecognised immediately
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 2Long-term Equity Investments – supplies the common-control combination measurement approach this Standard incorporates
ASBE No. 8Impairment of Assets – governs the annual goodwill impairment testing this Standard requires
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Quick-Reference Glossary
Bargain purchase gain
A gain recognised where the fair value of an acquiree's identifiable net assets exceeds the consideration transferred, after reassessment.
Measurement period
The window following an acquisition date during which provisional business combination accounting may be retrospectively adjusted as new information emerges.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 20 Business Combinations issued
Operative for periods beginning on or after 1 February 2007