Cash paid by the acquirer to settle the acquiree’s outstanding debt on, or in close proximity to, the date of the business combination is generally recognized as a component of the consideration transferred if the acquirer does not legally assume the outstanding debt. In this scenario, an assumed liability for the outstanding debt of the acquiree would not be recognized in acquisition accounting. However, if the acquirer legally assumes the acquiree’s outstanding debt through the business combination, an assumed liability should be recognized at fair value on the acquisition date. Any subsequent repayment of the debt is a separate transaction from the business combination and would not be a component of consideration transferred.

The acquirer might transfer cash to the acquiree in order to repay third-party debt on the business combination. Alternatively, the acquirer might pay the bank directly. Because this is a cash cost to the acquirer, it might be viewed commercially by the acquirer as part of the consideration for the business combination. However, since this is not part of the consideration transferred to the seller in exchange for control of the acquiree, it cannot be treated as part of the consideration for the business combination from an IFRS 3 perspective.