IFRS 3 - Business Combinations is an International Financial Reporting Standard that provides guidance on the accounting for acquisitions of businesses. It outlines the principles entities must follow for recognizing and measuring assets acquired, liabilities assumed, and any non-controlling interests in the acquiree. The standard requires entities to identify the acquirer in a business combination and to measure the assets acquired and liabilities assumed at their fair values at the acquisition date. Additionally, IFRS 3 introduces the concept of goodwill, which occurs when the purchase consideration exceeds the fair value of net identifiable assets acquired. Conversely, in cases where the acquisition cost is less than the aggregate fair value of the net assets acquired, a gain from a bargain purchase must be immediately recognized in profit or loss for the period.

For example, Company A acquiring Company B would account for the acquisition under IFRS 3 by identifying and valuing B's assets and liabilities. Any excess paid by A over the net fair value of B's assets would be recognized as goodwill on A's balance sheet. Proper application of IFRS 3 ensures consistent and transparent reporting of business combinations, enabling users of financial statements to understand the nature and financial impact of such transactions.