Ch-3 Grouped Accounting

(Commerce) (International Financial Reporting Standards)
CONSOLIDATED FINANCIAL STATEMENTS – Ind AS 110
OBJECTIVE
The objective of Ind AS 110 is to establish principles for the presentation and preparation of
consolidated financial statements when an entity controls one or more other entities.
Meeting the objective

To meet the above objective Ind AS 110:
(a) requires an entity (the parent) that controls one or more other entities (subsidiaries) to
present consolidated financial statements;
(b) defines the principle of control, and establishes control as the basis for consolidation;
(c) sets out how to apply the principle of control to identify whether an investor controls an
investee and therefore must consolidate the investee;
(d) sets out the accounting requirements for the preparation of consolidated financial
statements; and
(e) defines an investment entity and sets out an exception to consolidating particular
subsidiaries of an investment entity.
Ind AS 110 does not deal with the accounting requirements for business combinations and their
effect on consolidation, including goodwill arising on a business combination
SCOPE
An entity that is a parent shall present consolidated financial statements. This Ind AS applies to
all entities, except as follows:
A parent need not present consolidated financial statements if it meets all the following
conditions:
(i) it is a wholly-owned subsidiary or is a partially-owned subsidiary of another
entity and all its other owners, including those not otherwise entitled to vote, have
been informed about, and do not object to, the parent not presenting consolidated
financial statements;
(ii) its debt or equity instruments are not traded in a public market (a domestic or
foreign stock exchange or an over-the-counter market, including local and regional
markets);
(iii)it did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organisation for the purpose of issuing
any class of instruments in a public market; and
(iv) its ultimate or any intermediate parent produces financial statements that are
available for public use and comply with Ind ASs, in which subsidiaries are
consolidated or are measured at fair value through profit or loss in accordance with
this Ind AS.
A parent that is an investment entity shall not present consolidated financial statements if it is
required, to measure all of its subsidiaries at fair value through profit or loss.
CONTROL
An investor, regardless of the nature of its involvement with an entity (the investee), shall
determine whether it is a parent by assessing whether it controls the investee.
An investor controls an investee when it is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over
the investee.
Thus, an investor controls an investee if and only if the investor has all the following:
(a) power over the investee,
(b) exposure, or rights, to variable returns from its involvement with the investee and
(c) the ability to use its power over the investee to affect the amount of the investor’s
returns
An investor shall consider all facts and circumstances when assessing whether it controls an
investee. The investor shall reassess whether it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control listed above.
POWER
An investor has power over an investee when the investor has existing rights that give it the
current ability to direct the relevant activities, ie the activities that significantly affect the
investee’s returns.
Power arises from rights. Sometimes assessing power is straightforward, such as when power
over an investee is obtained directly and solely from the voting rights granted by equity
instruments such as shares, and can be assessed by considering the voting rights from those
shareholdings. In other cases, the assessment will be more complex and require more than one
factor to be considered, for example when power results from one or more contractual
arrangements.
RETURNS
An investor is exposed, or has rights, to variable returns from its involvement with the investee
when the investor’s returns from its involvement have the potential to vary as a result of the
investee’s performance. The investor’s returns can be only positive, only negative or both
positive and negative.
Although only one investor can control an investee, more than one party can share in the
returns of an investee. For example, holders of non-controlling interests can share in the profits
or distributions of an investee.
LINK BETWEEN POWER AND RETURNS

An investor controls an investee if the investor not only has power over the investee and
exposure or rights to variable returns from its involvement with the investee, but also has the
ability to use its power to affect the investor’s returns from its involvement with the investee.
Thus, an investor with decision-making rights shall determine whether it is a principal or an

agent.
ACCOUNTING REQUIREMENTS
A parent shall prepare consolidated financial statements using uniform accounting policies for
like transactions and other events in similar circumstances.
Consolidation of an investee shall begin from the date the investor obtains control of the
investee and cease when the investor loses control of the investee.
Non-controlling interest
A parent shall present non-controlling interests in the consolidated balance sheet within equity,
separately from the equity of the owners of the parent.
Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing
control of the subsidiary are equity transactions (ie transactions with owners in their capacity as
owners).
Loss of control
If a parent loses control of a subsidiary, the parent:
(a) derecognises the assets and liabilities of the former subsidiary from the consolidated
balance sheet.
(b) recognises any investment retained in the former subsidiary at its fair value when
control is lost and subsequently accounts for it and for any amounts owed by or to the
former subsidiary in accordance with relevant Ind ASs. That fair value shall be
regarded as the fair value on initial recognition of a financial asset in accordance with
Ind AS 109 or, when appropriate, the cost on initial recognition of an investment in an
associate or joint venture.
(c) recognises the gain or loss associated with the loss of control attributable to the former
controlling interest.
Determining whether an entity is an investment entity

A parent shall determine whether it is an investment entity. An investment entity is an entity
that:
(a) obtains funds from one or more investors for the purpose of providing those investor(s)
with investment management services;
(b) commits to its investor(s) that its business purpose is to invest funds solely for returns
from capital appreciation, investment income, or both; and
(c) measures and evaluates the performance of substantially all of its investments on a fair
value basis.
Investment entities: exception to consolidation

Except as described in paragraph 32, an investment entity shall not consolidate its subsidiaries
or apply Ind AS 103 when it obtains control of another entity. Instead, an investment entity
shall measure an investment in a subsidiary at fair value through profit or loss in accordance
with Ind AS 109.
A parent of an investment entity shall consolidate all entities that it controls, including those
controlled through an investment entity subsidiary, unless the parent itself is an investment
entity.
DEFINITION OF TERMS
consolidated financial statements The financial statements of a group in which

the assets, liabilities, equity, income, expenses
and cash flows of the parent and its
subsidiaries are presented as those of a single
economic entity.
control of an investee An investor controls an investee when the
investor is exposed, or has rights, to variable
returns from its involvement with the investee
and has the ability to affect those returns
through its power over the investee.
decision maker An entity with decision-making rights that is
either a principal or an agent for other parties.
group A parent and its subsidiaries.
investment entity An entity that:
(a) obtains funds from one or more investors for
the purpose of providing those investor(s) with
investment management services;
(b) commits to its investor(s) that its
business purpose is to invest funds solely for
returns from capital appreciation, investment
income, or both; and
(c) measures and evaluates the
performance of substantially all of its
investments on a fair value basis.
non-controlling interest Equity in a subsidiary not attributable, directly

or indirectly, to a parent.
parent An entity that controls one or more entities.
power Existing rights that give the current ability to
direct the relevant activities.
protective rights Rights designed to protect the interest of the
party holding those rights without giving that
party power over the entity to which those
rights relate.
relevant activities For the purpose of this Ind AS, relevant

activities are activities of the investee that
significantly affect the investee’s returns.
removal rights Rights to deprive the decision maker of its
decision-making authority.
subsidiary An entity that is controlled by another entity.
CONSOLIDATED FINANCIAL STATEMENTS – Ind AS 110
ILLUSTRATIONS:
1. A Ltd. and B Ltd. have formed a new entity AB Ltd. for constructing and selling a scheme
of residential units consisting of 100 units. Construction of the residential units will be done
by A Ltd. and it will take all the necessary decision related to the construction activity. B
Ltd. will do the marketing and selling related activities for the units and it will take all the
necessary decisions related to marketing and selling. Based on above, who has the power
over AB Ltd.?
Solution:
In this case, both the investors A Ltd. and B Ltd. have the rights to unilaterally direct different
relevant activities of AB Ltd. Here, investors shall determine which activities can most
significantly affect the returns of the investee and the investor having the ability to direct those
activities would be considered to have power over the investee. Hence, if the investors
conclude that the construction related activities would most significantly affect the returns of
AB Ltd. then A Ltd. would be said to have power over AB Ltd. On the other hand, if it is
concluded that marketing and selling related activities would most significantly affect the
returns of AB Ltd. then B Ltd. would be said to have power over AB Ltd.
2. A Ltd. is an asset manager of a venture capital fund i.e. Fund X. Out of the total outstanding
units of the fund, 10% units are held by A Ltd. and balance 90% units are held by other
investors. Majority of the unitholders of the fund have right to appoint a committee which
will manage the day to day administrative activities of the fund. However, the decisions
related to the investments / divestments to be done by Fund X is taken by asset manager i.e.
A Ltd. Based on above, who has power over Fund X?
Solution:
In this case, A Ltd. is able to direct the activities that can most significantly affect the returns of
Fund X. Hence A Ltd. has power over the investee. However, this does not mean that A Ltd.
has control over the fund and consideration will have to be given to other elements of control
evaluation as well i.e. exposure to variable returns and link between power and exposure to
variable returns.
3. Scenario A:
An investor is holding 30% of the voting power in ABC Ltd. The investor has been granted an
option to purchase 30% more voting power from other investors. However, the exercise price
of the option is too high compared to the current market price of ABC Ltd. because ABC Ltd. is
incurring losses since last 2 years and it is expected to continue to incur losses in future period
as well. Whether the right held by the investor to exercise purchase option is substantive?
Scenario B:
Assume the same facts as per Scenario A except, the option price is in line with the current
market price of ABC Ltd. and ABC Ltd. is making profits. However, the option can be
exercised in next 1 month only and the investor is not in a position to arrange for the require
amount in 1 month’s time to exercise the option. Whether the right held by the investor to
exercise purchase option is substantive?
Scenario C:
Assume the same facts as per Scenario A except, ABC Ltd. is making profits. However, the
current market price of ABC Ltd. is not known since the ABC Ltd. is a relatively new
company, business of the company is unique and there are no other companies in the market
doing similar business. Hence the investor is not sure whether to exercise the purchase option.
Whether the right held by the investor to exercise purchase option is substantive?
Solution:
Scenario A:
The right to exercise purchase option is not substantive since the option exercise price is too
high as compared to current market price of ABC Ltd.
Scenario B:
The right to exercise purchase option is not substantive since the time period for the investor to
arrange for the requisite amount for exercising the option is too narrow.
Scenario C:
The right to exercise purchase option is not substantive. This is because the investor is not able
to obtain information about the market value of ABC Ltd. which is necessary in order to
compare the option exercise price with market price so that it can decide whether the exercise
of purchase option would be beneficial or not.
4. ABC Ltd. Is established with primary objective of investing in the equity shares of various
entities across various industries based on the detailed research about each industry and
entities within that industry being done by the investment manager of the company.
The investment manager decides the timing as to when the investments should be made
considering the current market situation. Sometimes, the investment manager decides to
invest the idle funds into short-term to medium-term debt instruments with fixed maturity.
The exit strategies are in place for the investments done in equity shares but the same is not
there for investments done in debt instruments.
Determine whether the entity fulfils the exit strategy condition of being classified as
investment entity?
Solution:
The exit strategies are in place for investments done in equity shares. But not in place for
investments done in debt instruments. However, it should be noted that the debt instruments
have fixed maturity period and they cannot be held for indefinite period. Hence, there is no
need for having exit strategies for such instruments. Accordingly, the exit strategy condition is
fulfilled for being classified as investment entity.
SEPARATE FINANCIAL STATEMENTS – Ind AS 27
OBJECTIVE
The objective of Ind AS 27 is to prescribe the accounting and disclosure requirements for
investments in subsidiaries, joint ventures and associates when an entity prepares separate
financial statements.
SCOPE
Ind AS 27 shall be applied in accounting for investments in subsidiaries, joint ventures and
associates when an entity elects, or is required by law, to present separate financial statements.
Ind AS 27 does not mandate which entities produce separate financial statements. It applies
when an entity prepares separate financial statements that comply with Indian Accounting
Standards.
DEFINITIONS
Consolidated financial statements are the financial statements of a group in which the assets,
liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are
presented as those of a single economic entity.
Separate financial statements are those presented by a parent (i.e an investor with control of a
subsidiary) or an investor with joint control of, or significant influence over, an investee, in
which the investments are accounted for at cost or in accordance with Ind AS 109, Financial
Instruments.
Separate financial statements are those presented in addition to consolidated financial

statements or in addition to financial statements in which investments in associates or joint
ventures are accounted for using the equity method, other than in the circumstances. Separate
financial statements need not be appended to, or accompany, those statements.
Financial statements in which the equity method is applied are not separate financial
statements. These may be termed as ‘consolidated financial statements’. Similarly, the
financial statements of an entity that does not have a subsidiary, associate or joint venturer’s
interest in a joint venture are not separate financial statements
PREPARATION OF SEPARATE FINANCIAL STATEMENTS

Separate financial statements shall be prepared in accordance with all applicable Ind AS,
When an entity prepares separate financial statements, it shall account for investments in
subsidiaries, joint ventures and associates either:
(a) at cost, or
(b) in accordance with Ind AS 109.
The entity shall apply the same accounting for each category of investments. Investments
accounted for at cost shall be accounted for in accordance with Ind AS 105, Non-current Assets
Held for Sale and Discontinued Operations, when they are classified as held for sale (or
included in a disposal group that is classified as held for sale). The measurement of investments
accounted for in accordance with Ind AS 109 is not changed in such circumstances.
When a parent ceases to be an investment entity, or becomes an investment entity, it shall

account for the change from the date when the change in status occurred, as follows:
(a) when an entity ceases to be an investment entity, the entity shall, either:
i. account for an investment in a subsidiary at cost. The fair value of the
subsidiary at the date of the change of status shall be used as the deemed cost at
that date; or
ii. continue to account for an investment in a subsidiary in accordance with
Ind AS 109.
(b) when an entity becomes an investment entity, it shall account for an investment in a
subsidiary at fair value through profit or loss in accordance with Ind AS 109. The
difference between the previous carrying amount of the subsidiary and its fair value at
the date of the change of status of the investor shall be recognised as a gain or loss in
profit or loss. The cumulative amount of any fair value adjustment previously
recognised in other comprehensive income in respect of those subsidiaries shall be
treated as if the investment entity had disposed of those subsidiaries at the date of
change in status.
An entity shall recognise a dividend from a subsidiary, a joint venture or an associate in profit
or loss in its separate financial statements when its right to receive the dividend is established.
SEPARATE FINANCIAL STATEMENTS – Ind AS 27
DISCLOSURE
An entity shall apply all applicable Ind ASs when providing disclosures in its separate financial
statements.
When a parent, in accordance with paragraph 4(a) of Ind AS 110, elects not to prepare
consolidated financial statements and instead prepares separate financial statements, it shall
disclose in those separate financial statements:
(a) the fact that the financial statements are separate financial statements; that the exemption
from consolidation has been used; the name and principal place of business (and country of
incorporation, if different) of the entity whose consolidated financial statements that
comply with Ind ASs have been produced for public use; and the address where those
consolidated financial statements are obtainable.
(b) a list of significant investments in subsidiaries, joint ventures and associates, including:
i. the name of those investees.
ii. the principal place of business (and country of incorporation, if different) of
those investees.
iii. its proportion of the ownership interest (and its proportion of the voting rights,
if different) held in those investees.
(c) a description of the method used to account for the investments listed under (b).
When an investment entity that is a parent prepares, separate financial statements as its only
financial statements, it shall disclose that fact. The investment entity shall also present the
disclosures relating to investment entities required by Ind AS 112, Disclosure of Interests in
Other Entities.
When a parent (other than a parent covered by paragraphs 16-16A) or an investor with joint
control of, or significant influence over, an investee prepares separate financial statements, the
parent or investor shall identify the financial statements prepared in accordance with Ind AS
110, Ind AS 111 or Ind AS 28 to which they relate. The parent or investor shall also disclose in
its separate financial statements:
a) the fact that the statements are separate financial statements
b) a list of significant investments in subsidiaries, joint ventures and associates, including:
i. the name of those investees.
ii. the principal place of business (and country of incorporation, if different) of
those investees.
iii. its proportion of the ownership interest (and its proportion of the voting rights,
if different) held in those investees.
c) a description of the method used to account for the investments listed under (b).
INVESTMENT IN ASSOCIATE AND JOINT VENTURE

– Ind AS 28
OBJECTIVE
The objective of Ind AS 28 is to prescribe the accounting for investments in associates and to
set out the requirements for the application of the equity method when accounting for
investments in associates and joint ventures
SCOPE
Ind AS 28 shall be applied by all entities that are investors with joint control of, or significant
influence over, an investee.
DEFINITIONS
An associate is an entity over which the investor has significant influence.
Consolidated financial statements are the financial statements of a group in which assets,
liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are
presented as those of a single economic entity.
The equity method is a method of accounting whereby the investment is initially recognised at
cost and adjusted thereafter for the post-acquisition change in the investor’s share of the
investee’s net assets. The investor’s profit or loss includes its share of the investee’s profit or
loss and the investor’s other comprehensive income includes its share of the investee’s other
comprehensive income.
A joint arrangement is an arrangement of which two or more parties have joint control.
Joint control is the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require the unanimous consent of the parties
sharing control.
A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement.
A joint venturer is a party to a joint venture that has joint control of that joint venture.
Significant influence is the power to participate in the financial and operating policy decisions
of the investee but is not control or joint control of those policies.
SIGNIFICANT INFLUENCE
If an entity holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the
voting power of the investee, it is presumed that the entity has significant influence, unless it
can be clearly demonstrated that this is not the case. Conversely, if the entity holds, directly or
indirectly (eg through subsidiaries), less than 20 per cent of the voting power of the investee, it
is presumed that the entity does not have significant influence, unless such influence can be
clearly demonstrated. A substantial or majority ownership by another investor does not
necessarily preclude an entity from having significant influence.
The existence of significant influence by an entity is usually evidenced in one or more of the
following ways:
(a) representation on the board of directors or equivalent governing body of the investee;
(b) participation in policy-making processes, including participation in decisions about
dividends or other distributions;
(c) material transactions between the entity and its investee;
(d) interchange of managerial personnel; or
(e) provision of essential technical information.
An entity loses significant influence over an investee when it loses the power to participate in
the financial and operating policy decisions of that investee. The loss of significant influence
can occur with or without a change in absolute or relative ownership levels. It could occur, for
example, when an associate becomes subject to the control of a government, court,
administrator or regulator. It could also occur as a result of a contractual arrangement.
Equity method
Under the equity method, on initial recognition the investment in an associate or a joint venture
is recognised at cost, and the carrying amount is increased or decreased to recognise the
investor’s share of the profit or loss of the investee after the date of acquisition. The investor’s
share of the investee’s profit or loss is recognised in the investor’s profit or loss. Distributions
received from an investee reduce the carrying amount of the investment.
Adjustments to the carrying amount may also be necessary for changes in the investor’s
proportionate interest in the investee arising from changes in the investee’s other
comprehensive income. Such changes include those arising from the revaluation of property,
plant and equipment and from foreign exchange translation differences. The investor’s share of
those changes is recognised in the investor’s other comprehensive income.
The recognition of income on the basis of distributions received may not be an adequate
measure of the income earned by an investor on an investment in an associate or a joint venture
because the distributions received may bear little relation to the performance of the associate or
joint venture. Because the investor has joint control of, or significant influence over, the
investee, the investor has an interest in the associate’s or joint venture’s performance and, as a
result, the return on its investment.
The investor accounts for this interest by extending the scope of its financial statements to
include its share of the profit or loss of such an investee. As a result, application of the equity
method provides more informative reporting of the investor’s net assets and profit or loss.
An entity with joint control of, or significant influence over, an investee shall account for its
investment in an associate or a joint venture using the equity method except when that
investment qualifies for exemption in accordance with paragraphs 17–19.
Exemptions from applying the equity method

An entity need not apply the equity method to its investment in an associate or a joint venture if
the entity is a parent that is exempt from preparing consolidated financial statements by the
scope exception in paragraph 4(a) of Ind AS 110 or if all the following apply:
(a) The entity is a wholly-owned subsidiary, or is a partially-owned subsidiary of another
entity and its other owners, including those not otherwise entitled to vote, have been
informed about, and do not object to, the entity not applying the equity method.
(b) The entity’s debt or equity instruments are not traded in a public market (a domestic or
foreign stock exchange or an over-the-counter market, including local and regional
markets).
(c) The entity did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organisation, for the purpose of issuing any
class of instruments in a public market.
(d) The ultimate or any intermediate parent of the entity produces financial statements
available for public use that comply with Ind ASs, in which subsidiaries are
consolidated or are measured at fair value through profit or loss in accordance with Ind
AS 110.
Classification as held for sale

An entity shall apply Ind AS 105 to an investment, or a portion of an investment, in an associate
or a joint venture that meets the criteria to be classified as held for sale. Any retained portion of
an investment in an associate or a joint venture that has not been classified as held for sale shall
be accounted for using the equity method until disposal of the portion that is classified as held
for sale takes place.
After the disposal takes place, an entity shall account for any retained interest in the associate
or joint venture in accordance with Ind AS 109 unless the retained interest continues to be an
associate or a joint venture, in which case the entity uses the equity method.
When an investment, or a portion of an investment, in an associate or a joint venture previously

classified as held for sale no longer meets the criteria to be so classified, it shall be accounted
for using the equity method retrospectively as from the date of its classification as held for sale.
Financial statements for the periods since classification as held for sale shall be amended
accordingly.
Discontinuing the use of the equity method

An entity shall discontinue the use of the equity method from the date when its investment
ceases to be an associate or a joint venture as follows:
(a) If the investment becomes a subsidiary, the entity shall account for its investment in
accordance with Ind AS 103, Business Combinations, and Ind AS 110.
(b) If the retained interest in the former associate or joint venture is a financial asset, the
entity shall measure the retained interest at fair value. The fair value of the retained
interest shall be regarded as its fair value on initial recognition as a financial asset in
accordance with Ind AS 109. The entity shall recognise in profit or loss any difference
between:
i. the fair value of any retained interest and any proceeds from disposing of a part
interest in the associate or joint venture; and
ii. the carrying amount of the investment at the date the equity method was
discontinued.
(c) When an entity discontinues the use of the equity method, the entity shall account for
all amounts previously recognised in other comprehensive income in relation to that
investment on the same basis as would have been required if the investee had directly
disposed of the related assets or liabilities.
If an investment in an associate becomes an investment in a joint venture or an investment in a

joint venture becomes an investment in an associate, the entity continues to apply the equity
method and does not remeasure the retained interest.
Changes in ownership interest

If an entity’s ownership interest in an associate or a joint venture is reduced, but the entity
continues to apply the equity method, the entity shall reclassify to profit or loss the proportion
of the gain or loss that had previously been recognised in other comprehensive income relating
to that reduction in ownership interest if that gain or loss would be required to be reclassified to
profit or loss on the disposal of the related assets or liabilities.
Equity method procedures

Many of the procedures that are appropriate for the application of the equity method are similar
to the consolidation procedures described in Ind AS 110. Furthermore, the concepts underlying
the procedures used in accounting for the acquisition of a subsidiary are also adopted in
accounting for the acquisition of an investment in an associate or a joint venture.
The most recent available financial statements of the associate or joint venture are used by the
entity in applying the equity method. When the end of the reporting period of the entity is
different from that of the associate or joint venture, the associate or joint venture prepares, for
the use of the entity, financial statements as of the same date as the financial statements of the
entity unless it is impracticable to do so.
When, the financial statements of an associate or a joint venture used in applying the equity
method are prepared as of a date different from that used by the entity, adjustments shall be
made for the effects of significant transactions or events that occur between that date and the
date of the entity’s financial statements. In any case, the difference between the end of the
reporting period of the associate or joint venture and that of the entity shall be no more than
three months. The length of the reporting periods and any difference between the ends of the
reporting periods shall be the same from period to period.
The entity’s financial statements shall be prepared using uniform accounting policies for like
transactions and events in similar circumstances unless, in case of an associate, it is
impracticable to do so.
Impairment losses
After application of the equity method, including recognising the associate’s or joint venture’s
losses in accordance with paragraph 38, the entity applies paragraphs 41A-41Cto determine
whether it isany objective evidence that its net investment in the associate or joint venture is
impaired.
Separate financial statements

An investment in an associate or a joint venture shall be accounted for in the entity’s separate
financial statements in accordance with paragraph 10 of Ind AS 27.

– Ind AS 28
Numerical Problems:
 Significant Influence
1. E Ltd. holds 25% of the voting power of an investee. The balance 75% of the voting power
is held by three other investors each holding 25%.
The decisions about the financing and operating policies of the investee are taken by
investors holding majority of the voting power. Since, the other three investors together
hold majority voting power, they generally take the decisions without taking the consent of
E Ltd. Even if E Ltd. proposes any changes to the financing and operating policies of the
investee, the other three investors do not vote in favour of those changes. So, in effect the
suggestions of E Ltd. are not considered while taking decisions related to financing and
operating policies. Determine whether E Ltd. has significant influence over the investee?
Solution:
Since E Ltd. is holding more than 20% of the voting power of the investee, it indicates that E
Ltd. might have significant over the investee. However, the other investors in the investee
prevent E Ltd. from participating in the financing and operating policy decisions of the
investee. Hence, in this case, E Ltd. is not in a position to have significant influence over the
investee.
2. M Ltd. holds 10% of the voting power an investee. The balance 90% voting power is held
by nine other investors each holding 10%.
The decisions about the relevant activities (except decision about taking borrowings) of the
investee are taken by the members holding majority of the voting power. The decisions
about taking borrowings are required to be taken by unanimous consent of all the investors.
Further, decisions about taking borrowing are not the decisions that most significantly
affect the returns of the investee. Determine whether M Ltd. has significant influence over
the investee?
Solution:
In this case, though M Ltd. is holding less than 20% of the voting power of the investee, M
Ltd.’s consent is required to take decisions about taking borrowings which is one of the
relevant activities. Further, since the decisions about taking borrowing are not the decisions
that most significantly affect the returns of the investee, it cannot be said that all the investors
have joint control over the investee.
Hence, it can be said that M Ltd. has significant influence over the investee.
3. RS Ltd. is an entity engaged in the business of pharmaceuticals. It has invested in the share
capital of an investee XY Ltd. and is holding 15% of XY Ltd.’s total voting power. XY Ltd.
is engaged in the business of producing packing materials for pharmaceutical entities. One
of the incentives for RS Ltd. to invest in XY Ltd. was the fact that XY Ltd. is engaged in the
business of producing packing materials which is also useful for RS Ltd. Since last many
years, XY Ltd.’s almost 90% of the output is procured by RS Ltd. Determine whether RS
Ltd. has significant influence over XY Ltd.?
Solution:
Since 90% of the output of XY Ltd. is procured by RS Ltd., XY Ltd. would be dependent on RS
Ltd. for the continuation of its business. Hence, even though RS Ltd. is holding only 15% of the
voting power of XY Ltd. it has significant influence over XY Ltd.
4. R Ltd. is a tyre manufacturing entity. The entity has entered into a technology transfer
agreement with another entity Y Ltd. which is also involved in the business of tyre
manufacturing. R Ltd. is an established entity in this business whereas Y Ltd. is a relatively
new entity. As per the agreement, R Ltd. has granted to Y Ltd. a license to use its the
technical information and know-how which are related to the processes for the manufacture
of tyres. Y Ltd. is dependent on the technical information and know-how supplied by R
Ltd. because of its lack of expertise and experience in this business. Further, R Ltd. has also
invested in 10% of the equity share capital of Y Ltd. Determine whether R Ltd. has
significant influence over Y Ltd.?
Solution:
Y Ltd. obtains essential technical information for the running of its business from R Ltd. Hence
R Ltd. has significant influence over Y Ltd. despite of holding only 10% of the equity share
capital of Y Ltd.

– Ind AS 28
EQUITY METHOD PROCEDURE
 Calculation of goodwill / capital reserve and calculation of share in profit / loss of
associate or joint venture
An investment is accounted for using the equity method from the date on which it becomes an
associate or a joint venture. On acquisition of the investment, an entity shall identify the
goodwill or capital reserve.
Goodwill
Any excess of the cost of the investment over the entity’s share of the net fair value of the
investee’s identifiable assets and liabilities is treated as goodwill. Goodwill is included in the
carrying amount of the investment. Amortisation of that goodwill is not permitted.
Capital reserve
Any excess of the entity’s share of the net fair value of the investee’s identifiable assets and
liabilities over the cost of the investment is treated as capital reserve. It is recorded directly in
equity.
While recording the entity’s share in the profit / loss of the investee, the entity needs to make
certain adjustment to that share of profit / loss. For example, adjustment shall be made for:
 Depreciation of the depreciable assets based on their fair values at the acquisition date.
 Impairment losses such as for goodwill or property, plant and equipment.
1. Blue Ltd. acquired 25% of the equity share capital of Green Ltd. on the first day of the
financial year for Rs. 1,25,000. As of that date, the carrying value of the net assets of Green
Ltd. was Rs. 3,00,000 and the fair value was Rs. 4,00,000. The excess of fair value over the
carrying value was attributable to one of the buildings owned by Green Ltd. having a
remaining useful life of 20 years. Green Ltd. earned profit of Rs. 40,000 and other
comprehensive income of Rs. 10,000 during the year. Calculate the goodwill / capital
reserve on the date of acquisition, Blue Ltd.’s share in the profit and other comprehensive
income for the year and closing balance of investment at the end of the year.
Solution:
 Goodwill / capital reserve on the date of acquisition
The cost of the investment is higher than the net fair value of the investee’s identifiable assets
and liabilities. Hence there is goodwill. Amount of goodwill is calculated as follows:
Amount (Rs.)
Cost of acquisition of investment 1,25,000
Less: Blue Ltd.’s share in fair value of net assets of Green Ltd. on the date (1,00,000)
of acquisition (4,00,000 *25%)
Goodwill 25,000
Above goodwill will be recorded as part of carrying amount of the investment.
 Share in profit and other comprehensive income of Gren Ltd.

Amount (Rs.)
Share in profit of Green Ltd. (40,000 X 25%) 10,000
Less: Adjustment for depreciation based on fair value (1,00,000/20) X 25% (1,250)
Share of profit after adjustment 8,750
Share in other comprehensive income (10,000 X 25%) 2,500
 Closing balance of investment at the end of the year

Amount (Rs.)
Cost of acquisition of investment (including goodwill of Rs. 25,000) 1,25,000
Share in profit after adjustments 8,750
Share in other comprehensive income 2500
Closing balance of investment 1,36,250
BUSINESS COMBINATIONS – Ind AS 103
OBJECTIVE
The objective of Ind AS 103 is to improve the relevance, reliability and comparability of the
information that a reporting entity provides in its financial statements about a business
combination and its effects. To accomplish that, this Ind AS establishes principles and
requirements for how the acquirer:
(a) recognises and measures in its financial statements the identifiable assets acquired, the
liabilities assumed and any non-controlling interest in the acquiree;
(b) recognises and measures the goodwill acquired in the business combination or a gain
from a bargain purchase; and
(c) determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
SCOPE
Ind AS 103 applies to a transaction or other event that meets the definition of a business
combination. This Ind AS does not apply to:
(a) the accounting for the formation of a joint arrangement in the financial statements of the
joint arrangement itself.
(b) the acquisition of an asset or a group of assets that does not constitute a business. In
such cases the acquirer shall identify and recognise the individual identifiable assets
acquired (including those assets that meet the definition of, and recognition criteria for,
intangible assets in Ind AS 38, Intangible Assets) and liabilities assumed. The cost of
the group shall be allocated to the individual identifiable assets and liabilities on the
basis of their relative fair values at the date of purchase. Such a transaction or event
does not give rise to goodwill.
The requirements of Ind AS 103 do not apply to the acquisition by an investment entity, as
defined in Ind AS 110, Consolidated Financial Statements, of an investment in a subsidiary that
is required to be measured at fair value through profit or loss.
IDENTIFYING A BUSINESS COMBINATION

An entity shall determine whether a transaction or other event is a business combination by
applying the definition in this Ind AS, which requires that the assets acquired and liabilities
assumed constitute a business. If the assets acquired are not a business, the reporting entity
shall account for the transaction or other event as an asset acquisition.
The acquisition method

An entity shall account for each business combination by applying the acquisition method.
Applying the acquisition method requires:
(a) identifying the acquirer;
(b) determining the acquisition date;
(c) recognising and measuring the identifiable assets acquired, the liabilities assumed and
any non-controlling interest in the acquiree; and
(d) recognising and measuring goodwill or a gain from a bargain purchase.
Identifying the acquirer

For each business combination, one of the combining entities shall be identified as the acquirer.
The guidance in Ind AS 110 shall be used to identify the acquirer the entity that obtains control
of another entity, ie the acquiree. If a business combination has occurred but applying the
guidance in Ind AS 110 does not clearly indicate which of the combining entities is the
acquirer,
Determining the acquisition date

The acquirer shall identify the acquisition date, which is the date on which it obtains control of
the acquiree.
The date on which the acquirer obtains control of the acquiree is generally the date on which
the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of
the acquire the closing date. However, the acquirer might obtain control on a date that is either
earlier or later than the closing date.
Recognising and measuring the identifiable assets acquired, the liabilities assumed and
any non-controlling interest in the acquiree
Recognition principle
As of the acquisition date, the acquirer shall recognise, separately from goodwill, the
identifiable assets acquired, the liabilities assumed and any non-controlling interest in the
acquiree.
Recognition conditions
To qualify for recognition as part of applying the acquisition method, the identifiable assets
acquired and liabilities assumed must meet the definitions of assets and liabilities in the
Framework for the Preparation and Presentation of Financial Statements in accordance with
Indian Accounting Standards issued by the Institute of Chartered Accountants of India at the
acquisition date.
For example, costs the acquirer expects but is not obliged to incur in the future to effect its plan
to exit an activity of an acquiree or to terminate the employment of or relocate an acquiree’s
employees are not liabilities at the acquisition date. Therefore, the acquirer does not recognize
those costs as part of applying the acquisition method. Instead, the acquirer recognises those
costs in its post-combination financial statements in accordance with other Ind AS.
In addition, to qualify for recognition as part of applying the acquisition method, the
identifiable assets acquired and liabilities assumed must be part of what the acquirer and the
acquiree (or its former owners) exchanged in the business combination transaction rather than
the result of separate transactions. The acquirer shall apply the guidance in paragraphs 51–53 to
determine which assets acquired or liabilities assumed are part of the exchange for the acquiree
and which, if any, are the result of separate transactions to be accounted for in accordance with
their nature and the applicable Ind AS.
At the acquisition date, the acquirer shall classify or designate the identifiable assets acquired
and liabilities assumed as necessary to apply other Ind ASs subsequently. The acquirer shall
make those classifications or designations on the basis of the contractual terms, economic
conditions, its operating or accounting policies and other pertinent conditions as they exist at
the acquisition date.
Measurement principle
The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their
acquisition-date fair values.
For each business combination, the acquirer shall measure at the acquisition date components
of non-controlling interest in the acquiree that are present ownership interests and entitle their
holders to a proportionate share of the entity’s net assets in the event of liquidation at either:
(a) fair value; or
(b) The present ownership instruments’ proportionate share in the recognised amounts of
the acquiree’s identifiable net assets.
All other components of non-controlling interests shall be measured at their acquisition-date
fair values, unless another measurement basis is required by Ind AS.
Exceptions to the recognition or measurement principles

This Ind AS provides limited exceptions to its recognition and measurement principles.
Paragraphs 22–31 specify both the particular items for which exceptions are provided and the
nature of those exceptions. The acquirer shall account for those items by applying the
requirements in paragraphs 22–31, which will result in some items being:
(a) recognised either by applying recognition conditions in addition to those in paragraphs
11 and 12 or by applying the requirements of other Ind ASs, with results that differ from
applying the recognition principle and conditions.
(b) measured at an amount other than their acquisition-date fair values.
Recognising and measuring goodwill or a gain from a bargain purchase

The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a)
over (b) below:
(a) the aggregate of:
I. the consideration transferred measured in accordance with this Ind AS, which
generally requires acquisition-date fair value;
II. the amount of any non-controlling interest in the acquiree measured in
accordance with this Ind AS; and
III. in a business combination achieved in stages, the acquisition-date fair value of
the acquirer’s previously held equity interest in the acquiree.
(b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities
assumed measured in accordance with this Ind AS.
Additional guidance for applying the acquisition method to particular types of business
combinations
A business combination achieved in stages
An acquirer sometimes obtains control of an acquiree in which it held an equity interest

immediately before the acquisition date. For example, on 31 December 20X1, Entity A holds a
35 per cent noncontrolling equity interest in Entity B. On that date, Entity A purchases an
additional 40 per cent interest in Entity B, which gives it control of Entity B. This Ind AS refers
to such a transaction as a business combination achieved in stages, sometimes also referred to
as a step acquisition.
A business combination achieved without the transfer of consideration

An acquirer sometimes obtains control of an acquiree without transferring consideration. The
acquisition method of accounting for a business combination applies to those combinations.
Such circumstances include:
(a) The acquiree repurchases a sufficient number of its own shares for an existing investor
(the acquirer) to obtain control.
(b) Minority veto rights lapse that previously kept the acquirer from controlling an acquiree
in which the acquirer held the majority voting rights.
(c) The acquirer and acquiree agree to combine their businesses by contract alone. The
acquirer transfers no consideration in exchange for control of an acquiree and holds no
equity interests in the acquiree, either on the acquisition date or previously. Examples
of business combinations achieved by contract alone include bringing two businesses
together in a stapling arrangement or forming a dual listed corporation.
Measurement period
If the initial accounting for a business combination is incomplete by the end of the reporting
period in which the combination occurs, the acquirer shall report in its financial statements
provisional amounts for the items for which the accounting is incomplete.
During the measurement period, the acquirer shall retrospectively adjust the provisional
amounts recognised at the acquisition date to reflect new information obtained about facts and
circumstances that existed as of the acquisition date and, if known, would have affected the
measurement of the amounts recognised as of that date.
During the measurement period, the acquirer shall also recognize additional assets or liabilities
if new information is obtained about facts and circumstances that existed as of the acquisition
date and, if known, would have resulted in the recognition of those assets and liabilities as of
that date. The measurement period ends as soon as the acquirer receives the information it was
seeking about facts and circumstances that existed as of the acquisition date or learns that more
information is not obtainable. However, the measurement period shall not exceed one year
from the acquisition date.
Determining what is part of the business combination transaction

The acquirer and the acquiree may have a pre-existing relationship or other arrangement before
negotiations for the business combination began, or they may enter into an arrangement during
the negotiations that is separate from the business combination. In either situation, the acquirer
shall identify any amounts that are not part of what the acquirer and the acquiree (or its former
owners) exchanged in the business combination, ie amounts that are not part of the exchange
for the acquiree.
The acquirer shall recognise as part of applying the acquisition method only the consideration
transferred for the acquiree and the assets acquired and liabilities assumed in the exchange for
the acquiree. Separate transactions shall be accounted for in accordance with the relevant Ind
AS.
Subsequent measurement and accounting

In general, an acquirer shall subsequently measure and account for assets acquired, liabilities
assumed or incurred and equity instruments issued in a business combination in accordance
with other applicable Ind ASs for those items, depending on their nature. However, this Ind AS
provides guidance on subsequently measuring and accounting for the following assets
acquired, liabilities assumed or incurred and equity instruments issued in a business
combination:
(a) reacquired rights;
(b) contingent liabilities recognised as of the acquisition date;
(c) indemnification assets; and
(d) contingent consideration.
Reacquired rights
A reacquired right recognised as an intangible asset shall be amortised over the remaining
contractual period of the contract in which the right was granted. An acquirer that subsequently
sells a reacquired right to a third party shall include the carrying amount of the intangible asset
in determining the gain or loss on the sale.
Contingent liabilities
After initial recognition and until the liability is settled, cancelled or expires, the acquirer shall
measure a contingent liability recognized in a business combination at the higher of:
(a) the amount that would be recognised in accordance with Ind AS 37; and
(b) the amount initially recognised less, if appropriate, the cumulative amount of income
recognised in accordance with the principles of Ind AS 115, Revenue from Contracts
with Customers.
This requirement does not apply to contracts accounted for in accordance with Ind AS 109.
Indemnification assets
At the end of each subsequent reporting period, the acquirer shall measure an indemnification
asset that was recognised at the acquisition date on the same basis as the indemnified liability
or asset, subject to any contractual limitations on its amount and, for an indemnification asset
that is not subsequently measured at its fair value, management’s assessment of the
collectibility of the indemnification asset. The acquirer shall derecognise the indemnification
asset only when it collects the asset, sells it or otherwise loses the right to it.
Contingent consideration
Some changes in the fair value of contingent consideration that the acquirer recognises after the
acquisition date may be the result of additional information that the acquirer obtained after that
date about facts and circumstances that existed at the acquisition date.
DISCLOSURES
The acquirer shall disclose information that enables users of its financial statements to evaluate
the nature and financial effect of a business combination that occurs either:
(a) during the current reporting period; or
(b) after the end of the reporting period but before the financial statements are approved for
issue.
the financial effects of adjustments recognised in the current reporting period that relate to
business combinations that occurred in the period or previous reporting periods.
OBJECTIVE
The objective of Ind AS 103 is to improve the relevance, reliability and comparability of the
information that a reporting entity provides in its financial statements about a business
combination and its effects. To accomplish that, this Ind AS establishes principles and
requirements for how the acquirer:
(a) recognises and measures in its financial statements the identifiable assets acquired, the
liabilities assumed and any non-controlling interest in the acquiree;
(b) recognises and measures the goodwill acquired in the business combination or a gain
from a bargain purchase; and
(c) determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
SCOPE
Ind AS 103 applies to a transaction or other event that meets the definition of a business
combination. This Ind AS does not apply to:
(a) the accounting for the formation of a joint arrangement in the financial statements of the
joint arrangement itself.
(b) the acquisition of an asset or a group of assets that does not constitute a business. In
such cases the acquirer shall identify and recognise the individual identifiable assets
acquired (including those assets that meet the definition of, and recognition criteria for,
intangible assets in Ind AS 38, Intangible Assets) and liabilities assumed. The cost of
the group shall be allocated to the individual identifiable assets and liabilities on the
basis of their relative fair values at the date of purchase. Such a transaction or event
does not give rise to goodwill.
The requirements of Ind AS 103 do not apply to the acquisition by an investment entity, as
defined in Ind AS 110, Consolidated Financial Statements, of an investment in a subsidiary that
is required to be measured at fair value through profit or loss.
IDENTIFYING A BUSINESS COMBINATION

An entity shall determine whether a transaction or other event is a business combination by
applying the definition in this Ind AS, which requires that the assets acquired and liabilities
assumed constitute a business. If the assets acquired are not a business, the reporting entity
shall account for the transaction or other event as an asset acquisition.
The acquisition method

An entity shall account for each business combination by applying the acquisition method.
Applying the acquisition method requires:
(a) identifying the acquirer;
(b) determining the acquisition date;
(c) recognising and measuring the identifiable assets acquired, the liabilities assumed and
any non-controlling interest in the acquiree; and
(d) recognising and measuring goodwill or a gain from a bargain purchase.
Identifying the acquirer

For each business combination, one of the combining entities shall be identified as the acquirer.
The guidance in Ind AS 110 shall be used to identify the acquirer the entity that obtains control
of another entity, ie the acquiree. If a business combination has occurred but applying the
guidance in Ind AS 110 does not clearly indicate which of the combining entities is the
acquirer,
Determining the acquisition date

The acquirer shall identify the acquisition date, which is the date on which it obtains control of
the acquiree.
The date on which the acquirer obtains control of the acquiree is generally the date on which
the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of
the acquire the closing date. However, the acquirer might obtain control on a date that is either
earlier or later than the closing date.
Recognising and measuring the identifiable assets acquired, the liabilities assumed and
any non-controlling interest in the acquiree
Recognition principle
As of the acquisition date, the acquirer shall recognise, separately from goodwill, the
identifiable assets acquired, the liabilities assumed and any non-controlling interest in the
acquiree.
Recognition conditions
To qualify for recognition as part of applying the acquisition method, the identifiable assets
acquired and liabilities assumed must meet the definitions of assets and liabilities in the
Framework for the Preparation and Presentation of Financial Statements in accordance with
Indian Accounting Standards issued by the Institute of Chartered Accountants of India at the
acquisition date.
For example, costs the acquirer expects but is not obliged to incur in the future to effect its plan
to exit an activity of an acquiree or to terminate the employment of or relocate an acquiree’s
employees are not liabilities at the acquisition date. Therefore, the acquirer does not recognize
those costs as part of applying the acquisition method. Instead, the acquirer recognises those
costs in its post-combination financial statements in accordance with other Ind AS.
In addition, to qualify for recognition as part of applying the acquisition method, the
identifiable assets acquired and liabilities assumed must be part of what the acquirer and the
acquiree (or its former owners) exchanged in the business combination transaction rather than
the result of separate transactions. The acquirer shall apply the guidance in paragraphs 51–53 to
determine which assets acquired or liabilities assumed are part of the exchange for the acquiree
and which, if any, are the result of separate transactions to be accounted for in accordance with
their nature and the applicable Ind AS.
At the acquisition date, the acquirer shall classify or designate the identifiable assets acquired
and liabilities assumed as necessary to apply other Ind ASs subsequently. The acquirer shall
make those classifications or designations on the basis of the contractual terms, economic
conditions, its operating or accounting policies and other pertinent conditions as they exist at
the acquisition date.
Measurement principle
The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their
acquisition-date fair values.
For each business combination, the acquirer shall measure at the acquisition date components
of non-controlling interest in the acquiree that are present ownership interests and entitle their
holders to a proportionate share of the entity’s net assets in the event of liquidation at either:
(a) fair value; or
(b) The present ownership instruments’ proportionate share in the recognised amounts of
the acquiree’s identifiable net assets.
All other components of non-controlling interests shall be measured at their acquisition-date
fair values, unless another measurement basis is required by Ind AS.
Exceptions to the recognition or measurement principles

This Ind AS provides limited exceptions to its recognition and measurement principles.
Paragraphs 22–31 specify both the particular items for which exceptions are provided and the
nature of those exceptions. The acquirer shall account for those items by applying the
requirements in paragraphs 22–31, which will result in some items being:
(a) recognised either by applying recognition conditions in addition to those in paragraphs
11 and 12 or by applying the requirements of other Ind ASs, with results that differ from
applying the recognition principle and conditions.
(b) measured at an amount other than their acquisition-date fair values.
Recognising and measuring goodwill or a gain from a bargain purchase

The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a)
over (b) below:
(a) the aggregate of:
I. the consideration transferred measured in accordance with this Ind AS, which
generally requires acquisition-date fair value;
II. the amount of any non-controlling interest in the acquiree measured in
accordance with this Ind AS; and
III. in a business combination achieved in stages, the acquisition-date fair value of
the acquirer’s previously held equity interest in the acquiree.
(b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities
assumed measured in accordance with this Ind AS.
Additional guidance for applying the acquisition method to particular types of business
combinations
A business combination achieved in stages
An acquirer sometimes obtains control of an acquiree in which it held an equity interest

immediately before the acquisition date. For example, on 31 December 20X1, Entity A holds a
35 per cent noncontrolling equity interest in Entity B. On that date, Entity A purchases an
additional 40 per cent interest in Entity B, which gives it control of Entity B. This Ind AS refers
to such a transaction as a business combination achieved in stages, sometimes also referred to
as a step acquisition.
A business combination achieved without the transfer of consideration

An acquirer sometimes obtains control of an acquiree without transferring consideration. The
acquisition method of accounting for a business combination applies to those combinations.
Such circumstances include:
(a) The acquiree repurchases a sufficient number of its own shares for an existing investor
(the acquirer) to obtain control.
(b) Minority veto rights lapse that previously kept the acquirer from controlling an acquiree
in which the acquirer held the majority voting rights.
(c) The acquirer and acquiree agree to combine their businesses by contract alone. The
acquirer transfers no consideration in exchange for control of an acquiree and holds no
equity interests in the acquiree, either on the acquisition date or previously. Examples
of business combinations achieved by contract alone include bringing two businesses
together in a stapling arrangement or forming a dual listed corporation.
Measurement period
If the initial accounting for a business combination is incomplete by the end of the reporting
period in which the combination occurs, the acquirer shall report in its financial statements
provisional amounts for the items for which the accounting is incomplete.
During the measurement period, the acquirer shall retrospectively adjust the provisional
amounts recognised at the acquisition date to reflect new information obtained about facts and
circumstances that existed as of the acquisition date and, if known, would have affected the
measurement of the amounts recognised as of that date.
During the measurement period, the acquirer shall also recognize additional assets or liabilities
if new information is obtained about facts and circumstances that existed as of the acquisition
date and, if known, would have resulted in the recognition of those assets and liabilities as of
that date. The measurement period ends as soon as the acquirer receives the information it was
seeking about facts and circumstances that existed as of the acquisition date or learns that more
information is not obtainable. However, the measurement period shall not exceed one year
from the acquisition date.
Determining what is part of the business combination transaction

The acquirer and the acquiree may have a pre-existing relationship or other arrangement before
negotiations for the business combination began, or they may enter into an arrangement during
the negotiations that is separate from the business combination. In either situation, the acquirer
shall identify any amounts that are not part of what the acquirer and the acquiree (or its former
owners) exchanged in the business combination, ie amounts that are not part of the exchange
for the acquiree.
The acquirer shall recognise as part of applying the acquisition method only the consideration
transferred for the acquiree and the assets acquired and liabilities assumed in the exchange for
the acquiree. Separate transactions shall be accounted for in accordance with the relevant Ind
AS.
Subsequent measurement and accounting

In general, an acquirer shall subsequently measure and account for assets acquired, liabilities
assumed or incurred and equity instruments issued in a business combination in accordance
with other applicable Ind ASs for those items, depending on their nature. However, this Ind AS
provides guidance on subsequently measuring and accounting for the following assets
acquired, liabilities assumed or incurred and equity instruments issued in a business
combination:
(a) reacquired rights;
(b) contingent liabilities recognised as of the acquisition date;
(c) indemnification assets; and
(d) contingent consideration.
Reacquired rights
A reacquired right recognised as an intangible asset shall be amortised over the remaining
contractual period of the contract in which the right was granted. An acquirer that subsequently
sells a reacquired right to a third party shall include the carrying amount of the intangible asset
in determining the gain or loss on the sale.
Contingent liabilities
After initial recognition and until the liability is settled, cancelled or expires, the acquirer shall
measure a contingent liability recognized in a business combination at the higher of:
(a) the amount that would be recognised in accordance with Ind AS 37; and
(b) the amount initially recognised less, if appropriate, the cumulative amount of income
recognised in accordance with the principles of Ind AS 115, Revenue from Contracts
with Customers.
This requirement does not apply to contracts accounted for in accordance with Ind AS 109.
Indemnification assets
At the end of each subsequent reporting period, the acquirer shall measure an indemnification
asset that was recognised at the acquisition date on the same basis as the indemnified liability
or asset, subject to any contractual limitations on its amount and, for an indemnification asset
that is not subsequently measured at its fair value, management’s assessment of the
collectibility of the indemnification asset. The acquirer shall derecognise the indemnification
asset only when it collects the asset, sells it or otherwise loses the right to it.
Contingent consideration
Some changes in the fair value of contingent consideration that the acquirer recognises after the
acquisition date may be the result of additional information that the acquirer obtained after that
date about facts and circumstances that existed at the acquisition date.
DISCLOSURES
the nature and financial effect of a business combination that occurs either:
(a) during the current reporting period; or
(b) after the end of the reporting period but before the financial statements are approved for
issue.
the financial effects of adjustments recognised in the current reporting period that relate to
business combinations that occurred in the period or previous reporting periods.
DEFINITION OF TERMS
Acquiree The business or businesses that the acquirer obtains control of in a business
combination.
Acquirer The entity that obtains control of the acquiree.
Acquisition date The date on which the acquirer obtains control of the acquiree.
Business An integrated set of activities and assets that is capable of being conducted and
managed for the purpose of providing goods or services to customers, generating investment
income (such as dividends or interest) or generating other income from ordinary activities.
Business combination A transaction or other event in which an acquirer obtains control of one
or more businesses. Transactions sometimes referred to as ‘true mergers’ or ‘mergers of
equals’ are also business combinations as that term is used in this Ind AS.
Contingent consideration Usually, an obligation of the acquirer to transfer additional assets

or equity interests to the former owners of an acquiree as part of the exchange for control of the
acquiree if specified future events occur or conditions are met. However, contingent
consideration also may give the acquirer the right to the return of previously transferred
consideration if specified conditions are met.
Equity interests For the purposes of this Ind AS, equity interests is used broadly to mean
ownership interests of investor-owned entities and owner, member or participant interests of
mutual entities.
Fair value Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
Goodwill An asset representing the future economic benefits arising from other assets acquired
in a business combination that are not individually identified and separately recognised.
Identifiable An asset is identifiable if it either:

(a) is separable, ie capable of being separated or divided from the entity and sold,
transferred, licensed, rented or exchanged, either individually or together with a related
contract, identifiable asset or liability, regardless of whether the entity intends to do so;
or
(b) arises from contractual or other legal rights, regardless of whether those rights are
transferable or separable from the entity or from other rights and obligations.
Intangible asset An identifiable non-monetary asset without physical substance.
Mutual entity An entity, other than an investor-owned entity, that provides dividends, lower
costs or other economic benefits directly to its owners, members or participants. For example, a
mutual insurance company, a credit union and a co-operative entity are all mutual entities.
Non-controlling interest The equity in a subsidiary not attributable, directly or indirectly, to a

parent.
Owners For the purposes of this Ind AS, owners is used broadly to include holders of equity
interests of investor-owned entities and owners or members of, or participants in, mutual
entities.
Identifying a business combination

This Ind AS defines a business combination as a transaction or other event in which an acquirer
obtains control of one or more businesses. An acquirer might obtain control of an acquiree in a
variety of ways, for example:
(a) by transferring cash, cash equivalents or other assets (including net assets that
constitute a business);
(b) by incurring liabilities;
(c) by issuing equity interests;
(d) by providing more than one type of consideration; or
(e) without transferring consideration, including by contract alone.
DETERMINATION OF THE PURCHASE CONSIDERATION

The consideration transferred in a business combination shall be measured at fair value, which
shall be calculated as the total of the acquisition-date fair values of the assets (including cash)
transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the
acquiree and the equity interests issued by the acquirer.
The consideration transferred may include assets or liabilities of the acquirer that have carrying
amounts that differ from their fair values at the acquisition date. (for example, non-monetary
assets or a business of the acquirer) If so, the acquirer shall remeasure the transferred assets or
liabilities to their fair values as of the acquisition date and recognize the resulting gains or
losses, if any, in profit or loss.
Further, any items that are not part of the business combination be accounted separately from
business combination (example: acquisition related costs)
Contingent consideration (Obligation by the acquirer to transfer additional assets or equity

interest, if specified future events occur or conditions are met), if any, should also be measured
at fair value at acquisition date.
DIFFERENCE BETWEEN Ind AS 103 and AS 14.
Scope: Ind AS 103 has a wider scope than AS 14
Method of accounting: Ind AS 103 prescribe only acquisition method for every business
combination whereas AS 14 states two method of accounting: Pooling of interest method and
Purchase method.
Recognition and measurement: Ind AS 103 recognises acquired identifiable assets liabilities
and noncontrolling interest at fair value. AS 14 allows choice of Book value or FV.
Goodwill: Under Ind AS 103, Goodwill is not amortised but tested for annual impairment
where as AS 14 require goodwill to be amortised over a period not exceeding 5 years.
Non Controlling Interest: Ind AS 103 provide for accounting of NCI, AS 14 do not.
Recording for consolidated financial statements: It is provided in Ind AS 103, not in AS 14.
Common control transactions: Appendix C deals with accounting for common control
transactions, which prescribes Pooling of interest method of accounting. AS14 do not prescribe
any different accounting for such transactions.
Contingent Consideration: Ind AS 103 recognise contingent consideration, AS 14 do not.
Reverse acquisitions: Ind AS 103 deal with reverse acquisitions, AS 14 do not.

NUMERICAL PROBLEMS:
1. A Ltd. acquires B Ltd. for Rs. 9,60,000. Fair Value (FV) of B’s net assets at time of
acquisition amounts Rs. 8,00,000.
Required:
Calculate Goodwill and Journal Entries in the books of A.
Solution:
Purchase consideration Rs. 9,60,000
FV of Net Assets Rs. 8,00,000
Goodwill = Consideration – Net Assets = Rs. (9,60,000– 8,00,000) = Rs. 1,60,000
Journal Entry
Particulars Debit (Rs.) Credit (Rs.)
Net Assets A/C Dr. 8,00,000
Goodwill A/C Dr. 1,60,000
To Consideration A/C 9,60,000
2. On March 31, 201X, K Ltd. acquired L Ltd. K Ltd. issued 60,000 equity shares (Rs. 10 par
value) that were trading at Rs. 240 on March 31. The book value of L Ltd.’s net assets was
Rs. 72,00,000 on March 31. The fair value of net assets was assessed at Rs. 1,35,00,000.
Show acquisition journal entry under Ind AS 103.
Solution:
Journal Entry
Net Assets A/C Dr. 1,35,00,000
To Consideration A/C 1,44,00,000
Consideration A/C Dr. 1,44,00,000
To Equity Share Capital A/C 6,00,000
To Securities Premium A/C 1,38,00,000
3. A Ltd. acquires 80% of B Ltd. for Rs. 9,60,000 paid by equity at par. Fair Value (FV) of B’s
net assets at time of acquisition amounts Rs. 8,00,000.
Required:
1. Calculate Non-Controlling-Interest (NCI) and Goodwill.
2. Journal Entries in the books of A.
Solution:
Purchase consideration Rs. 9,60,000, FV of Net Assets Rs. 8,00,000
NCI = Rs. 8,00,000 × (20%) = Rs. 1,60,000 [ at proportionate to fair value of net assets]
Goodwill = Consideration + NCI – Net Assets

Rs. (9,60,000 + 1,60,000 – 8,00,000) = 3,20,000
Journal Entry
Net Assets A/C Dr. 8,00,000
To Consideration A/C 9,60,000
To Non-controlling Interest A/c 1,60,000
Consideration A/C Dr. 9,60,000
In the books of B there is no entry.

As B exists after business combination, the above entries are passed in the consolidated
accounts of A. A requires to pass entries in books for separate financial statements also, as
stated below.
Investment A/C Dr. 9,60,000
4. D has acquired 100% of the equity of F on March 31, 20X7. The purchase consideration
comprises of an immediate payment of Rs. 10 lakhs and two further payments of Rs. 1.21
lakhs if the Return on Equity exceeds 20% in each of the subsequent two financial years. A
discount rate of 10% is used. Compute the value of total consideration at the acquisition
date.
Solution:
Amount (Rs. In Lakhs)
Immediate cash payment 10.00 10.00
Add: Fair value of contingent consideration (1.21/1.1 +1.21/1.12) 2.10
Total Purchase Consideration 12.10
NUMERICAL PROBLEMS:
1. X Ltd. agreed to takeover Y Ltd. as on 1 October, 2018. No Balance Sheet of Y Ltd. was
prepared on that date:
Summarised Balance Sheets of X Ltd. and Y Ltd. as at 31st March, 2018 were as follows:
Liabilities X Ltd Y Ltd Assets X Ltd Y Ltd (Rs.)
(Rs.) (Rs.) (Rs.)
Equity of Rs. 10 each 20,00,000 15,00,000 Fixed Assets 15,50,000 12,60,000
fully paid Current Assets:
Reserve 3,90,000 3,40,000 Stock 5,35,500 3,81,500
Profit & Loss A/C 3,30,000 1,60,000 Debtors 3,49,500 2,31,000
Creditors 85,000 75,000 Bank 3,40,000 1,80,000
Preliminary Expenses 30,0000 22,500
28,05,000 20,75,000 28,05,000 20,75,000
Additional information available:

1. For the six months period from 1st April 2018, X Ltd. and Y Ltd. made profits of Rs.
5,40,000 and Rs. 3,60,000 respectively, after writing off depreciation @ 10% per annum on
their fixed assets.
2. Both the companies paid on 1 August 2018, equity dividends of 10%. Dividend tax at 15%
was paid, by each of them on such payments.
3. Goodwill of Y Ltd. was valued at Rs. 1,68,900 on the date of takeover. Stock of Y Ltd.,
subject to an abnormal item of Rs. 8,500 to be fully written off, would be appreciated by
20% for purpose of takeover.
4. X Ltd. would issue to Y Ltd.’s shareholders fully paid equity shares of Rs. 10 each, on the
basis of the comparative intrinsic values of the shares on the date of takeover.
You are required to:
(1) Calculate consideration to be transferred by X Ltd.
(2) Calculate Number of shares to be issued by X Ltd. to Y Ltd.
(3) Ascertain closing bank balance which will appear in the Balance Sheet of X Ltd.
(After absorption of Y Ltd.).
Solution:
Computation of Cash and Bank balance of the companies as on 1st October
Particulars X Ltd (Rs.) Y Ltd (Rs.)
Balance as on 1st April 3,40,000 1,80,000
Add: Net Profit during the 6 months 5,40,000 3,60,000
Add: Depreciation for 6 months (15,50,000 X 10% X 6/12) & 77,500 63,000
(12,60,000 X 10% X 6/12)
Total of above 9,57,500 6,03,000
Less: Dividend paid 2,00,000 1,50,000
Less: Dividend distribution Tax @15% 30,000 22,500
Balance as on 30th September 7,27,500 4,30,500
Computation of Net Assets of X Ltd and V Ltd. as on 1st October

Particulars X Ltd (Rs.) Y Ltd (Rs.)
Goodwill (at agreed value) --- 1,68,900
Fixed Assets (Book Value- Depreciation @10% for 6 months) 14,72,500 11,97,000
Debtors 3,49,500 2,31,000
Stock (including appreciation @ 20%) 5,35,500 4,47,600
Cash and Bank balances as computed above 7,27,500 4,30,500
Total Assets 30,85,000 24,75,000
Less: Creditors 85,000 75,000
Value of Net Assets on 1st October (considered as Fair Value) 30,00,000 24,00,000
Number of equity shares 2,00,000 1,50,000
Intrinsic value per share (considered as fair value) 15/- 16/-
So, consideration to be transferred by X Ltd. will be Rs. 24,00,000
Calculation of Number of shares to be issued by X Ltd. to Y Ltd

Number of shares to be issued by X Ltd. to Y Ltd. = Rs. 24,00,000 / Rs.15 per shares =
1,60,000 shares.

Ch-3 Grouped Accounting

Uploaded by

Copyright:

Available Formats

Ch-3 Grouped Accounting

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ch-3 Grouped Accounting

Uploaded by

Copyright:

Available Formats

(Commerce) (International Financial Reporting Standards)

CONSOLIDATED FINANCIAL STATEMENTS – Ind AS 110

Meeting the objective

LINK BETWEEN POWER AND RETURNS

Thus, an investor with decision-making rights shall determine whether it is a principal or an

Determining whether an entity is an investment entity

Investment entities: exception to consolidation

consolidated financial statements The financial statements of a group in which

non-controlling interest Equity in a subsidiary not attributable, directly

relevant activities For the purpose of this Ind AS, relevant

CONSOLIDATED FINANCIAL STATEMENTS – Ind AS 110

SEPARATE FINANCIAL STATEMENTS – Ind AS 27

Separate financial statements are those presented in addition to consolidated financial

PREPARATION OF SEPARATE FINANCIAL STATEMENTS

When a parent ceases to be an investment entity, or becomes an investment entity, it shall

SEPARATE FINANCIAL STATEMENTS – Ind AS 27

INVESTMENT IN ASSOCIATE AND JOINT VENTURE

Exemptions from applying the equity method

Classification as held for sale

When an investment, or a portion of an investment, in an associate or a joint venture previously

Discontinuing the use of the equity method

If an investment in an associate becomes an investment in a joint venture or an investment in a

Changes in ownership interest

Equity method procedures

Separate financial statements

INVESTMENT IN ASSOCIATE AND JOINT VENTURE

INVESTMENT IN ASSOCIATE AND JOINT VENTURE

 Share in profit and other comprehensive income of Gren Ltd.

 Closing balance of investment at the end of the year

BUSINESS COMBINATIONS – Ind AS 103

IDENTIFYING A BUSINESS COMBINATION

The acquisition method

Identifying the acquirer

Determining the acquisition date

Exceptions to the recognition or measurement principles

Recognising and measuring goodwill or a gain from a bargain purchase

An acquirer sometimes obtains control of an acquiree in which it held an equity interest

A business combination achieved without the transfer of consideration

Determining what is part of the business combination transaction

Subsequent measurement and accounting

BUSINESS COMBINATIONS – Ind AS 103

IDENTIFYING A BUSINESS COMBINATION

The acquisition method

Identifying the acquirer

Determining the acquisition date

Exceptions to the recognition or measurement principles

Recognising and measuring goodwill or a gain from a bargain purchase

An acquirer sometimes obtains control of an acquiree in which it held an equity interest

A business combination achieved without the transfer of consideration

Determining what is part of the business combination transaction

Subsequent measurement and accounting

BUSINESS COMBINATIONS – Ind AS 103

Acquirer The entity that obtains control of the acquiree.

Contingent consideration Usually, an obligation of the acquirer to transfer additional assets

Identifiable An asset is identifiable if it either:

Intangible asset An identifiable non-monetary asset without physical substance.

Non-controlling interest The equity in a subsidiary not attributable, directly or indirectly, to a

Identifying a business combination

DETERMINATION OF THE PURCHASE CONSIDERATION

Contingent consideration (Obligation by the acquirer to transfer additional assets or equity