Module-5

Index
Chapter
Particulars Page Range
No.
1 Chapter -1 BUSINESS COMBINATION IND AS 103
Part -1 1-3
Part -2 3-7
Part -3 7-13
Part-4 13-16
Part-5 16-22
Part-6 22-28
Part-7 28-32
Part-8 33-37
Part-9 37-42
Part-10 43-45
Part-11 45-50
Part-12 50-55
Part-13 55-59
Part-14 59-65
Part-15 66-73
Part-16 73-86
2 Chapter -2 CONSOLIDATION IND AS 110 Part-1
Part -1 87-90
Part -2 91-94
Part-3 95-96
Part-4 97-99
Part-5 99-101
Part-6 102-107
Part-7 107-110
Part-8 111-114
Part-9 114-119
Part-10 119-124
Part-11 124-133
Part-12 134-138
 Part-13 138-151
Part-14 151-159
Part-15 160-162
Part-16 163-167
Part-17 168-172
3 Chapter -3 ASSOCIATES IND AS 28
Part -1 173-176
Part -2 177-181
Part -3 182-187
Part -4 187-191
Part-5 191-196
4 Chapter-4 JOINT ARRANGMENT IND AS 111
Part -1 197-198
Part -2 198-201
Part -3 201-203
5 Chapter -5 SEPARATE FINANCIAL STATEMENTS IND AS 27
Part -1 204-205
6 Chapter -6 DISCLOUSER IND AS 112
Part -1 206-207

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CA-Final Financial Reporting
1

*V.V.V.Imp Chapter -1 - Ind AS 103

Business Combination
(Last Amendment made by MCA in Ind AS 103 on 24.07.2020)

*Part 1*

Unit I : Important Definitions

Definitions

A. Meaning of Business B. Meaning of Assets C. Meaning of Business

Acquisition Combination
*V.V.Imp
A. Meaning of Business

As per the Provisions of Ind AS 103, A Business is an Integrated Set of

Activities & Assets that is capable of being conducted or managed for
the purpose of Providing Goods or Services to customers, Generating
Investment Incomes or other Incomes during ordinary Course of
Business.
“In Bare Act : 3 Elements have been defined”

Explanation : A Business has four Elements as follows :

Inputs + Processes + Application of Process = Outputs

These Elements are mandatory to It is not required to classify

classify a Set Of Activities as A set of Activities as
“Business” Business
“Although, Businesses usually have
Outputs”, but “Ability to generate
Outputs is also considerable “
CA-Final Financial Reporting
2

i. Inputs : As per the Provisions of Ind AS 103, It is an “ Economic

Resource” Which creates output or has ability to
contribute to the creation of Outputs when one or more
Processes are applied to it.
(i.e. Inputs may include Tangible & Intangible Assets in the
form of L&B, P&M, Patents, Copy Rights etc.)

ii. Processes : It is a System, Protocol, Rule, Standard when applied to

Inputs then It creates output or has ability to create
outputs.
(i.e., Strategic Management Process, Operational Process,
Resource Management Process)

iii. Application of Process : For Implementation of Process on Inputs,

we held Intellectual Capacity which is “Skilled Work
Force” in a Business These are knowledgeable &
Expert Persons who know, how to Create Outputs.

iv. Outputs : These are the results of implementation of Process on

Inputs in the Form of Providing Goods or Services to
customers or Investment Incomes.
“Revenue
From Business”

“Further Assessment as per Amendments in Ind AS”

As per Recent Amendments in Business Combination, An Acquirer should
Further Assess the Given Transaction on Acquisition date whether it is
a Business Combination or Assets Acquisition. There may be two
situations for this Assessment as follows :-

Situation I: If Acquiree does not have “Outputs” on Acquisition

date. No Customers/ No Sale

In the Given case, the following Elements should Exist in the

Transaction to classify it as “Business” :-
CA-Final Financial Reporting
3

I. There should be a “Substantive Process” which is critically required

for Conversion of Inputs into outputs.
II. There should be “Skilled workforce” & “other Inputs” that have
ability to Generate outputs. Tangible & I. Assets
Substantive Process + Skilled Workforce + Other Inputs

Situation II : If Acquiree has “outputs” on Acquisition date

i. There should be a Substantive Process which is required for

continuation of Production.
+
ii. There should be *skilled workforce & Other Input

Exception

If an Entity has already outputs on Acquisition date then Skill

workforce may not be required if Process is Unique/Rare/ Cannot be
replaced.

Solution of Q.2, Q3, Q.4, Q.5, Q.6, Q.7: Discussed in Class

*Part 2*

Important Note on “Concentration Test”

As per Amendments made by MCA on 24.7.2020, Acquirer may conduct an

Optional Test to identify the acquisition whether it is an Asset
acquisition or Business Acquisition we will discuss it in Last video of
this Topic for Better understanding.
CA-Final Financial Reporting
4

B. Meaning of Assets Acquisition

As per the provisions of Ind AS 103, An Acquisition, which cannot be

considered as Business Acquisition, should be classified as an Assets
acquisition. The following 2 Rules Should be considered under Assets
Acquisition :-

Rule 1 : Under Assets Acquisition, there will be no Recognition of Goodwill

or capital Reserve For the difference between Purchase
consideration & fair value of Assets.
Rule 2 : The Amount of Purchase consideration which has been paid for
Acquisition of Assets, will be allocated over the acquired Assets
in the ratio of fair value of Acquired Assets.

Solution of Q.8

In the Given Case, It is clearly mentioned that the Given Acquisition

does not Constitute Business due to which it will be considered as
Assets Acquisition. As per the Provisions, initial Recognition of these
Assets shall be made in the ratio of fair Values as follows :-

Statement Showing Allocation of Price[In Lacs]

Assets (Acquired) Fair Value Price Allocation

P&M 200 228.57 (200/350)
Furniture 30 34.29 (30/350)
Equipment 50 57.14 (50/350)
Intangibles 70 80 (70/350)
350 400

Solution of Q.9 (Discussed in Class)

CA-Final Financial Reporting
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*Imp
C. Meaning of Business Combination

As per the Provisions of Ind AS 103, Business Combination occurs when

An Entity acquires control over the other Entity “by acquiring Net
Assets” or “by Acquiring significant Equity Interest”

Important Note : Ind AS 103 provides Guidance on Accounting in the

books of Acquirer Only. There is no Explanation on
Accounting in the books of Acquiree.

We can classify Business Combination under the following headings :-

Business Combination

By Acquiring By Acquiring Equity *Special

N. Assets Interest Transactions

Case I : Acquisition of Control by Acquiring N. Assets

A. If an Existing Company takes over Net Assets of one or more

Existing Companies
Acquirer Acquiree
E.g. X ltd y Ltd

X Ltd. Takes over N. Assets of Y Ltd.

Comments : The Given Transaction is a Business Combination because

X Ltd. has Acquired N. Assets of Y Ltd.

Acquirer Acquiree Acquiree

E.g. X Ltd. Y Ltd Z Ltd.

X Ltd. Takes over N. Assets of Y Ltd. & Z Ltd.

CA-Final Financial Reporting
6

Comments : In the Given Case, X Ltd. Should be considered as an acquirer

because It is acquiring control over Y Ltd. & Z Ltd. by
acquiring N. Assets.

B. If Newly Formed company acquires N. Assets from two or more

Existing Companies
Acquiree Acquiree
E.g. X Ltd. Y Ltd.

XY Ltd. (New Co.) Acquirer

XY Ltd. Acquires N. Assets of X Ltd. & Y Ltd.

Comments : The Given Transaction is a Business combination because XY

Ltd. is Acquiring N. Assets of X Ltd. & Y Ltd.

Case II : Acquisition of control by acquiring Significant Equity

Interest

E.g. X Ltd . acquires 60% Equity Shares in Y Ltd. is it Business

Combination ?

Comments : Yes, the Given case is a Business combination because X Ltd

(Acquirer) has Obtained control over Y Ltd. by acquiring
Significant Equity Interest

Important Points to be considered on control by Equity Interest

A. Under Significant Equity Interest, we will discuss the relationship

between Holding & Subsidiary.
B. For Detailed Discuss on meaning of control by shares, we need to
Refer Ind AS 110. In this Topic we will Assume that control by shares
means Acquisition of more than 50% of Equity shares by Acquirer in
Acquiree
C. Ind AS 103 (Business Combination) & Ind AS 110 (Consolidation) Both
CA-Final Financial Reporting
7

Covers different Accounting Aspects which are as follows :-

Consolidation

Ind AS 103 Ind AS 110

It deals with all Accounting Aspects It deals with Post acquisition

Related to Consolidated financial Period of Holding/Subsidiary
Statements “On the date of Relationship in CFS
Acquisition of Shares”

Case III : Special Transactions

A. Reverse Acquisition
B. Common Control Transactions
(Mergers, Demergers etc : Appendix C )

*We will Start discussion on these Topics after understanding Normal

Business Combination.

*Part 3*

Unit II: Accounting for “Business Combination”

We need to learn Accounting for Business Combination for Different

Type of Transaction Separately. There are 4 Types of Transactions
under Business Combination as follows :-

Part A : Accounting for “Acquisition by Net Assets”

Part B : Accounting for “Acquisition by Significant Equity Interest”
Part C : Accounting for “Reverse Acquisition”
Part D : Accounting for “Common Control Transactions” (i.e. Mergers,
Demergers)

PART A : Accounting for Business Combination by acquiring Net Assets

CA-Final Financial Reporting
8

If an Entity acquires N. Assets of other Entity then Accounting for

Such Combination will be done as per “Acquisition method” (It is called as
Purchase method in AS-14). There are 6 Steps under Acquisition method :

Step I : Identify the Acquirer

Step II : Identify the Acquisition date
Step III : Identify the Purchase Consideration
Step IV: Identify the Assets & Liab. Acquired
Step V : Identify the Goodwill/ Bargain Purchase
Step VI : Identify Special Adjustments *V.V.V.V.Imp

Step I : Identification of Acquirer

As per the Provisions of Ind AS 103, Identification of Acquirer is very

important because Application of Ind AS 103 can be made on Acquirer
only. There is no Guidance on Acquiree Books in this statement. It
means that Identification of Acquirer is very Critical for this
statement.
As per the provisions of Ind AS 103, there are following situations
where we need to identify the Acquirer :

Case I : If Purchase Consideration is a paid in cash:- “Acquirer will be the

entity which pays cash”

X Ltd Pays Cash to Y Ltd. in PC

E.g. X Ltd. Y Ltd.

X Ltd. acquires N. Assets from Y Ltd.

Comments : In the Given Case, X Ltd. will be assumed as an acquirer

because It is Paying cash to y Ltd in settlement of
Purchase consideration.
CA-Final Financial Reporting
9

Case II : If Purchase consideration is settled by “Transfer of other

Assets” :- Acquirer will be the Entity “which transfers its
other Assets in Settlement of PC “

X Ltd. Transfers Land of 10 Crores to Y Ltd. in PC

E.g. X Ltd. Y Ltd.

X Ltd. acquired N. Assets of Y Ltd.

Comments : In the Given Case, X Ltd. will be assumed as Acquirer because

it is Transferring its Land in PC.

Case III : If Purchase Consideration is Settled by incurring Liabilities:-

Acquirer will be the Entity “Which incurs Liab.”

X Ltd. issued Debentures to Y in Settlement of PL

E.g. X Ltd. Y Ltd.

X Ltd. acquired N. Assets from Y Ltd.

Comments : In the Given Case, X Ltd. will be assumed as on Acquirer

because It has incurred Liab. in the form of “Debentures”

Case IV: If Purchase Consideration is Settled by issuing Equity Shares:-

Acquirer will be the Entity “Which issues Equity Shares”
Subject to Exceptions

X Ltd. issues Equity Shares in PC Settlement

E.g. X Ltd. Y Ltd.

X Ltd. acquires N. Assets from Y Ltd.

Comments : X Ltd. will be assumed as Acquirer in “ Normal Cases” because
It has issued its Equity shares.
CA-Final Financial Reporting
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*Imp
Exceptions to Case IV

Normally, we assume the Entity as an Acquirer which issues its Equity

shares in Settlement of PC. Sometimes, It does not happen. It means
that Accounting Acquirer can be different from Legal Acquirer. It
happens because of Capital Structure in Post Combination Entity. There
are following cases which are covered in Exceptions :-

Exception I : Reverse Acquisition

If an acquirer issues Equity Shares to Acquiree,but in Post Combination

B/s Acquiree Obtains control over acquirer because Acquirer issued high
Number of Shares than its Existing Capital held by Former members then
we will assume Acquirer as Legal Acquirer only, but from Accounting
Point of View, we consider Acquiree as an Accounting Acquirer.

Comments : The Case of Reverse Acquisition takes place where a small

Entity takes Over the Net Assets of Large Entity

Note : we will Apply Ind AS 103 on Acquiree in this Case

E.g. X Ltd. Y Ltd

X Ltd. acquires N. Assets from Y ltd.

i. X Ltd issued 15000 New Shares to Y Ltd in PC.

ii. X Ltd. has 10,000 Shares in its Pre Combination B/s as Share Capital

Solution : In the Given Case, members of Y Ltd shall have 60% Voting
Power in Post Combination Balance sheet (15000/25000 x 100)
which indicates that y Ltd. Will obtain control over X Ltd in
Post Combination Business. So, we can take X Ltd. as Legal
Acquirer only, but for the Application of Ind AS 103, Acquirer
Will be Y Ltd.
CA-Final Financial Reporting
11

Exception II : If Two or more Entities combines their Businesses by

Forming New Company then Accounting Acquirer will be
the Entity which will have Control in New Company. It can
also be said that New Company will be taken as “Legal
Acquirer” Only.
E.g. X Ltd. Y Ltd.
XY Ltd. (New Company)
i. XY Ltd. acquired Net Assets of X Ltd. & Y Ltd.
ii. XY Ltd. will issue 20,000 Shares to X Ltd. and 30,000 Shares to
Y Ltd. in PC.

Solution :
In the Given case, It is Clearly indicated that Y Ltd. will have
control in XY Ltd due to 60% share in voting Power. So, Y Ltd. will be
considered as an “Accounting Acquirer” for the Purpose of Ind AS 103.
It can also be said that XY Limited is Just a Legal Acquirer & X Ltd. will
be considered as an Acquiree.

Exception III : If 3 or more Entities combine their Businesses by

transferring N. Assets to a newly formed company and
All the Entities are in Minority then larger Group of
minority will be taken as an Acquirer.

E.g. X Ltd. Y Ltd. Z Ltd.

XYZ Ltd. (New Co.)

i. XYZ Ltd. takes over N. Assets of all 3 Companies
ii. XYZ Ltd. issues 40,000 Shares to X Ltd, but 30,000 Shares to Y & Z.

Solution :
In the Given Case, No company will Exercise control in XYZ Ltd.
because All are in minority Interest. In Post combination Entity, X
Ltd. will have 40% shares and Y & Z shall have 30% shares in XYZ Ltd. So,
X ltd will be considered as Accounting Acquirer because It is the largest
minority holder.
CA-Final Financial Reporting
12

❖ Legal Acquirer = XYZ Ltd., Acquiree = Y & Z

Exception IV : If all Entities have Equal voting Power in Post

Combination B/s then Accounting Acquirer will be the
Entity “which will have dominance in Management”

E.g. X Ltd. Y Ltd. Z Ltd.

XYZ Ltd. (New Co.)

i. XYZ Ltd. takes over X, Y, Z
ii. XYZ will issue equal shares to all 3 companies
iii. X Ltd. BOD shall have dominance in BOD of XYZ

Solution :
In the Given Case, X Ltd. will be taken as “Accounting Acquirer”.
There is no Large minority Group, but X ltd will have dominance in
management.

Solution of Q.11, Q.12, Q.13, Q.14 (Discussed in Class)

Step II : Identification of “Acquisition Date”

As per the provisions of Ind AS 103, Identification of Acquisition date

is very Important because Assets & Liab. of Acquiree are measured on
this date for Recognition in Acquirer’ Books. It is the date on which
“Acquirer obtains control over Acquiree”

➢ In Normal Cases, Acquisition date is considered as payment date at

which Purchase consideration is settled by Purchasing Co./Acquirer.

Closing date
Note : In Practical question, Payment date will be considered as
Acquisition date if It is not mentioned that Acquirer has obtained
control from which date.
CA-Final Financial Reporting
13

Rarely happens
➢ If control is obtained by Acquirer over Acquiree on an Earlier date or
Later date than Payment of PC then we may analyse the
circumstances to identify acquisition date.

Note : If Approval of Transaction is substantive then Approval Date will

be considered as an acquisition date. In this Case, Earlier or
Later Acquisition is not allowed Refer Q.19.

Solution of Q.15, Q.17, Q.18, Q.19 (Discussed in Class)

*Part 4*

Step III : Identification of Purchase Consideration

As per the Provisions of Ind AS 103, Purchase consideration is the

aggregate of payments which is made by An Acquirer to An Acquiree in
Consideration of Acquisition of Business. The following statement may
be prepared for the calculation Of PC :-

Payment in Cash xxxx

Fair Value of :
i. Other Assets transferred xxxx
(i.e., Land, P&M, Investments etc)
ii. Liabilities Incurred xxxx
(i.e., Debentures issued etc)
iii. Issue of New Equity Shares xxxx
PC xxxx
It should be taken which Prevails on “Acquisition Date”

Important Notes
i. The Difference between fair value of Assets Transferred &
Carrying Amount of Assets transferred in the books of Acquirer
shall be transferred to P&L A/c Assuming Profit or Loss on Sale of
Assets.
CA-Final Financial Reporting
14

ii. The Difference between Fair Value of Newly issued shares and face
value of Newly issued shares shall be transferred to “Securities
Premium” and It will be disclosed under other Equity in B/s.

Step IV: Identification of Assets & Liabilities (Subject to Step VI)

As per the provisions of Ind AS 103, Acquirer will take over Assets &
Liabilities From Acquiree at “Fair value” Which Prevails on Acquisition
Date
*Imp
Exception to above Rule : Measurement Period

As per the Provisions of Ind AS 103, It may be possible that Recognition

of Acquired Assets & Liabilities has been made on Provisional Fair Value
on Acquisition date because confirmed Fair Value may not Prevail
sometimes in relation to An Asset Or Liability on Acquisition date. In
this case, Ind AS 103 has Given measurement Period of 1 year. ”If any
change takes place within one year in Provisional Fair Values then such
change will be adjusted against Goodwill assuming that we are adjusting
it On Acquisition date.” But changes beyond one year shall be adjusted in
SOPL and there Will be no adjustment in Goodwill on Acquisition date.

Solution of Q.22, Q.23 (Measurement Period) (Discussed in Class)

Step V : Identification of Goodwill or Bargain Purchase

Concept 1 : Goodwill

If Purchase Consideration Exceeds Net Assets acquired on Acquisition

date then It will be transferred to Goodwill. It will be assumed that
Acquirer will recover this Extra Payment in future by running Business
of Acquiree.
CA-Final Financial Reporting
15

E.g. Fair value of Assets acquired : ₹ 50,00,000 30L

Fair Value of Liab. acquired : ₹ 20,00,000
PC : 1) Cash Paid : ₹ 10,00,000 70L
2) Equity Shares Issued : ₹ 60,00,000
(30,000 Shares of 100 each @200)
Pass Journal Entry

Solution : Journal Entry

Assets a/c Dr 50,00,000

Goodwill (Bal. fig) a/c Dr 40,00,000
To Liabilities 20,00,000
To Cash 10,00,000
To E.S. Cap. (30,000 x 100) 30,00,000
To Sec. Premium (30,000 x 100) 30,00,000
(Being Assets & liab. Acquired)

Concept 2 : Bargain Purchase

If Purchase Consideration becomes Lower than N. Assets acquired

then Difference will be considered as Bargain Purchase and It will be
transferred to “Capital Reserve”. The following points should also be
considered in this relation :-
i. The Situation of Bargain Purchase is considered very Rare in
Practical Life by Ind AS 103. So, it suggests Re-Assessment of
acquired Assets & Liab.
ii. The Entity should identify reasons for such Bargain Purchase i.e.,
Acquisition Of an Entity under Govt. Restrictions, Loss making
venture etc. If Entity can Prove the reasons of Bargain Purchase
then Capital Reserve will be disclosed in “OCI”
iii. If Reasons cannot be disclosed, Capital Res. will be disclosed directly
in other Equity but other than under the heading of OCI.
CA-Final Financial Reporting
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E.g. i) N. Assets (FV) = ₹ 20,00,000

ii) Cash Paid = ₹ 15,00,000
Solution : N. Assets a/c Dr 20,00,000
To Cash 15,00,000
To capital Reserve 500,000 (Bal. Fig)

*Part 5*
*V.V.Imp
Step VI: Recognition of Special Items on Acquisition date

Concept 1 : Treatment of Acquiree’s Contingent Liabilities

At the time of Acquisition of Acquiree Assets & Liab. on Acquisition

date, It may be possible that acquiree has some contingent Liabilities.
In the Given Case, Acquirer can Recognise Acquiree’s Contingent
Liabilities in its Books On Acquisition date as Present Obligation/ Actual
Liabilities Only if A Reliable Estimate in Amount can be made for Such
Liability whether Outflow is Probable or not on Such date.

Contingent Liab.

Outflow is Probable Outflow is not Probable

Reliable Reliable Reliable Reliable Estimate

Estimate Estimate Estimate cannot be made
Can be made cannot be made can be made

*Recognise a Do not Recognise *Recognise a Do not Recognise

Liability a Liab. Liab. a Liab.

* Summary : Whether there is a Reliable Estimate of the Liability then

we will Provide For it.
If fair value of Liab. is available
CA-Final Financial Reporting
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Solution of Q.30, Q.31 (Discussed in Class)

Solution of Q.32

As per the Provisions of Ind AS 103, Contingent Liab. of Acquiree can be

regonised in the books of Acquirer as a Liability only if there is a
reliable Estimate of Such Liab.
In the Given case, X Ltd. (Acquirer) has Assessed 5 million for
20 cases & 1 million For other 2 cases. This Assessment can be taken as a
Reliable Estimate.
So, X Ltd. shall recognise a Liability of 6 million on Acquisition date.
*V.V.Imp
Concept 2 : Indemnification

Indemnification

Unit I : Indemnification on Unit II : Indemnification

Liabilities on Assets

Unit I : Indemnification on Liabilities

If an Acquiree Provides Guarantee to the Acquirer for Loss on

Uncertain Liabilities in future beyond a limit then Acquirer should
recognise “ An Indemnified Asset” due to such Guarantee because
Acquirer can Recover the Excess Losses from Acquiree if it faces Losses
due to Excess Payment of Obligation beyond the Guaranteed Amount of
Liabilities.
(i.e., Uncertain Liabilities may be in the form of Warranty Provisions,
Prov. For cases/ Compensations etc.)
The following Steps may be considered in the books of Acquirer on
Acquisition date and on subsequent date of settlement :-
CA-Final Financial Reporting
18

Step I : Acquisition Date

i. Acquirer will recognise liability on fair value as per its “Own

Estimation”
ii. Acquirer will also recognise an “Indemnified Asset” against the
above Recognised Liab. as follows:

Indemnified Asset = Fair value of Liab. – Guaranteed Limit of Liab.

(Acquirer) (Acquiree)

Beyond this Limit Acquiree will bear the Losses

iii. Journal : Indemnified Assets a/c Dr xxxx (Recoverable)

To Liabilities xxxx (fair Value)

Step II : Subsequent Settlement

Case I: If payment of Liab. remains below or Equal to Guaranteed

Limit

i. Cancel the indemnified Assets due to low Payments :

Liabilities a/c Dr xxxx
To Indemnified Assets xxxx

❖ We cannot Recover any Amount from Acquiree because there is no

Loss to Acquirer Beyond Guaranteed Amount

ii. Payment should be Recorded for Actual Settlement :-

* Liab. a/c Dr xxxx
To Bank xxxx
CA-Final Financial Reporting
19

* If any Balance Remains in Liab. A/c if Settlement is made within

Measurement period then
Liab. a/c Dr xxxx It will be Adjusted in Goodwill
To Goodwill xxxx OR Otherwise It will be Reversed
To PL xxxx in PL

E.g. i) Guaranteed Liability Limit by Acquiree : 20,00,000

ii) Fair value Estimated by Acquirer : 22,00,000
iii) Actual Payment within 6 months of Acquisition : 19,80,000
Show Indemnification Entries.

Solution :
i. Indemnified Assets a/c Dr 2,00,000
To Liabilities 22,00,000
ii. Liabilities a/c Dr 22,00,000
To Bank 19,80,000
To Indemnified Assets 200,000
To Goodwill 20,000 Measurement Period Rule
(Being Liab. Settled within measurement Period)

Case II : If payment is made beyond the Guaranteed Limit

Settlement : i) Actual Payment will be recorded as follows :-

Liabilities a/c Dr xxxx
To Bank xxxx
ii) Recover the amount that goes beyond the limit as per
Guarantee from Acquiree
Bank a/c Dr xxxx
To Indemnified Asset xxxx
iii) Reverse the Balance in Indemnified Asset (if any)
Liabilities a/c Dr xxxx
To Indemnified Asset xxxx
CA-Final Financial Reporting
20

E.g.
i. Guaranteed Limit of Liab. : ₹ 50,00,000
ii. Fair valuation made by Acquirer : ₹ 60,00,000
iii. Actual Payment within 6 months : ₹ 55,00,000

Solution :
Journal Entries

i. Indemnified Asset a/c Dr 10,00,000

To Liab. 60,00,000
ii. Liabilities a/c Dr 60,00,000
To Bank 55,00,000
To Indemnified Assets 500,000
(Being Settlement of Liab. made & Indemnified Assets Cancelled)
iii. Bank a/c Dr 500,000
To Indemnified Assets 500,000
(Being Indemnified Assets Recovered)

Solution of Q.26, Q.27, Q.28: Discussed in Class

Unit II : Indemnification on Assets (Trade Receivables)

If Acquiree Guarantees minimum Collection from Debtors which is

more than Fair value Estimated by Acquirer then Difference will be
debited as Indemnified Assets.
The following Steps should be followed :-
Step I : Recognition on Acquisition date
Fair value Estimated by Acquirer
Trade Receivables a/c Dr xxxx
Indemnified Assets a/c Dr xxxx
[Guaranteed collection - Fair Value estimated by Acquirer]
. .
. .
. .
CA-Final Financial Reporting
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Step II : Subsequent Collection

Case I : If collection remains Less than Guarantee

Bank a/c Dr xxxx
To Debtors xxxx
To Indemnified Assets xxxx

Case II : If collection remains above Guarantee

Bank a/c Dr xxxx
To Debtors xxxx
To Indemnified Assets xxxx
To GW/PL xxxx

If collection made If Collection made

during measurement beyond measurement period
Period

E.g.
i. Fair value of Debtors (Acquirer) : 20,00,000
ii. Guaranteed collection : 28,00,000
iii. Actual Collection : 27,00,000
Pass Collection Entries.

Solution :
i. Trade Receivable a/c Dr 20,00,000
Indemnified Assets a/c Dr 800,000
. .
. .
(Being Assets & Indemnified Assets recognised)
ii. Bank a/c Dr 27,00,000
To Trade Receivable 20,00,000
To Indemnified Assets 700,000
(Being Actual Collection made)
iii. Bank a/c Dr 100,000
To Indemnified Assets 100,000
(Being Amount Recovered from Acquiree as per Guarantee)
CA-Final Financial Reporting
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E.g. if Actual Collection is made of 30,00,000 in above Example beyond

measurement Period then what will be the Entry for collection ?
Solution :
Bank a/c Dr 30,00,000
To Trade Receivable 20,00,000
To Indemnified Assets 800,000
*To Gain on Collection 200,000
(Being Actual Collection made)
* It will be transferred to PL because collection is made beyond
measurement Period

*Part 6*

Concept 3 : Items Not to be included in Business Combination

Items not to be included in Business Combination

*Imp
Unit I : Acquisition Unit II : Future Unit III : Pre-Existing
Cost Services Relationship

Unit I : Acquisition Cost

As per the Provisions of Ind AS 103, Acquirer should write off

“Acquisition Costs” in P&L A/c as an Expense if these costs are
incurred at the time of Business Combination for Acquisition of
Business of Acquiree. “These Expenses shall not be Considered as a part
of Business combination due to which there will be no impact on
Goodwill/ Bargain Purchase due to these Expenses.” As per Ind AS 103,
these Expenses do not increase Future Cash Flows from Business, so
these Expenses should be Expensed immediately.
These Expenses may be in the form of Legal fees, Accounting fees,
Investment Banker’ fees, Finder’ fees, Advisory fees, Stamp Duty for
Registration of Assets, Govt. fees for transfer of titles of I. Assets
etc.
CA-Final Financial Reporting
23

Journal Entry (Acquirer Books)

i. Acquisition Cost a/c Dr xxxx

To Bank xxxx
(Being Expenses Paid)
ii. P&L a/c Dr xxxx
To Acquisition Cost xxxx
(Being Expenses written off)

Conclusion : On the Basis of above Explanation, It can be said that

Treatment of Acquisition cost will be separately from
Business Combination Entries.

Solution of Q.33, Q.34 (Discussed in Class)

Unit II : Future Services

If any Payment is made by Acquirer to Any Person or persons of

Acquiree in Lieu of their Guidance/ Services for Running the Acquired
Business in future/ Post Combination Period then Such Payment shall
not be considered as a part of Business Combination. There will be no
impact on Assets/ Liab or Goodwill/ Bargain Purchase on Acquisition
Date due to such contractual Payments for Future Services. “The
Acquirer Shall write off these payments in future as Remuneration” in
P&L A/c as Normal Employee Benefit Expense is written off.

Journal Entries

i. Remuneration Exp. a/c Dr xxxx

To Bank xxxx
(Being Remuneration Paid) At the time, it will become due
ii. P&L a/c Dr xxxx
To Remuneration xxxx
(Being Exp. written off)
CA-Final Financial Reporting
24

Conclusion : On the basis of above Explanation, It can be said that

future Services are Settled Separately from Business combination.

Solution of Q.25

No, there will be no recognition of any Liability for this contract on

Acquisition date because 10 million shall be paid for future services of
Acquiree management. So, we will Write off this amount in P&L A/c as
Normal Remuneration is written off when it will become due.

Unit III : Pre- Existing Relationships

Pre- Existing Relationships

Part A : Non - Contractual Part B : Contractual

Part A : Non Contractual

(i.e., Court Cases etc.)

As per the Provisions of Ind AS 103, Non Contractual Pre- Existing

Relationship should be considered Separately from Business combination.
The Settlement of these relationships shall be routed through P&L A/c
instead of any Adjustment in Goodwill/ Capital Reserve. The following
steps shall be followed while Making Accounting Entries on Acquisition
date :-

Step I : First of all, “Fair value” should be identified for these Non
Contractual Relationships
Step II : Reduce the Amount of Purchase consideration by fair value of
Non Contractual Liab.
Net PC = Gross Purchase consideration (–) fair value of Non Contractual
X Relationships
It will be considered as PC It’s Not PC for Business
While Computing GW/ Capital Res. combination
CA-Final Financial Reporting
25

Step III : Calculate Gain/ Loss on Settlement of Pre-Existing

Relationship as follows :-

*Gain/ Loss = Fair value of Non (–) Carrying Amount in Books

contractual Liab (if any Provision) is already
created by Acquirer
It will be transferred to P&L A/c

*If there is no carrying amount of provision in Acquirer’ books then

fair value Of Non-contractual Liab. will be considered as full Loss.

Observation : The Amount of Actual loss/ Gain will depend on carrying

Amount of Related Relationship.

Solution of Q.35

In the Given Case, X Ltd is paying 40 crores to Y ltd. for its Business,
but there is a Pre-Existing Relationship in the form of court case which
should not be Considered as a part of Business combination. It should be
accounted for separately From Business combination. So, PC for
Business of Y Ltd. should be taken as follows :

Net PC = Gross PC – Fair value of court case

= 40 crores – 30 Lacs
= 39.70 Crores

Journal Entries for Business Combination

i. Provision for Court case a/c Dr 40 Lacs (carrying Amount)

To Bank 30 Lacs ( Fair value)
To Gain on settlement 10 Lacs (Bal fig.)
(Being Settlement of Pre- Existing Relationship made)
ii. Gain on Settlement a/c Dr 10 Lacs
To P&L a/c 10 Lacs
(Being gain transferred to P&L)
CA-Final Financial Reporting
26

iii. Assets a/c Dr 45 crore

Goodwill a/c Dr 5.7 crore (Bal fig)
To Liab. 10 Crores
To DTL 1 Crore
To Bank (PC) 39.70 Crore
(Being Net Assets acquired from y Ltd)

Solution of Q.36 (Discussed in Class)

*Imp
Part B : Contractual Pre-Existing Relationship
(Re-acquired Rights)

If Acquirer has distributed its rights to sell its Goods or Services or

use of Technology to other Entities in the form of Franchise
Agreement/ Licence Agreement/ Distributorship etc. in lieu of some
fees, but takes over the same Entity later on before Expiry of Such
contract then It will be Accounted for Separately from Business
Combination if some compensation is payable for Early Termination.
“The Acquirer will compute Gain/ Loss on settlement on such Pre-
Existing contract and will route it through P&L A/c”. It means that
there will be no impact of these settlements on Goodwill/ Bargain
Purchase. The following steps Should be followed :-

Step I : First of all, Calculate the Amount which can be reduced from PC

It will be lower of

Fair value of (-) Carrying Amount Actual Amount to be paid

Re acquired right of Given Rights or as per contract in
compensation
Net PC = Gross PC (–) Lower of above Explained values

It will be considered as PC for Business combination

Step II : Calculation Gain/ Loss on Settlement of Pre- Existing
Relationship as follows :-
CA-Final Financial Reporting
27

Lower of above values (–) carrying Amount of Unamortised fees (if any)
= Gain/ Loss
(Actual Payment)
*Imp
Step III : Recognition of Re- acquired Rights :-

An Intangible Asset equal to fair value of Re-acquired Rights will be

recognised and It will be amortised over remaining contractual Life. It
means that I. Asset in the form of Re- acquired Right will be considered
as a Part of Business combination.

Note : No Loss/ No Gain on settlement will be computed if there is no

payment for Settlement of these Rights, but I. Asset will be
recognised at market terms.
*V.V.Imp
Solution of Q.38

Step I : Calculation of Amount to be deducted from PC

a) Fair value of right – Carrying Amount 300,000

(450,000 – 150,000)
(250,000 x 6/10)
Or
b) Actual Amount to be paid as per contract 180,000
whichever is lower = 180,000

Step II : Calculation of Net PC

Net PC = ₹ 100,00,000 – ₹ 180,000 = ₹ 98,20,000

Step III : Loss on Settlement of Re- acquired Right

Loss on settlement in P&L A/c = ₹ 180,000 – ₹ 150,000 = 30,000

CA-Final Financial Reporting
28

In study material,
Journal : Unamortised fees a/c Dr 150,000 ICAI has transferred
(unexpired) 1,80,000 in PL which
PL a/c Dr 30,000 is wrong
To Bank 180,000 Pls don’t Whatsapp
on this point.
Step IV : Recognition of Re-Acquired Right

An Intangible Asset will be recognised at ₹ 450,000 on Acquisition date.

Solution of Q.37 (Discussed in Class)

*Part 7*
*Imp
Concept 4: Acquisition of Intangible Assets from Acquiree

As per the Provisions of Ind AS 103, Acquirer will recognise Intangible

Assets Separately from goodwill which are held by Acquiree on Acquisition
date only if Any Criteria is fulfilled as Specified below :-

Criteria for Recognition of I. Assets

Legal Criteria or Separability Criteria

i. Legal Criteria : If Acquiree has Permissions or Approvals from

Govt. to Conduct any Special Activity then we can recognise such
Licences as I. Assets Separately from Goodwill Even if these
Licences are not saleable or Exchangeable Or Giveable on Rent.
OR
ii. Separability criteria : If Acquiree has any I. Asset in the form of
patent, Copyrights, Trademark etc. which can be sold, can be
Exchanged or can be Given On Rent then It will be considered as a
Separate I. Asset from Goodwill.
CA-Final Financial Reporting
29

Exceptions to Separability Rules

i. Customer Lists/ Data : If Acquiree has some Customer’ List or

Registered User Data on its Website/ App then It may not be an
Intangible for Acquiree because It is Generated during Normal
Course of Business & No Separate Cost is Incurred for it.
As per the Provisions of Ind AS 103, the Specified List/Data
can be Considered as a Separate Asset at the time of Acquisition
of Business if Acquirer Measures its fair value. If Acquirer can
take Benefits from using it or selling it then Fair value of Such an
Asset can be recorded as a Separate Asset.

ii. In Process Research Projects : If Acquiree has some Projects in

Research Phase then It cannot consider research work as an
intangible in its books as per Ind AS 38.But Acquirer can recognise
it as a separate Asset at the time of Business Acquisition if
Acquirer Estimates that the Specified Research will be developed in
future & there are Economic Benefits in it.

Solution of Q.39, Q.40 (Discussed in Class)

*V.V.Imp
Solution of Q.41
In the Given Case, KK limited recognise Patents & Licences as a
Separate Intangible Asset because It has an Estimation of Future Cash
Flows from these Assets and Fair Value can also be measured for these
Asset on Acquisition Date. On Acquisition date, we will follow Ind AS 103
for Recognition of Intangible Assets which are acquired by Acquirer
from Acquiree but subsequent measurements shall be made as Per Ind AS
38. The following Entry shall be passed on Acquisition date :-

Patents a/c Dr 30 crores (20 + 10)

Licence a/c Dr 10 crores
N. Assets a/c Dr 15 Crores
To Cash/ ESC 35 Crores
To Capital Res. (Bal) 20 Crores
(Being Assets & Liab acquired on Acquisition date)
CA-Final Financial Reporting
30

*V.V.Imp
Concept 5: Contingent Consideration

If any Purchase consideration is promised by Acquirer to Acquiree

in future on achievements of some Targets* in Post Combination
Period then It will be Considered as “ Contingent Consideration” on
Acquisition date.
(*Targets : Increase in sales, Profits, Increase in EPS or Retaining
the customers etc.)
As per the Provisions of Ind AS 103, Acquirer should Assess
“fair value of Contingent consideration” on Acquisition date. If fair
value can be measured reliably On Acquisition date then It will be
recognised as a Liability, but will be considered as “PC”

“Subsequent measurement of contingent Consideration”

As per the Provisions, Subsequent Measurement will be made at

each B/s date for Pending/ O/s Liability of Contingent consideration.
If any changes take place in Fair value of contingent consideration
then “It will be transferred to P&L A/c”

Note : The concept of Measurement Period will not be considered for

change in fair Value of contingent consideration. It means that
changes in fair value of Contingent consideration will not have
any impact on GW/ C. Res on Acquisition date.

Exception to above Rule

If contingent consideration is promised by Acquirer in fixed number of

Equity Shares then It will be considered as an Equity instrument under
Ind AS 109. This Promise will not re-measured at any B/s date but It will
remain same as it was recorded on Acquisition date.It can also said that
there will be no change Subsequently in such Promise and It will be
recorded once on Acquisition date fair value of shares.
CA-Final Financial Reporting
31

Important Note

Promise for variable Number of shares shall be considered as a financial

Liability and It will be re-measured at each B/s date and Changes shall be
transferred to P&L A/c.
When Amount is fixed for shares instead of numbers
*V.V.Imp
Solution of Q.43

Case I : If contingent Consideration is promised in fixed No. of Equity

Shares

A. Initial Recognition on Acquisition Date :-

On Acquisition date, Fair Value of contingent consideration is
₹ 25,00,000 Which will be satisfied by issue of 200,000 shares. So,
Calculation of PC (Total) will be made as follows :-

Actual PC (10,00,000 Shares @20) 200,00,000

Fair value of Contingent Consideration 25,00,000
Total PC 2,25,00,000

B. Subsequent Measurement (31.3.x2) : In the Given Case, consideration

was promised in fixed number of shares on Acquisition date due to
which Re-measurement is not Allowed. So, we should ignore fair value
per share of 25/- on 31.3.x2, but shares shall be issued at 25,00,000 as
follows :-
Issue Price = 25,00,000 (fixed) = 12.50
2,00,000 Shares
SC SPR
10 2.5

Case II : Variable Number of shares in contingent consideration

Initial Recognition (1.4.x1)

- Same as in Case I -
CA-Final Financial Reporting
32

Subsequent Measurement of Contingent Consideration :-

In the Given case, variable No. of shares have been Promised on

Acquisition date due to which Re-measurement is required. At the time
of changes in fair value of Contingent consideration, we will transfer it
to P&L A/c.

I. Changes in fair value on 31.2.x2 = 40,00,000 – 25,00,000 = 15,00,000

(P&L)
II. No. of shares to be issued = ₹ 40,00,000 = 1,60,000 Shares
25 Per share

Solution of Q.42

i. In the Given Case, Acquirer has Promised 20,00,000 shares to

Acquiree on Expected Profits of 100 crores in future. It will be
considered as a contingent Consideration and should be classified
as an Equity Instrument as per Ind AS 109 due to fixed No. of
Shares. It will be recorded on Acquisition date Fair Value.

ii. Computation of Goodwill :

Actual PC ( 1 Crore share x 100) 100 Crores

Contingent Consideration ( 20L Share x 100) 20 Crore
PC 120 Crores
N. Assets (100 -20) 80 Crores
Goodwill 40 Crores

iii. The Given Contract is for fixed No. of shares due to which
Subsequent Measurement is not allowed.
CA-Final Financial Reporting
33

*Part 8*

*Imp
Concept 6 : Contingent Consideration to Employees Shareholders

As per the Provisions of Ind AS 103, Contingent Consideration will not

be Considered as purchase consideration as we discussed in concept 5 if
continuous Employment is mandatory for former owners in Post
combination Period. If such Consideration will be forfeited in case
former owners do not continue with Acquirer for the Specified minimum
Period. In concept 5, there was no condition of Employment for the
payment of contingent consideration, but performance Targets Were
Specified only.
In concept 6, we will consider contingent consideration as a
Remuneration Payable to employees in post combination period for
future services, but It will not be treated as PC on Acquisition date.
It means that such contingent payment will not form a part of
Business combination. It will have no Impact on goodwill or capital
Reserve, but such consideration will be written off as salary to
Employees in Post Combination Period.

Refer Q.44 & Q.45 for this concept

*V.V.V.Imp
Concept 7 : Share Based Payment Plans of Acquiree

SBP Plans

Unit I : Replacement of Awards Unit II : Non Replacement of Awards

CA-Final Financial Reporting
34

Unit I : Replacement of Awards

If Acquiree has share Based Payment Plan (ESOP’) in its B/s on

Acquisition date and Acquirer Replaces such plan with a new plan in its
shares then the following Steps/ Points shall be considered while making
Entries for Business Combination on Acquisition date :-
A. As per Ind AS 103, these plans shall be divided into two Separate
headings on Acquisition date as follows :-

SBP Plans

(i) Pre combination Obligation (ii) Post Combination Obligation

(Expired Services) (future Services)

It will be considered on It will be considered as future

Acquisition date & will be Services & will be written off as
credited on such date Employees Expense in Post Period

It will have impact on Recognition It will have impact on P&L A/c in

Of GW/ C. Res. Post combination Period

B. Steps to find out Pre & Post Combination Obligation :-

Step I : Identify New Vesting Period under Acquirer’ Plan

New V.P = Expired Period + Further Period as per Acquirer Plan

Step II : Identify fair value of original Plan on Acquisition date which

was announced by Acquiree

Step III : Calculate Pre- combination Obligation as follows :-

CA-Final Financial Reporting
35

Pre-Combination=fair value of original plan on Acquisition date x Expired

Obligation New vesting Period or Old Vesting Period Period

Higher

Step IV : Post Combination = Fair Value of New Plan - Pre Combination

Obligation on Acq. Date obligation
*Imp
Solution of Q.48

Calculation of Pre Combination Obligation

Pre combination=Fair Value of Original plan on Acquisition date x Expired

Obligation New VP or Old VP Period

Higher
= 500 x 2 years
4 years or 5 years

5Y
= 200

Comments : The Amount of Pre-Combination obligation will be recorded

on Acquisition date as a Liab. and It will have direct impact
on GW/ C. Res.

Calculation of Post Combination Obligation

Post combination Obligation = Fair Value of New plan on (-) Pre comb
Acq. Date Obligation
= 600 - 200
= 400

Comments: The Post comb. Obligation will be written off in P&L over the
remaining Vesting period of 2 years (400/2 = 200 p.a)
CA-Final Financial Reporting
36

Solution of Q.47

Pre- comb. Obligation = 9 million x 2 y = 3.6

5y (Higher)
Post- Comb. Obligation = 10 million – 3.6 million = 6.4

Solution of Q.46

Pre Combination=Fair value of original plan on Acquisition date x Expired

obligation New vesting period or Old VP Period

Higher
= 9 million x 5 years = 6.43 million
(5y + 2y) or 5y

Higher : 7 years

Post combination = fair value of new plan – Pre comb obligation

Obligation = 10 million – 6.43 million
= 3.57 (It will be amortised over 2 years)

Unit II : Non replacement of

Awards
(Relevant for Holding/ Subsidiary only)

If Acquirer does not replace the Share Based Awards and Employees of
Acquiree shall Get receive shares from Acquiree itself then Acquirer will
consider these Awards as Non Controlling Interest. The pre-
combination obligation for Expired period will be Considered as NCI on
Acquisition date, but Post combination obligation will be added to NCI in
future over Expired Period.
CA-Final Financial Reporting
37

Solution of Q.49

Calculation of Pre- Combination Obligation

Pre- Combination = 500 million x 2 y = 200 million

4 y or 5y

5y

Comments : It will be added to NCI on Acquisition Date

Calculation of Post Comb. Obligation Exp. Dr. 150

To NCI 150
Post Comb. = 500 million – 200 million = 300 PL Dr. 150
To Exp. 150
Comments : It will be amortised over a Period of 2 years in future in PL
& will be added to NCI

*Part 9*

Solution of Q.50

A. Calculation of PC

i. Fair Value of Retail Division 360 million

ii. Fair Value of Shares to be issued 350 million
(10,00,000 Shares x 350 Per share) PC 710 million

B. Calculation of Goodwill/ Bargain Purchase on Acquisition Date

Purchase Consideration 710 million

Fair value of Net Assets Acquired (Given) 700 million
GW 10 million
CA-Final Financial Reporting
38

C. Journal Entries
(In the books of X Ltd.)

i. Land & building a/c Dr 50

Plant & machinery a/c Dr 600
Equipment a/c Dr 10
Inventory a/c Dr 80
Trade Receivable a/c Dr 80
Cash a/c Dr 10
Goodwill (Bal Fig.) a/c Dr 10
To Loans 100
To Trade Payable 30
To Liquidator of Y Ltd. (PC) 710
(Being Assets & Liab. Acquired from y Ltd. at fair value)

ii. Liquidator of Y Ltd Dr 350 million

To Eq. Share capital (10L x 10) 10 million
To Sec. Premium (10L x 340) 340 million
(Being 10 Lac Shares issued @ 350 in settlement of PC)

iii. Payable a/c Dr 30

Liquidator of y ltd a/c Dr 360 million
To Equipment 120
To Inventory 120
To Receivables 110
To Gain on Disposal of
N. Assets (Bal fig) 40 (360 -320)
(Being Purchase consideration settled by transferring Retail
Division)

iv. Gain on Disposal of N. Assets a/c Dr 40

To SOPL 40
(Being Gain transferred to other Incomes)
CA-Final Financial Reporting
39

Solution of Q.52

A. Calculation of Net Assets Acquired (millions)

Fair Value of PPE 220

Fair value of Intangible Assets : Brand value 20
Customer List 10
Fair value of Trade Receivables 24
Indemnified Debtors 6
Assets held for Earning Rentals 100
Inventory 40
Indemnified Assets against warranty 1
Total Assets (A) 421

Debentures 100
Trade Payables 30
Retirement Benefits (Ind AS 19) 50
Deferred Tax Liab. 20
Fair Value of warranty Obligation 2
Total (B) 202
(A-B) Net Assets Acquired (421 - 202) = 219

B. Calculation of Purchase Consideration

1) Current Promised Payment 250 million

2) Contingent consideration 50 million
PC 300 million

Goodwill = Purchase consideration – N. Assets acquired

(Acquisition date) (Acquisition Date)
= 300 million – 219 million
= 81 million

Note on Future Services: In the Given case, we have ignored payment of

CA-Final Financial Reporting
40

5 million to Managing director because It will be paid by Acquirer for has

Future Services. This Amount will not be considered as a part of

Business combination, but It will be Written off in P&L in post

combination Period.
*V.V.Imp
Solution of Q.51 (Larger Entity concept)

In the Given case, Bx Ltd. will be the Larger Entity in the Group. It
means that Bx Ltd. will have control over New Entity ABx Ltd. which
indicates that Bx Ltd. Will be taken as an Accounting Acquirer and ABx
Ltd. will be considered as a Legal Acquirer, but Ax Ltd will be taken as an
Acquiree in this transaction. The following Points shall be considered
due to consequence of Difference in Legal Acquirer & Accounting
Acquirer :-

A. All the Accounting Entries shall be recorded in the books of ABx Ltd.
which is a Newly incorporated Entity.
B. Bx Ltd is the Real Acquirer in the Given transaction due to which we
will not apply Acquisition method on its B/s. It means that there will
be no Change in its B/s. Its Assets, Liab, reserves & capital will be
shifted to New Entity at same value as it was Existed in its Original
B/s.
C. Ax Ltd. is an acquiree in Given transaction due to which we will Apply
Acquisition Method on its Assets & liab. Its Assets & Liab shall be
taken on fair value and it will be issued PL at fair value Per share of
Acquirer (Bx). We will also identify GW and capital reserve for Ax Ltd.

A. Calculation of N. Assets & Goodwill for Acquiree (Ax Ltd)

Fair Value of Assets : Fixed Assets (PPE) 9500

Investments 1050
Inventory 1300
Receivables 1800
Cash 450

Fair Value of Liab : Borrowings (3000)

CA-Final Financial Reporting
41

Trade payables (1000)

N. Assets 10100

Value of Business (PC) 11000

Goodwill (Bal) 900
(PC Exceeds N. Assets)

B. Calculation of Value Per share of Acquirer (Bx Ltd)

Value of Business of Bx Ltd (Given) 14,000

No. of shares in Bx Ltd (7000/10) 700
Fair Value Per share 20

C. Payment of Purchase consideration to AX ltd.

No. of shares = Value of Ax Ltd = 11000 = 550

Value per share of Bx Ltd 20
5500 5500
(Capital) (Premium)

D. Journal Entries
(In the Books of ABX Ltd)

i. Acquisition of Ax Ltd :-
Property, Plant & Equip. a/c Dr 9500
Investments a/c Dr 1050
Inventory a/c Dr 1300
Receivables a/c Dr 1800
Cash & Cash Equivalents a/c Dr 450
Goodwill a/c Dr 900 (Bal fig)
To Borrowings 3000
To Trade Payables 1000
To E. S. Capital 5500
To Sec . Premium 5500
(Being Business Acquired from Ax Ltd)
CA-Final Financial Reporting
42

ii. Acquisition of Bx Ltd. (Book values without any change) :-

Property, Plant & Equip. a/c Dr 7500
Investments a/c Dr 550
Inventory a/c Dr 2750
Receivables a/c Dr 4000
Cash Dr 400
To Borrowings 4000
To Trade Payables 1500
To R& S (Other Equity) 2700
To E. S. Capital (New Issue) 7000
(Being Business Acquired from Accounting Acquirer at Book values)

Balance sheet of ABX Ltd. (post combination)

Notes ₹
Non Current Assets :
i. Property, Plant & Equipment 1 17,000
ii. Goodwill - 900
iii. Financial Assets : Investments 2 1600

Current Assets :-
1) Inventory 3 4050
2) Financial Assets :
Trade Receivables 4 5800
Cash 5 850
Total 30200
Equity :
E.S Capital 6 12500
Other Equity 7 8200

Non current Liab :

Borrowings 8 7000

Current Liab :
Payables 9 2500
Total 30200
CA-Final Financial Reporting
43

*Part 10*

Concept 8 : Skilled workforce

Assembled Workforce

As per the provisions of Ind AS 103, there will be No recognition of

Any Asset Or liability in relation to continuation of Employment of Skill
workforce of Acquiree in Post Combination Period with Acquirer. This
will be paid by Acquirer in future for their services as Remuneration in
post combination period, but there will be no Accounting on Acquisition
date in this Regard.

Concept 9 : Employees “Retirement Benefits”

As per the Provisions of Ind AS 103, Retirement Benefits held by

Acquiree shall be recognised in the books of Acquirer on Acquisition Date
only if Employees of Acquiree are continuing their jobs with Acquirer.
The retirement obligation will be Measured as per Ind AS 19 on
Acquisition date (Exception to Fair Value Rule).

Concept 10 : Assets Held for sale with Acquiree

As per the Provisions of Ind AS 103, Non current Assets held for sale of
Acquirere shall be recognised in the books of Acquirer as per Ind AS 105 :
Fair value Less cost to Sell on Acquisition date.
*V.V.Imp
Concept 11 : Lease Contracts held by Acquiree

If Acquiree

is a “Lessee” (Unit I) is a “Lessor” (Unit II)

CA-Final Financial Reporting
44

Unit I : If Acquiree is a Lessee

Lessee

A. Exempted Lease B. Non Exempted Lease

A. If Acquiree is a Lessee in an Exempted Lease then there will be No

RoU or Lease Liability in its books. In this case, Acquirer will
recognise Nothing in its books on Acquisition date, but Acquirer will
make payments for Lease Rentals if it continue the Exempted Lease
in future. These Rentals shall be Expensed in future, but there Will be
no Accounting on Acquisition date for Exempted Lease.
*Imp
B. If Acquiree is a Lessee in Non Exempted Lease then It will have ROU
Assets & Lease Liab. in its books. In this case, Acquirer will take over
ROU Assets and Lease Liab. from Acquirer on Acquisition Date.

Step I: Acquirer will compute Lease Liab. on Acquisition date as it is a

new contract for it.
(Present value of future payments)
Current Rate
Step II : Acquirer will recognise ROU Asset Equal to Lease Liab as per
Step I

Unit II : If Acquiree is a Lessor

Lessor

Operating Lease Finance Lease

As a matter of prudence
A. Operating Lease : Under operating Lease, Acquirer will not Recognise
future Rentals on Acquisition date but It will acquire “Assets Given
operating Lease at Fair value” on Acquisition Date. The Acquirer will
recognise Earning from Rentals in Future on SLM Basis.
CA-Final Financial Reporting
45

B. Finance Lease: Under Finance Lease, Acquirer cannot recognise Assets

on Lease on Acquisition date because Assets do not Prevail in Acquiree,
Books. In this Case, Acquirer can recognise “Lease Receivables” on
Acquisition date in its books.

“Lease Receivables shall be computed on Acquisition date assuming a New

contract for Acquirer”

Lease Receivables = Future Lease collections x PVF at Current Rate on

Acquisition Date

Concept 12 : Deferred Tax on Business Combination

Question of Q.53 (Ind AS 12 : Q28)

*Part 11*

Part B : Business Combination by way of “Significant Equity

Interest” (Holding/ Subsidiary Relationship)

As per the provisions of Ind AS 103, Acquisition of controlling

Interest by One company into other company is also a type of
Business combination. The following Flow chart should be understood
carefully before Learning Accounting Aspects in this Case :-

Acquirer (if Acquirer Controlling Interest in other Entity)

CA-Final Financial Reporting
46

Acquirer’ stand Alone Financial Acquirer’ consolidated

Statements (Separate Financial financial Statements
Statements) (holding + Sub = CFS)

Ind AS 109
CFS on Date of Acquisition CFS in Post
Of Shares by Acquirer Acquisition Period
(Updation of CFS)

Ind AS 103 Ind AS 110

A. Accounting in Separate financial Statements of Acquirer

Step I : On the date of Acquisition of Shares

The Acquirer will debit Investment in Equity Instruments as we

record Normal Purchase of Investments. These Investments shall be
recorded as per Ind 109 as follows :-

Investment in Shares a/c Dr xxxx

To Bank xxxx
(Being Investments Acquired)

Step II : At each B/s, Fair Value measurement will be made as per Given
choices in Ind AS 109 :-
i. FVPL
ii. FVOCI (Irrevocable)

Comments : At each B/s date, Changes in fair value of Investments shall

be transferred to PL or OCI as per Opted model.

Ind AS 103 has No Guidance for Accounting in SFS of Acquirer in this

Regard.

B. Accounting Treatment in CFS of Acquirer

CA-Final Financial Reporting
47

(We will Discuss Accounting on D.O.A only)

➢ Refer Ind AS 110 for Accounting in CFS for Post acquisition Period
➢ Refer Ind AS 110 for detailed discussion on meaning of “Controlling
Interest”
Have Patience for its meaning till the understanding of 110:
Don’t whatsapp me till then
“Acquisition method in CFS on D.O.A”

Aspect I : Identify fair value of Assets & Liab. of Subsidiary on date of

Acquisition of Shares which are to be incorporated in CFS in
the books of Acquirer
Aspect II : Identify the value of Non controlling Interest which is held
by outside Shareholders in subsidiary company.

NCI

Method I : Proportionate method Method II : Fair value method

“NCI = N. Assets in x % of shares“ “NCI = No. of x Fair value”

Subsidiary held by outside shares held per share
Co. shareholders by in
outsiders subsidiary co.

Note : In study material of ICAI, All questions have been solved by

proportionate Method due to which we will prefer it in the absence
of any specific Information

Aspect 3 : Identify Goodwill/ Capital Reserve on D.O.A of shares by the

following Entry :-

Journal Proportionate GW
CA-Final Financial Reporting
48

Assets a/c Dr xxxx (Fair Value)

Goodwill a/c Dr xxxx (bal fig) If NCI is computed by
To liabilities xxxx (Fair Value) proportionate method
To NCI xxxx (Method I) then GW will belong to
To Investments xxxx (PC) Holding only
To Cap. Res. xxxx (Bal fig)
(Being Assets/ Liab. acquired on Acquisition Date)
OR
Full Goodwill
Assets a/c Dr xxxx (fair value)
Goodwill a/c Dr xxxx (bal fig) If NCI is computed at
To liabilities xxxx (fair value) fair value then It will
To NCI xxxx (Method II) belong to Holding & NCI
To Investments xxxx (PC)
To Cap. Res. xxxx (Bal fig)
(Being Assets & Liab. taken over on Acquisition Date)

Statement Showing calculation of GW/ C. Res.

Cost of Investments made in Acquiree (PC) xxxx

NCI xxxx
Total xxxx
Net Assets (xxxx)
GW/ C. Res. xxxx
[GW/ C. Res = (PC + NCI) – N. Assets]

Solution of Q.54 (Fair Value Method)

Journal
Full Goodwill
N. Assets a/c Dr 130 crores
Goodwill a/c Dr 20 crores (Bal fig.)
To Investments 120 crores
To NCI 30 Crores (fair value)
(Being Acquisition of B Ltd recorded in CFS on DOA)

Solution of Q.55
CA-Final Financial Reporting
49

Journal
Assets a/c Dr 130 crores
Goodwill a/c Dr 16 crores (Proportionate GW)
To Investments 130 crores
To NCI (130 x 20%) 26 Crores
(Being Acquisition made of B Ltd on Acquisition Date)

Solution of Q.56
Journal
Assets a/c Dr 130
To Investments 90 (PC)
To NCI 26 (130 x 20%)
To Capital Res. (Bal fig) 14
(Being Acquisition made of B Ltd on Acquisition Date)

Solution of Q.57
Calculation of Goodwill / Capital Reserve

Method I Method II

Purchase consideration 15,00,000 Purchase consideration 15,00,000

NCI (500,000 x 40%) 200,000 NCI (Fair Value) 10,00,000
Net Assets Total 17,00,000 Total 25,00,000
Net Assets (500,000) Net Assets (500,000)
Goodwill 12,00,000 Goodwill 20,00,000

Question 58, 59, 60 : Homework

Solution of Q.61
Calculation of Goodwill
Purchase consideration 525
NCI (100,000 shares x 40% x 775) 310 (Fair Value)
Total 835
Net Assets (640-50) (590)
Goodwill 245 (full)

Solution of Q.62
CA-Final Financial Reporting
50

Method I : NCI by Proportionate Method

NCI = N. Assets (Fair Value) x % of shares held by NCI in Subsidiary

= 100 crores x 10%
= 10 crores

Method II : NCI by fair value method

It is already Given in question at 15 crores

Question 63, 65 : Homework

*Part 12*

Solution of Q.86

i. Calculation of GW/ Bargain Purchase

Purchase Consideration 300

Fair value of NCI 84
Total 384
N. Assets on Acquisition date (500 – 100) 400
Bargain Purchase 16

Journal : Assets a/c Dr 500

To Liabilities 100
To Investments 300
To NCI (FV) 84
To Bargain Purchase 16 (Bal fig)
(Being consolidation made on D.D.A of shares in Beeta)

ii. NCI (Proportionate method) :-

CA-Final Financial Reporting
51

NCI = (500 – 100) 20% = 80

Bargain Purchase = (300 + 80) – 400 = 20
PC NCI N. Assets (Bal fig)
*V.V.Imp
Solution of Q.87 (RTP)

I. Calculation of Purchase Consideration

Payment in shares 120,00,000 x 75% x 2 x 6.50 ₹ 3,90,00,000

3
Payment in Liabilities Assumed 71,50,000 x 100 ₹ 65,00,000
110
Fair value of contingent consideration on 1.7.x1 ₹ 2,50,00,000
PC ₹ 7,05,00,000

II. Calculation of NCI (25%)

NCI at fair value: Shares held by NCI in JKL Ltd. x Value Per share of
JKL
= 30,00,000 Shares x 6/-
= ₹ 1,80,00,000

NCI at Proportionate method : Net Assets at fair value (jkl) x % of NCI

= (₹ 7,00,00,000 – *20,00,000) x 25%
= ₹ 1,70,00,000

* We have assumed that carrying Amount of N. Assets & Tax Base are
same in JKL Ltd. . S0 we have created a DTL on Diff. in fair value &
Tax Base of N. Assets

Calculation of Goodwill
CA-Final Financial Reporting
52

Fair value NCI Proportionate NCI

Purchase consideration 7,05,00,000 7,05,00,000
NCI 1,80,00,000 1,70,00,000
Total ₹ 8,85,00,000 ₹ 8,75,00,000
N. Assets (₹ 6,80,00,000) (₹ 6,80,00,000)
Goodwill ₹ 2,05,00,000 ₹ 1,95,00,000

Impairment @ 10% 20,50,000 ₹ 19,50,000

Additional Concepts under PART B : Significant Equity Interest

*V.V.Imp
Concept 1 : Step by Step Acquisition

Step by Step Acquisition

Case I : If Previous Equity Case II : If Previous Equity

Interest Was 20% or more Interest was Less
in Acquiree than 20% in Acquiree
*Imp
Case I : If Previous Equity Interest was 20% or more in Acquiree

If Acquirer obtains control over Acquiree through multiple

Acquisitions then It Will be considered as step by Step Acquisition. In
this case, % of Earlier Investment is very Important which were held
by Acquirer before the Establishment of Holding/Subsidiary
Relationships.
If Earlier Investments in Equity shares were for 20% or more then
Consolidated Financial Statements would have been prepared by the
Acquirer with its Acquiree as per Ind AS 28 (Associates).
On Acquisition date, the Acquirer will have to De-recognise Investment
in Associate. The following Points should be considered :-

I. Investment in Associates in CFS shall be de-recognised at “Fair

CA-Final Financial Reporting
53

Value” which Prevails on “Acquisition date”

II. Gain/ Loss on De-Recognition will also be computed as follows :-

Gain/ Loss = Fair Value of Investment - Carrying Amount of

in Associate Investment in Associate in CFS

Journal Entry

Assets a/c Dr xxxx (fair value)

Goodwill a/c Dr xxxx (Bal fig)
To Liabilities xxxx (fair value)
To NCI xxxx
To PC xxxx (Current Acquisition)
To Investments in xxxx (carrying Amount)
Associates Fair Value
*To Gain on De- Recog. xxxx (FV – C. Amt)
To Bargain Purchase xxxx (Bal fig)
(Being De- recognition of Associate, but Recognition of Subsidiary made
at fair value)

Notes :
1. If Fair Value becomes Less than carrying Amount of Associates then
Loss on De- Recognition will be debited before computing GW/C. Res
2. Gain or Loss on De-recognition of Associate will be transferred to
consolidated P&L A/c.

Observation on Concept

If An associate becomes subsidiary due to increase in Investment of

Equity Interest of company then we will De-Recognise Investment in
Associate in CFS at Fair value before computing GW/CR on Acquisition of
subsidiary.

Solution of Q.69
CA-Final Financial Reporting
54

Journal Entry

i. Net Assets a/c Dr 880 Lacs

Goodwill a/c Dr 120 Lacs (Bal Fig)
To Cash 600 Lacs (60%) 40%
To Invest. In E 40 Lacs (carrying Amount in CFS)
(Associate)
To Gain on De-Recog. 360 Lacs (400 - 40)
(Being Acquisition of Subsidiary & De-Recognition of Associate made)

ii. Gain on De- Recognition of Associate a/c Dr 360

To P&L A/c 360
(Being Gain Recognised)

Solution of Q.70 (Nov. 20 : Exams) (12 Marks)

Accounting in the books of A Ltd.

i. Net Assets a/c Dr 60,00,000

Goodwill (Bal fig) a/c Dr 39,50,000
To NCI 750,000
To Cash (PC) 59,00,000
To E. S. Capital (1L x 10) 10,00,000 PC (65%)
To Contingent consideration 300,000
To Investments 600,000 (25%)
To Gain on Invest 14,00,000
(Being Recognition of Subsidiary made)

ii. Gain on Investments a/c Dr 14,00,000

To P&L 14,00,000
(Being Gain on De-Recognition recognised)

Note : Acquisition Cost will be written off in P&L A/c as per Ind AS 103

Case II : If % of Investments (Earlier) are below 20% in Acquiree

CA-Final Financial Reporting
55

In the Given Case, Accounting Entries shall be quite similar as we

passed in Case I Except De-recognition of Investments. We will De-
recognise the carrying Amount of Earlier Investments which is
disclosed in Separate Financial Statements Of Acquirer on Acquisition
Date as per Ind AS 109. The Difference between the Carrying Amount of
De- recognised Investments & fair value on these Investments On
Acquisition Date will be considered as “ Gain/ Loss on De-Recognition of
Investments”
We will Transfer the above Gain/Loss on De-Recognition to P&L/OCI
as per Opted model of Accounting under Ind AS 109.

Assets a/c Dr xxxx (fair value)

Goodwill a/c Dr xxxx (Bal fig.)
To Liabilities xxxx (fair value)
To PC xxxx (Current Payment)
To NCI xxxx
To Investments (109) xxxx
To Gain xxxx (FV – C Amt)

PL or OCI

Opted model
*Imp
Solution of Q.84 (Discussed in class)

*Part 13*

Concept 2 : Investments in Associates with “OCI”

(Extra Concept in Step by Step)

In Case An Acquirer has share in OCI Reserves of an Associate in CFS

(Ind As 28 : Equity method) then the share of Acquirer in OCI Reserves
of the Associate will also be De-Recognised by transferring it to P&L or

retained Earning according to Nature of OCI reserve on Acquisition

CA-Final Financial Reporting
56

Date (i.e., Revaluation Res. to R.E/ FCTR to P&L Etc).

There will be no change in rest of Accounting as we discussed in
concept I.

Journal :

1) Assets a/c Dr xxxx (F.V)

Goodwill a/c Dr xxxx (Bal. fig)
To Liabilities xxxx (F.V)
To NCI xxxx
To PC xxxx (Current)
To Invest. in Associates xxxx (carrying Amount)
To Gain on Invest. xxxx
(fair value – carrying Amt)
(Being Acquisition of Subsidiary Recognised)

2) Gain on Investments a/c Dr xxxx De-recognition

OCI Reserves a/c Dr xxxx of share in OCI
To P&L xxxx Res. of Associates
To R.E xxxx on Acq. Date
(Being Profits recognised)

*V.V.Imp
Solution of Q.71 (5-10 Marks)

Journal

1) N. Assets a/c Dr 30,000 Crores

Goodwill a/c Dr 4,000 Crores (Bal fig)
To Cash 25,000 crores (PC : 70%)
To Investment in
Associates 8850 Crores (carrying Amount)
To Gain on Invest. 150 (9000 – 8850)
(Being Acquisition of Subsidiary made)
CA-Final Financial Reporting
57

2) Gain on Investment a/c Dr 150 Crores

OCI Reserves : FCTR a/c Dr 100 Crores
R. res a/c Dr 50 Crores
To P&L (150 + 100) 250
To R.E (Rev. Res) 50
(Being OCI Res. & Gain on Invest. Recognised)

Solution of Q.72

Journal Entry

i. Assets a/c Dr 1200

Goodwill a/c Dr 104 (Bal fig.)
To Liabilities 200
To D.T Liab. 40
To NCI (960 x 40%) 384
To Cash (30% :New) 350
To Invest. in Associate 300 (carrying Amount)
To Gain on Invest 30 (330 – 300)
(Being Acquisition of Subsidiary made)

ii. Gain on Invest. a/c Dr 30

OCI Res. a/c Dr 100 (CFS : FVOCI)
To P&L 130
(Being profit recognised on Derecognition)
*Imp
Concept 3 : Acquisition control over an Enterprise “without
acquisition Of shares”
It may be possible that An Acquirer obtains control over the other
Enterprise due to Buy back of shares by other Enterprise. If an
Acquirer has significant influence before Buy Back of shares by that
Entity, but after Buy Back of shares, significant Influence converts
into controlling Interest then Acquisition method will be applicable even
if Acquirer has not made any further Investment for Acquisition of
controlling Interest.
CA-Final Financial Reporting
58

All Entries shall remain same as we recorded in case of step by step

Method as follows :-
Assets a/c Dr xxxx (F.v)
Goodwill a/c Dr xxxx (Bal fig)
To Liab. xxxx (f.v) No PC X
To NCI xxxx
To Invest in Asso. xxxx (carrying)
To Gain on Inves. Xxxx (FV – CA)

Solution of Q.73

1) Calculation of % of Controlling Interest after Buy Back

Total No. of Issued shares by Y Ltd 100 million

Buy Back of shares (10 million)
No. of shares issued after Buy Back 90 million

No. of shares held by X Ltd in Y Ltd 46 million

% of controlling Interest = 46 x 100 = 51.11 %
90
% of NCI = 100 – 51.11% = 48.89 %

2) Accounting under Acquisition method

Assets a/c Dr 14,000

Cash a/c Dr 1800
To Liab. 2000
To NCI (13800 x 48.89%) 6747
To Invest in Asso. 6900 (carrying Amount)
To Bargain Purchase (Bal) 153
(Being Acquisition of Subsidiary made)

Note : In the Given question, Fair Value of Associate is not Given due
to which we have not computed Gain/ Loss on De-Recognition of
Associate. We cannot not Use 110 Per share value for fair
CA-Final Financial Reporting
59

valuation of Associate because its Buy Back Price which is normally

offered at higher value than Fair Value to make the offer
Attractive.
Question 67 (H.W) & Q.66 (Discussed in Class)
(will be discussed in detail in 110)

*Part 14*
PART C : Common control Transactions
(Appendix C : Pooling Interest Method)

Units

Unit I : Identification Unit II : Accounting Unit III : Accounting

of Common Control Rules for Merger Rules for De-mergers

*Imp
Unit I : Identification of Common control

As per the Provisions of Ind AS 103 (Appendix C), Acquisition method

will be Exempted for Accounting if Business Combination has taken place
under common Control. It can also be said that common control
Transactions are not covered by Acquisition method. “ Ind AS 103 has
Prescribed Application of Pooling Interest method for Accounting of
common control Transactions”. The following Examples may be noted for
common control Transactions :-
i. Merger of fellow subsidiaries “Change in
ii. Acquisition of one fellow subsidiary by other control
fellow subsidiary Structure”
iii. Split off of one company into 2 or more companies

Mergers Demergers

Under Common control

CA-Final Financial Reporting
60

* Note : If Controlling Authority remains same before and after

Business Combination then It will be considered as common
control Transaction and Pooling Interest method will be Applied.

Solution of Q.74

Yes, the Given case is a Common Control Transaction because X is the

Controlling Authority before & after Business combination.
Before the Given Acquisition, X was controlling the company y
directly, but after Acquisition X will control the company y indirectly
through Z ltd.

Solution of Q.75

Yes, the Given case is of common control. There is a contractual

Agreement between B, C & D in relation to control company ABC & XYZ.
It indicates that controlling Authority is same for Both companies.

Solution of Q.76

No, there is no contract between shareholders in relation to controlling

the Companies. The Given case cannot be considered as Common Control
Transaction because controlling Authority is not same.
(Note : If there is a voting Pattern even though we cannot consider it
as common control Transaction without contract.)

*Imp Solution of Q.85

No, the Given transaction cannot be considered as common control

transaction Because controlling Authority is not same in Pre
combination and Post combination Period. Before Acquisition, control of
Entity A was in hands of group of shareholders, but after Acquisition,
Entity A is controlled by Mr. Ram. So, Acquisition method will be
applicable in this case.
CA-Final Financial Reporting
61

Unit II : Accounting Rules for Mergers

i. It should be under common control

ii. Apply : Pooling Interest method

Step I : Acquire All the Assets & All the liabilities of Acquiree at
“Carrying Amount”
Note : we will Ignore fair value of Assets & Liabilities under Pooling Int.
method

Step II : Acquire All the Reserves of Acquiree at carrying Amount and

maintain the Identify of each reserve.
Note: G. Res of Acquiree will be added to G. res of Acquirer……. Same Rule
will be followed for other Reserves as well

Step III : Difference between Purchase consideration & Share capital

of Acquiree will be considered as Gain or Loss on merger and
will be transferred to “Capital Reserve”.
Note : If there is no capital Reserve for writing off Loss on merger
then we can use Other reserves i.e., G. Res, PL etc.

Important Note
New shares shall be issued in settlement of PC at “Par value” only

“No Security Premium can be booked” Face value

Journal : Assets a/c Dr xxxx (Book value)

Cap Res/ GR/ PL a/c Dr xxxx (Bal Fig)
To Liabilities xxxx (Book value)
To Reserves xxxx (Book Value)
To S. Capital xxxx (PC)
To capital Res. xxxx (Bal Fig)
i. No Goodwill will be debited Here
ii. No New Asset or Liab. can be recognised in merger
CA-Final Financial Reporting
62

Solution of Q.77
Calculation of PC
(Pooling Interest method)
AX Ltd. BX Ltd Total
P.P.E 8500 7500 16,000
Investments 1050 550 1600
Inventory 1250 2750 4000
Trade Receivables 1800 4000 5800
Cash 450 400 850
Total A 13,050 15,200 28,250
Reserves 3050 2700 5750
Borrowings 3000 4000 7000
Trade Payable 1000 1500 2500
Total B 7050 8200 15250
(A-B) PC 6000 7000 13000
“New shares of ₹ 13,000 at Par value shall be issued”

B/S of ABX Ltd.

Non Current Assets :

1) P.P.E 16,000
2) Financial Assets : Investments 1600

Current Assets :
1) Inventory 4000
2) Financial Assets : Trade Receivable 5800
Cash 850
Total 28,250
Equity :
Equity Share capital 13,000
Other Equity 5750

Non Current Liab : Borrowings 7000

2500
Current Liab : Payables Total 28,250
CA-Final Financial Reporting
63

*V.V.Imp Unit III : Accounting for De- Mergers

(Special Accounting Treatment)

If any loss making segment/ Division is transferred by one company to

Another New company which is incorporated by transferor company
itself to improve Overall profits then It will be considered as a case of
De- merger. The following Conditions should be satisfied if Exemption
from Acquisition method is to be availed :

I. All Assets & Liab which are related with Loss making Division shall
be transferred to New co./ resulting co. at carrying Amount.
(Note : S. Capital & Reserves shall not be transferred because
Equity does not Belong to division, but It belongs to company)

II. New co. will issue new shares in PL to the members of Transferor
company at Par value.

Notes

1. It means that Transferor will Transfer its division without PC

because PC will be Given directly to its members.
2. In Practical questions Given by ICAI in study material, shares have
been issued at Premium by New Co. So, we will follow wrong Treatment
to match our answer with S.M.
3. When N. Co will issue shares to members of old co. then Common
Control Condition will be satisfied.

III. In the books of Transferor & Transferee, Difference in Entries

will be taken to “Capital Reserve” assuming Loss or Profit on
De-Merger.

No Goodwill/ No New Asset/ No new Liab can be recognised.

CA-Final Financial Reporting
64

Journal Entry

Transferor Transferee

Liab . a/c Dr xxxx Assets a/c Dr xxxx

Cap Res. a/c Dr xxxx (Bal) Cap Res. (Bal) a/c Dr xxxx
To Assets xxxx To Liab. xxxx
To Cap Res xxxx (Bal) PC To S. Capital xxxx
To S. Premium xxxx
To Cap Res (Bal Fig) xxxx

In the absence of Cap Res, other Reserves can be used

Solution of Q.79

In the books of Enterprise Limited

Current Liab . a/c Dr 400

Loans a/c Dr 300
To Fixed Assets (WDV) 100
To current Assets 500
To capital Res. (Bal fig) 100
(Being mobile division transferred to Turnaround Ltd.)

B/S of Enterprise Ltd.

Non-Current Assets :
Fixed Assets 25
Current Assets 200
Total 225
Equity :
Share capital Cap Res 25
Other Equity (75 + 100) 175
Current Liab 25
Total 225
CA-Final Financial Reporting
65

In the books of Turnaround

Fixed Assets a/c Dr 100

C. Assets a/c Dr 500
Cap. Res (Bal Fig) a/c Dr 125 (Loss)
To C. Liab. 400
To Loans 300
To S. Capital 10 (1 x 10)
To S. Premium 15 (1 x 15)

Balance sheet

Non Current Assets :

Fixed Assets 100
Current Asset 500
Total 600
SP
Equity share capital C. Res. 10
Other Equity [15 + (125)] (110)
N. C. Liab : Loans 300
Current Liab 400
Total 600
CA-Final Financial Reporting
66

*Part 15*
*Imp
Solution of Q.78

i. Accounting in the books of Companies

A. In the books of Mini ltd New Co.

Fixed Assets a/c Dr 200

Current Assets a/c Dr 300
To Loans 100
To Current Liab. 100
To E.S. Capital 50 (5 x 10) (PC)
To Cap. Res (Bal Fig) 250
(Being mini division acquired)

Balance sheet of Mini Ltd.

Non-Current Assets : PPE 200

Current Assets 300
Total 500
Equity :
E.S. Capital 50
Other Equity : Capital Res. 250
Non-Current Liab : Loan funds 100
Current Liab 100
Total 500

B. In the books of Maxi mini Ltd.

Loan funds a/c Dr 100

C. Liab a/c Dr 100
*Loss on Demerger a/c Dr 300 (Bal fig)
To Fixed Assets 200
To Current Assets 300
(Being Mini division transferred to Mini Ltd)
CA-Final Financial Reporting
67

Capital Reserve a/c Dr 300

* To Loss on Demerger 300
(Being Losses written off)

Balance sheet of Maxi Mini Limited

Pre- Post
Demerger Demerger
Non-Current Assets : P.P.E 300 100
Current Assets 700 400
Total Assets 1000 500

Equity :
Equity share capital 50 50
Other Equity 650 350
(650 – 300)
Non-Current Liab : Loans 100 -
Current Liab 200 100
Total Equity & Liab 1000 500

ii. Calculation of Intrinsic value Pre & Post Demerger

Pre- Post
Demerger Demerger
Maxi mini ltd Maxi Mini ltd
mini ltd
PPE 300 100 200
C. Assets 700 400 300
C. Liab (200) (100) (100)
Loans (100) - (100)
Net Assets 700 400 300
No. of Shares 5 5 5
I. Value 140 80 60
CA-Final Financial Reporting
68

iii. Comments on Impact on Shareholders Wealth

In the Given case, there is no impact on the Shareholders wealth in pre

Demerger & Post Demerger situation because value Per share Pre-
Demerger was 140 per share, but Post Demerger it is 80 & 60 Per share
in two different Entries.
*Imp
PART D : Accounting for Reverse Acquisition in “Consolidated
Financial statements”

If A small company Acquires controlling Interest in Large company

then It will be a case of “Reverse Acquisition”. In the Given case, Legal
Acquirer and Accounting Acquirer shall be different. It can also be said
that Consolidated Financial Statements Shall be prepared from the
Point of Accounting Acquirer. These type of Transactions are
undertaken to obtain Listing Licence which is held by small company.
Sometimes, SEBI denies a large Group from providing listing in stock
market due to Bad practices in past. So these large Entities acquire
small listed companies to acquire Listing licence. It is called Back Door
Listing.The following steps should be followed while preparing CFS on
D.O.A under Ind AS 103 in Reverse Acquisition :-

Step I : Identify Post Combination control structure whether Legal

Acquiree has Obtained control in Legal Acquirer or Not.
Notes : 1) If Answer is “Not” in Step I then It will not be considered as
Reverse Acquisition. No further Discussion will be made.
2) If Answer is “yes” in step I then It will be considered as a
Case of Reverse Acquisition and we will move to Step II.

Step II : Calculate *No. of shares to be issued from the Point of view

Legal Acquiree to Legal Acquirer assuming the Legal Acquiree as
Accounting Acquirer and Legal Acquirer as Accounting Acquiree.
*Note : It means that Reverse Swap ratio will be applied on Legal
Acquirer/ Accounting Acquiree No. of shares
CA-Final Financial Reporting
69

Step III : Pass Entry for Acquisition in CFS of Accounting Acquirer on

Date of Acquisition :-

Assets (Legal Acquirer) a/c Dr xxxx (FV)

Goodwill a/c Dr xxxx (Bal Fig)
To Liab. (Legal Acquirer) xxxx (fair Value)
To NCI (If any : N.A x %) xxxx
To S. Capital (Step II) xxxx

*V.V.Imp Solution of Q.80

i. Identification of Accounting Acquirer

In the Given Case, A Ltd is Legal Acquirer because it is issuing its

shares to Members of B Ltd. in the ratio of 2.5 shares for 1 share. On
the basis of Given Swap Ratio, A ltd will issue 15o shares (60 x 2.5/1) to B
Ltd. In Post combination Entity, A Will have Total shares 250 (100 + 150)
in which 60% of Total capital will be held by members of B limited which
indicates that they will become the controlling Authority in A Ltd. It
Clearly indicates that A ltd is not acquiring control over B Ltd, but It
is Giving its control to B Ltd. The Given case should be considered as
Reverse Acquisition and we need to calculate No. of shares to be issued
from the point of B ltd as follows :-

No. of shares to be issued from = 100 shares in A ltd. x 1 = 40 shares

the point of B Ltd 2.5
(B will issue its one share for 2.5 shares in A)

Post Combination Control Structure in B Ltd = 60 Shares + 40 Shares

= 100

60%
(Members of B are still Exercising control)
CA-Final Financial Reporting
70

ii. Journal Entry (CFS) (In the books of B)

PPE a/c Dr 1500

C. Assets a/c Dr 500
Goodwill a/c Dr 300 (Bal fig)
To Current Liab 300
To Non current Liab 400
To E. S. Capital 400
(40 shares x 10) 40 x 40 = 1600
To Sec. Premium 1200
(40 Shares x 30)
To NCI 0
(Being Accounting for Reverse Acquisition made)

Consolidated B/s of B Ltd with its subsidiary A ltd.

Non current Assets :

i. P.P.E (3000 + 1500) 4500
ii. Goodwill 300

Current Assets (700 + 500) 1200

Total 6000

E.S Capital (600 + 400) SP 1000

Other Equity (1400 + 1200) 2600

Non Current Liab (1100 + 400) 1500

Current Liab (600 + 300) 900
Total 6000
CA-Final Financial Reporting
71

“Explanation on optional Concentration Test”

(Added by MCA in Ind AS 103 dated 24.7.2020)
Amendment

As per the Amendments made by MCA on 24.7.2020, An Acquirer may

conduct Optional concentration Test at initial stage to identify
whether it is an Asset Acquisition or Business Acquisition. The following
flow chart may be noted as a Summary for understanding of the
Amendments :-

“Optional” Concentration Test (Acquirer)

If Acquirer conducts this optional If Acquirer does not conduct

Test this Optional Test

Detailed Assessment will be

If Test meets If Test fails the required as Given in Ind AS
the conditions conditions as 103 whether Acquisition is
as Specified in Specified in an Asset Acquisition or
Rules Rules Business combination

Assume the Given It’s a Business

Acquisition as Assets Acquisition &
Acquisition & further
“No Need to Refer Assessment will
Ind AS 103 for be made to identify
Further Assessment” substantive process
CA-Final Financial Reporting
72

*Imp
Understanding of Application of Optional Concentration Test
(Less chances from Examination Point of view)

Step I : Calculate Value of Gross Assets Acquired by the following

Statement :-
Consideration paid for current Acquisition xxxx
+ Fair value of Previously held Interest xxxx
+ Fair value of NCI xxxx
+ Fair value of Liabilities Acquired xxxx
(Excluding DTL)
xxxx
- Cash & Cash Equivalents (xxxx)
- D.T Assets (xxxx)
Value of Gross Assets Acquired xxxx

Step II : If value of Gross Assets Acquired is concentrated in Single

Identifiable Asset then It will be Assumed that optional
concentration Test has been Passed and It will be taken as an
Asset Acquisition Case.

Value of Gross Assets = Single Identifiable Asset

Acquired
P.P.E I.A Debtors Stock

(If value of Single Identifiable Asset is not equal to gross value of

Assets Acquired Only then It will be considered as Business Acquisition )

Summary : value of Individual Asset should be less than value of Gross

Assets
CA-Final Financial Reporting
73

Solution of Q.10 [GRANT THORTON STUDY]

Calculation of value of Gross Assets Acquired

Fair Value of : Consideration Paid 300

NCI 120 Given
Previously held Interest 80
+ Fair Value of Liab (Given) (excluding DTL) 800
- Cash & Cash Equivalent (200)
Fair value of Gross Assets 1100

Comments : i) In Exams as per S.M

Fair value of Gross Assets Acquired is 1100 which is
concentrated on single Asset (Building) which has fair value
1000 = 91% of 1000. It means fair value of Gross Assets acquired 91%
1100 of single Asset which is Approx. equal. So the given case
should be considered as an Asset Acquisition.

ii) Practical Life :

Fair value of Gross Assets is not concentrated in single
Asset because 1100 is not equal to fair value of Building which
is 1000. So, It is not a Case of Asset acquisition.

*Part 16*

* VVI Solution 81

W.N#1 Calculation of PC (Lacs)

i) Payment in share
400 Lacs = 4,00,000 x 70% x 1 x ₹40 56
₹100 2

ii) Fair value of contingent consideration 28.91

35L x .826 PC 84.91
Higher @10% for 2 year
CA-Final Financial Reporting
74

iii) Pre combination obligation * 2.50

₹ 5,00,000 x 2y (Expired services)
4y or 3y PC 87.41

Higher
* As per Rules, we should disclose pre- combination obligations should be
disclosed as a separate item from Liab. & PL in the credit side of
Journal at the time of DOA. We have added it in PL because study
material is considering it in pc. These will be no impact on GW in above
Presentation because pc & pre-combination obligation (Both) are
disclosed in credit side.

W.N#2
Calculation of Deferred Tax
Tax Base Fair value Deferred Tax
(Assumed Equal to Amt) @30%
PPE 500 350 150 x 30% = 45 DTA
Provision 0 5 5 x 30% = 1.5 DTA
For claim 46.5 DTA

* These is no Difference between Tax Base and Fair Value for other
Items.

W.N#3
Calculation of Net Assets of Dynamic Ltd. (lacs)
PPE 350
Investment 100
Inventories 150
Receivables 300
Cash & C.E. 100
DTA (w.n#2) 46.50
Total (A) 1276.50
Long term Borrowing 200
Long term Provisions 70
DTL 35
CA-Final Financial Reporting
75

Short term Borrowings 150

Trade payable 300
Total (B) 755

(A-B) N. Assets 521.50

NCI @30% 156.45

W.N#4
Calculation of GW/C Res on D.O.A
Purchase consideration 87.41
NCI 156.45
243.86
N. Assets 521.50
Cap Res 277.64
(Bargain Purchase)

Notes to A/cs : (Lacs)

1. PPE : P Ltd 300
D Ltd 350
650

2. Investment : P Ltd 400

D Ltd 100
500

3. Inventories : P Ltd 250

D Ltd 150
400

4. Trade Receivables : P Ltd 400

D Ltd 350
750

5. Cash & CE : P Ltd 200

D Ltd 100
300
CA-Final Financial Reporting
76

6. Other CA : P Ltd 400

D Ltd 230
630

7. Share capital : P Ltd 500

N. Issue 14
Controlling interest 514

8. Other Equity : P Ltd 810

Security premium 42 (56-14)
Cap Res (W.N#4) 277.64
Pre combination Oblig 2.5
1132.14

9. Long term Borrowing : P 250

D 200
450

10. Long term Borrowing : P Ltd 50

D Ltd 70
Conti. Cons. 28.97
148.91

11. Deferred Tax : DTL : P 40

D 35
DTA (W.n#2) 46.50
28.50

12. STB : P Ltd 100

D Ltd 150
250

13. TP : P Ltd 250

D Ltd 300
550
CA-Final Financial Reporting
77

Consolidated B/S
Name of company : Professional Ltd with its subsidiary
Date : 31.3.2012
Assets Notes ₹
Non current Assets :
PPE 1 650
Financial Assets : Investments 2 500

Current Assets : 3 400

Inventory
Financial Assets :
TR 4 750
Cash & CR 5 300

Other Assets 6 630

3230

Share Capital 7 514

Other Equity 8 1132.14
NCI W.N#3 156.45

Non Current Liab :

LTB 9 450
LTP 10 148.91
DTL 11 28.50

Current Liab
STB 12 250
TP 13 550
3230
CA-Final Financial Reporting
78

* VVIMP
Solution 83
(15 marks) W.N#1
Calculation of PC
* Value of 15% share on 1.1.x7 : 7.11
₹ 12 Crore = 0.12 Crore x 15% x 395
₹ 100

PC of 45% share on 1.1.x7 :

i) Payment in shares 270
₹ 12 Crore = 0.12 Crore x 45% x 1 x 10,000
₹ 100 2

ii) Payment in cash (Given) 50

iii) Fair value of contingent consideration 22
PC 349.11

* The Given case is of step by step acquisition. We will de-recognise

the 15% Existing Investment at fair value which prevails on DOA
of controlling Int. the Difference between fair value (395-350)
will be transferred to P & L A/c on 1.1.x7.

W.N#2
Calculation of Deferred Tax
Tax Base Fair value Deferred Tax
(Assumed to be)
Equal to C.Amt
PPE 40 90 50 x 30% =15 DTL
I. Assets 20 30 10 x 30% = 3 DTL
Investments 100 350 250 x 30% = 75 DTL
*Contingent Liab. 0 0.50 .5 x 30% = (.15) DTA
Net DTL 92.85

* We have not created DTA on contingent Liab. of 2 crores because it is

not mentioned that It is Tax deductible as it is mentioned for
Contingent Liab of Law suit. we have also ignored DTL on Indemnified
Assets because it is mentioned that it is not Taxable.
CA-Final Financial Reporting
79

W.N#3
Calculation of N. Assets on 1.1.x7 & NCI
Assets : PPE 90
I. Assets 30
Investments 350
Inventory 20
Cash 4
NCA Held for sale 4
(Represents FV- Cost to sell)
Indem. Asset 1
Total A 519

Liabilities :
Borrowings 20
Trade Payable 28
Warranty 3
Tax Liab. 4
DTL 92.85
Provisions (.5+2 ) 2.50
150.35
NA (A-B) 368.65 NCI (40%) 147.46

I Calculation of GW/CR
PC 349.11
NCI 147.46
496.57
NA 368.65
GW 127.92

(b) In the Given case, company has identified an asset which remain
unrecorded on DOA, but it was Existed on that Date this fair
value of this unrecorded Asset an 1.1.x7 was 3.5 crores.
The following Entry will be recorded during Measurement period:-
CA-Final Financial Reporting
80

I. Asset Dr 3.5 Crore

To NCI (40%) 1.4
To GW 2.1
(Being correction made)

Note : The increase in Fair Value of IA from 3.5 crore to 4 crore is not
Relevant for Business combination because this change has
Taken place in post combination period. It can be transferred
To Revaluation Res if Revaluation model in adopted.

III The changes in contingent consideration of ₹ 1 crore

(23-22) will be transferred to P&L A/c.

Solution 91
(i) As per the provisions of Ind AS 103, BIMA Limited will Account for
Its subsidiary on Date of acquisition as per “Acquisition method”.
All the Assets & Liab. shall be taken over on the basis of Fair Value.
The valuation of NCI will be made at proportionate share in Net
Assets or at fair value per share. The Difference between PC & Net
Assets will be identified as GW/C Res.

(ii) A. Calculation of PC

Payment in cash 50,00,000

Payment in shares (50,000 x 25) 12,50,000
Fair value of contingent consideration 9,80,000
PC 72,30,000

B. Calculation of GW/C Res

PC + NCI = NA
Net Assets 80,00,000
NCI (1,00,000 shares x 35% x 12) (4,20,000)
PC (72,30,000)
C. Res 3,50,000
CA-Final Financial Reporting
81

(iii) Journal Entry

N. Assets a/c Dr 80,00,000
To Cash 50,00,000
Assumed To Prov.for C. Cons. 9,80,000
(50,000 x 10) To share cap. 5,00,000
(50,000 x 15) To S. Premium 7,50,000
To NCI 4,20,000
To C Res (Bal) 3,50,000
(Being consolidation made on DOA)

Note : As per the rules, the acquisition cost of ₹ 1,50,000 will be

written off in P & L A/c.

Q. 92 : Homework

Solution of Q.96

W.N #1 Calculation of PC (Lacs)

(i) Payment in cash 144

₹ 900 Lacs = 9 L share x 80% x 20
₹ 100

(ii) Payment in shares 600

₹ 9 L shares x 80% x 5 x 100
6
Sc 10 sp 90

(iii) Fair value of contingent consideration 67.59

(90L x .751)
@ 10% for 3 years

(iv) Pre combination obligation 4.80

(12L/5y x 2Y) PC 816.39
CA-Final Financial Reporting
82

W.N #2 Calculation of Deferred Tax

Tax Base Fair value Deferred Tax

(Assumed Equal)
to C.Amt
PPE 1000 1200 200 x 30% =60 DTL
Investments 240 300 60 x 30% = 18 DTL
I. Assets 0 250 250 x 30% =75 DTL
Prov. For customer’ claim 0 5 5 x 30% = 1.5 DTA
Net DTL 151.50

W.N#3
Calculation of N. Assets & NCI (DOA :1.4)
Assets : PPE 1200
I. Assets (Brand) 250
Investments 300
Inventory 260
Trade Receivable 540
Cash & CE 290
Other C. Assets 350
Total A 3190

Liabilities :
Long term Borrowings 500
Long term Provisions 200
Trade Payable 290
S.T. Provision 370
DTL 151.50
Provisions for Liab. (5+20 ) 25
Total (B) 1536.50
(A-B) N. Assets 1653.50
NCI (1653.50 x 20%) 330.70
CA-Final Financial Reporting
83

W.N#4 Calculation of GW/C Res

Net Assets acquired 1653.50
PC (816.39)
NCI (330.70)
C. Res 506.41

Notes ton A/cs :

1. PPE : Swan Ltd 800
Duck Ltd (FV) 1200
2000

2. I. Assets : Swan Ltd 0

Duck Ltd (FV) 250
250

3. Investments : Swan Ltd 900

Duck Ltd (FV) 300
1200

4. Inventory : S 360
D 260
620

5. Trade Receivable : S 1040

D 540
1580

6. Cash & C.E : S 520

D 290
Adjustments : PC in Cash (144)
Acq. cost (26)
640

7. Other C. Assets : S 700

D 350
1050
CA-Final Financial Reporting
84

8. Share capital : S 1200

N. Issue 60
9L x 80% x 5 x 10 1260
6
9. Other Equity : Swan Ltd 1450
SP Res 540
9L x 80% x 5 x 90
6
Cap Res 506.41
Pre combination Obligation 4.80 A. cost
2501.21-26 =2475.21

10. LTB : S 700

D 500
1200

11. L.T. Prov : S 140

D 200
Cont. consideration 67.59
407.59

12. Deferred Tax : S 80

D 151.50
231.50

13. T. Payable : S 250

D 290
540

14. S.T.B : S 500

D 370
870

15. S.T. Prov. : Custo. 5

Tax 20
25
CA-Final Financial Reporting
85

Cons. B/S
NCA :
PPE 1 2000
IA 2 250
Invest 3 1200

CA
Invent. 4 620
FA: TR 5 1580
Cash 6 640
OCA 7 1050
7340

SL 8 1260
Other Equity 9 2475.21
NCI W.N# 330.70

NCL :
LTB 10 1200
LTP 11 407.59
DTL 12 231.50
CL :
TP 13 540
STB 14 870
STP 14 25
7340
Q.88 (Ind AS 111 : Joint Arrangements)
Q.89 (Q.43) (Repeat)
Q.90 (Q.17 (A) (Already covered in 21)
Q.93 (Refer Q.51)
Q.51
Q.94 (Q.41 Repeat)
H.W Q.95 (Similar to Q.81)
CA-Final Financial Reporting
86

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal
CA-Final Financial Reporting 87

Chapter 2 – Ind AS 110

Consolidation of Financial Statements
*Part 1*

Coverage

Consolidated Separate
Financial Statements Financial Statements
of “Investor” of “Investor”

“Accounting for
Investments in
CFS with CFS with CFS with Subsidiary,
Subsidiary Associates Joint Arrangements Associates,
Joint Arrangements
Ind AS 110 Ind AS 28 Ind AS 111/28 in SFS”

Ind –AS 27
Disclosures
Of CFS
(Ind AS 112)
CA-Final Financial Reporting 88

Unit I : Consolidation with Subsidiaries (Ind AS 110)

Sub- Division of Unit I

Simple Imp Imp Simple

Part 1 Part II Part III Part IV

Exemption Evaluation Accounting for Investment

of “Control” subsidiaries in Entities
From CFS CFS

Practical
Portion

Part I : Exemptions from CFS

As per the Provisions of Ind AS 110, Each Parent company will

consolidate all of its Subsidiaries whether Subsidiary is an Indian
company or Foreign company.

“ A Parent company can avail exemption from Consolidation if all the

following Conditions are satisfied”.

Conditions I : It should be a wholly owned or Partly owned subsidiary

of another Company [Note: It means that It should be
an Intermediate Parent which is itself a Subsidiary
company of Another company] and It has informed to
all of Its members that It is not preparing CFS and no
member has raised any objection.

Condition II: Its Equity or Debt instruments are not traded in

Public on any exchange
( Note : It should not be a listed company)
CA-Final Financial Reporting 89

Condition III: It should not be in listing Process with SEBI

(Note: It will not be listed in Future)

Condition IV: Its ultimate Holding or any other Intermediate Holding

is preparing CFS as per Ind AS and Report is available for
Public.

* Imp Question 2:
Solution:

(i) In the Given case, A Limited can avail Exemption from

Preparing CFS because all the conditions are satisfied as
follows:-

a) It is subsidiary of X Ltd and Its members don’t have any

objection if it does not prepare CFS.
b) It is not a listed company as well as It is not in listing
Process
c) Its ultimate Holding Company (X Ltd) is preparing CFS as per
Ind AS

(ii) In Case B, A Ltd can not avail Exemption because its ultimate
Holding (X Ltd) is a foreign Co. and It will not prepare CFS as
per Ind AS.

(iii) In Case C, A Ltd can not avail Exemption because its ultimate
Parent is an individual and Mr X will not prepare CFS as per Ind AS.

Question 3:
Solution:
(i) Yes, Company C can avail Exemption from CFS only if its outside
members Holding 40% Equity do not raise any objection on it.
All other conditions are already satisfied.
CA-Final Financial Reporting 90

(ii) In case B, B Limited is also a Subsidiary of A Ltd. which is

ultimate Parent of C as well. When A Ltd does not have any
objection then Company B cannot raise objection. So,there is no
need to inform Company B about its intention of Not Preparing
CFS.

Question 1:
Solution:

(i) Company Y can not avail Exemption because its ultimate Holding
(X Ltd.) does not have any objection if Company M does not
prepare CFS which indicates that It has objection if Y does not
prepare CFS.
(ii) Company M can avail Exemption from CFS if its outside
Shareholders holding 20% Equity in Company don’t raise any
objection.

“Further Explanation on Exemption”

From CFS

Exemption can be availed by

Following Entities as well

If an Entity is Formed If Investor is an

to manage Plan Assets under Investment Entity
Ind AS 19 and Its control (Refer Part IV : Unit I)
is with the Reporting Entity

No CFS are required in this case

CA-Final Financial Reporting 91

*Part 2*
*V.V. Imp
Unit II: Evaluation of “Control”

As per the Provisions, Subsidiary company is a Company which is

controlled by other Company/its Parent company. (It can also be
said that Holding/Subsidiary Relationship will Exist only if An
Investor has control over its investee)

As per the Provisions of Ind AS 110, Evaluation of control is

mandatory in a relationship before the Application of Ind AS 110.
There are 3 elements in control Evaluation as follows which are
required to prove the Existence of control:-

Investor’ Investor’s Ability to

Power Exposure/Rights use Power
over the + to the variable + to Affect =Investor has control
Investee Returns of Investor’ over Investee
Investee Return

Yes Yes Yes Yes

Element 1: Explanation on Power

There are 3 Elements which are required to be Assessed that whether

An Investor has Power in Investee or not. All 3 Elements should exist
in a relationship to Prove Existence of Power which are as follows:-
CA-Final Financial Reporting 92

Elements in power

An Investor Existing Rights Ability to

should have Provide ability Direct Relevant
“Existing Rights” to investor Activities of
Investee

 Existing Right
 Ability All elements Investor has
 Relevant Activities if existed “Power”
* Imp
Concept 1: Relevant Activities

As per the Provisions of Ind AS 110, Relevant Activities are the

Activities of an Entity that “Significantly Affect” the returns of
Investee Entity. There may be a range of operating and financing
Activities that affect returns of the company. The following examples
may be understood for the meaning of relevant activities: -

Example :i) Selling/ Purchasing of Goods/Services

ii) Management of Financial Assets (Investments) over the
Maturity period
iii) R & D of New Products
iv) Arrangement of Funds
v) Capital Decisions
vi) Appointment/Removal/Remuneration of Key Management
Personnel
vii) selection, Acquisition, Disposal of Investments by Mutual
Funds/Venture Capital Funds etc..
CA-Final Financial Reporting 93
Key Note: Out of Range of Relevant Activities Ind AS 110 considers
only that Relevant activity that has most significant affect
on returns.
It’s a matter of Judgement

Concept 2: Explanation on Rights

As per the Provisions of Ind AS 110, An Investor must have Existing

Rights that give ability to direct the relevant activities of an
Investee. As per the Provisions, Different Investors may have
different Rights, but we will consider only those rights that “Give
ability to direct Relevant Activities those have most Significant
Affect on Returns of Investee”.

There may be different kind of examples of Rights (Contractual/Non-

Contractual) of follows:-
i) An Investor can have majority in “Voting Rights” of an Investee

ii) An Investor can have the Rights to form Board of Directors of

an Investee (i.e It can appoint or remove Majority of
Directors in BOD of Investee)

iii) An Investor can have the rights to Appoint/ Remove another

entity which Has ability to direct relevant Activities of
Investee company
(i.e An Entity can appoint/remove fund manager that has
ability to direct Relevant Activities of a fund)

iv) An Investor can have rights to direct an investee to sell its

output to Investor at a Price which also decided by investor.

Note: The above specified examples are not a Complete list. There may
be other types of Rights as well. We need to Assess most Powerful
Rights.
CA-Final Financial Reporting 94

Concept 3: Explanation on “Ability” to Exercise the Existing

Rights
As per the Provisions of Ind AS 110, An Investor should have
Practical Ability to Exercise Rights to direct the relevant activities.
It means that Right should be “Substantive”. As per the Provisions,
we can classify the ability of Rights under 2 headings as follows:-

Rights Ability

(1) Substantive (2) Protective

Rights Rights
I) Substantive Rights:
As per the Provisions of Ind As 110, only Substantive Rights
provide Practical Ability to exercise rights to direct relevant
activities . The Rights can classified as Substantive Rights only if
investor can exercise those Rights when this are needed. It means
that there should not be any barrier in exercise of Substantive
Rights. If there is any barrier in exercise of rights then It will be
considered that “Rights Are not substantive”.

The following examples may be considered as a barrier in exercise of

Rights:-
i) Financial Barrier: (Huge Penalties may prevent the investor
from Exercising the Power)

ii) Operational Barrier: (There may be no substitute of Present

Management)

iii) Legal Barrier: (Foreign Investor can be restricted from

Voting Power by Govt.)

iv) Potential voting Rights (If Current MP becomes less than

CMP then Conversion may not be
considered as Substantive)
CA-Final Financial Reporting 95

*Part 3*

II. Protective Rights:

As per the Provisions of Ind AS 110, Protective Right does not give
power to investors to Direct relevant Activities of Investee. These
rights are exercised in rare situations only. These Rights are given to
Investors to Protect their Interest in adverse situations. These
rights are also given by a Franchisee to its Franchisor to Protect
Franchisor’ Brand name. The Protective Rights are never considered
for Evaluation of control. The following examples may be considered
for understanding of Protective Rights:-
(i) A Lender’s Right to claim on Assets of Borrower if it makes default
in the payment of Interest or Installments etc.
(ii) An Investor’s right if Investee makes any fraud or
misappropriation of Investor’s fund.
(iii) An Appointment of a Nominee director in BOD of Investee by a
Lender to get Regular updated about workings in Investee.
(iv) A franchisor’ right to bound franchisee to Protect Brand Name
i.e; Uniform of Employees, Interiors, Logos etc.

Exceptions to Substantive Rights

It may be Possible that an Investor does not have substantive right

at Present, but Rights shall become substantive at the time of their
Exercise. “It may be possible that potential shares become Actual
Shares before AGM in a Company AND Investor will be exercising its
Voting Power in AGM. These Potential Rights shall be considered
substantive because Rights are exercisable when they are needed.”
CA-Final Financial Reporting 96

Summary of Rights
Investor Other = Result
Investors

i) Substantive Right i) Protective “Investor has Power over

Rights the Investee”

ii) Protective Rights ii)Substantive “Other Investor have power

Rights over the Investee”

iii) Substantive Rights iii)Substantive “Further Assessment

Rights Required”

*Imp
Q.7
Solution: Discussion in Lecture
*V.V. Imp
Q.8
Solution: Discussion in Lecture
*Imp
Q.9 (Operational Bearer)
Solution: Discussion in Lecture

Q.10 & 11
Solution: Discussion in Lecture

Q.5, 4 & 6
Solution: Discussion in Lecture
CA-Final Financial Reporting 97

*Part 4*

“Further Explanation on Voting Rights”

Voting Rights

Rule 1: Majority in Rule 2: Voting Power Rule 3: Voting Power

Voting Power Less than Majority in not Relevant

Rule 1 : Majority in Voting Rights

As per the Provisions of Ind AS 110, It is a General Assumption in

Trade that An Investor, who has majority in Voting Power of an
Investee Company, has power over the Investee. It is assumed
because Relevant Activities are Normally Directed through Voting
Power. If it is Proved that Direction of Relevant Activities comes
from BOD of the Company then such Majority Investor will be
assumed to have power on Investee only if formation of BOD is
controlled through voting power which is true in Practical world.
*Imp
Rule 2 : Investor has power over Investee “without” Majority Voting
Rights (Exception to Rule 1 : Exceptional Cases)

As per the Provisions of Ind AS 110, there may be some cases where
“An Investor does not have” majority in the Voting Power, but even
though, It will be assumed that the Investor has Power over the
Investee. The following examples may be relevant:-

Case I : If Investor has contract with other Investor

If other Investor appoints the Investor to take decision on its
behalf to direct the relevant Activities of the Investee Company and
after getting such power from other Investors, the Investor gets
majority in Voting Power then It will be assumed that Investor has
power over Investee.
CA-Final Financial Reporting 98

Example:
Y Ltd. (Investee)

Mr.Ram X Ltd. A Ltd. B Ltd. Other (not significant)

(7%) (45%) (8%) (5%) Individually)
(35%)
It will become 52%

If Mr. Ram contracts with X Ltd to take decision on his behalf.

Solution:
In the given case, X Ltd. has contracted with other Investor to
obtain Power to Direct Relevant Activities of Y Ltd. After such
contract, X Ltd. has 52% of Voting Power of Y Ltd. It indicates that X
Ltd. Has power over Y Ltd.

Case II : If Investor’ own voting power seems significant

Practically in Total Voting Power even if such Voting Power is not in
Majority. It can be possible only if there is no significant
Shareholder in the company because all other shares are held by Small
Investors.
But
We will test the Voting Pattern in Last meeting before arriving on
any conclusion. If Small Shareholders voted in Last meeting at Large
Level due to which Investor could not Exercise its power then we will
not Apply Rule 2.

Exception to Rule 2:
If other shares are held by few members then Rule 2 will not work.

Rule 3 : It may be Possible that An Investor does not have

majority in Voting Power at present, but Investor has a substantive
Potential Power then we will consider such Substantive Potential
Power to test his majority in Voting Power.
CA-Final Financial Reporting 99

Q.12, 13, 14, 15

Solution: Discussion in Lecture
*Imp
Rule 3 : Voting Power “if” not Relevant for Direction of Relevant
Activities
It may be Possible that Design of Business of an Investee does not
require direction from shareholders because its function is Pre-
determined. In the Given case, Power of Voting Power will not work.
So, we need to identify Relevant Activities in such Business. We also
need to understand that who is directing such Relevant Activities. At
the end, we will come to know that who is taking Benefits from such
Company.

Q.18, 16, 17
Solution: Discussion in Lecture

*Part 5*

Element 2 : Explanation on “Variable Returns of Investee”

As per the Provisions of Ind AS 110, “An Investor should have

exposure in Variable Returns of an Investee in addition to having
power over the Investee.”
As per the Provisions, Variable Returns are the returns which are not
fixed. These returns may be Positive or Negative or Zero. There are
many examples under Variable Returns:-

I. Interest on Bonds cannot be taken as Fixed Return for Bond

Holders because Payment of Interest can be varied if company does
not earn adequate Profits. It is variable due to performance Risk.

II. Dividends Distribution to Shareholders is also depend upon

availability of surplus.
CA-Final Financial Reporting 100

III. Returns from Changes in value of Investment in Company is

also Variable.

IV. Providing Credit/ Liquidity to a Company is subject to Credit Risk.

V. Remuneration of Management is also related with Performance of

Entity etc.

Note: As per the Provisions, Exposure to Variable Returns is not the

Key Element for the Establishment of Control. Such Exposure should
be in line with having power over the Investee. It means that power &
Variable Returns (Both) are linked to each other.
Ex:- Bondholders are associated with Variable Returns, but they don’t
Exercise Power due to which control of Bondholders cannot be
Established over the Entity.
*Imp
Further Explanation on Link between Power & Returns

As per the Provisions of Ind AS 110, An Investor should Assess

whether it is working as a Principal or Agent of Investee. If it is
working as a Principal then It will be assumed that It has control
over the Investee. In case it is working as an Agent then we will say
that there is no Control relationship between Investor & Investee.
We have to Test Power & Returns as follows:-
“of Relevant Activities”
I. Test of Power: Can Decision Maker be removed by Single Investor*
or BOD “without any cause”

Yes No
Decision Maker is an Agent Decision Maker is a Principal

*If Removal is Possible by Multiple Investors by taking Decision

together then It seems Impractical that Decision Maker can be
removed.
CA-Final Financial Reporting 101

Note: Protective Rights are not considerable for Testing Removal

Rights

II. Test of Returns: Does Decision Maker has “Significant”* +

Exposure to Variable Returns in Investee due to “Remuneration**
& other Interests”

Stake in Investee “Total Exposure to Variable Returns”

Yes No
Decision Maker is a Principal Decision Maker in an Agent

*Note 1: The Meaning of Significant Exposure is nowhere mentioned.

Practically, 20% or more stake in a Company with Exercise of Power is
considered as a Substantial Interest/ Significant Interest.
 Without Power, 20% or more Investment is considered as
Investment in Associates.

**Note 2: The Remuneration itself is not considerable. It may be

charged at Market Rate (i.e; It may commensurate with Market). We
will Test it with other Interest on Total Basis.

Q.19, 21
Solution: Discussion in Lecture

Q.20 *(Imp)
Solution: Discussion in Lecture
CA-Final Financial Reporting 102

*Part 6*

Part III : Accounting for Subsidiaries

(Full Consolidation Required)

i. Consolidated financial = Holding + Subsidiary = Group Financial

Statements Co. Co. statements
ii. Requirements in CFS : a) Consolidated B/s (H + S)
b) Consolidated P&L (H + S)
c) Consolidated Cash Flow statement
d) Consolidated SOCE
e) Consolidated Notes to A/cs
*Imp
Unit I: Consolidated B/s
Concept 1 : Accounting on the date of Acquisition of Shares
Part B: Business Combination by way of “Significant Equity Interest”
(Holding / Subsidiary Relationship)
As per the Provisions of Ind AS 103, Acquisition of Controlling
Interest by one Company into other company is also a type of
Business combination. The following Flow chart should be understood
carefully before learning Accounting Aspects in this case :-

Acquirer
(if Acquires controlling Interest in other Entity)

Acquirer Stand Alone Acquirer Consolidated

Financial Statements financial Statements
(Separate financial Statements) (Holding + Sub = CFS)

(Ind AS 109)
CFS on Date of Acquisition CFS in Post Acquisition
Of shares by Acquirer Period (updation
of CFS)
Ind AS 103 (Ind AS 110)
CA-Final Financial Reporting 103

A. Accounting in Separate Financial Statements of Acquirer

Step I : On the date of Acquisition of Shares

The Acquirer will debit Investment in Equity Investments as we

record Normal Purchase of Investments. These Investments shall be
recorded as per Ind AS 109 as Follows :-

Investment in Shares a/c Dr xxxx

To Bank xxxx
(Being Investments Acquired)

Step II : At each B/s, Fair Value Measurement will be made as per

Given Choices in Ind AS 109 :-
(i) FVPL
(ii) FVOCI (Irrevocable)
Comments : At each B/s date, Changes in Fair Value of Investments
shall be transferred to PL or OCI as per Opted model.

Ind AS 103 has No Guidance for Accounting in SFS of Acquirer in this

Regard

B. Accounting Treatment in CFS of Acquirer

(we will Discuss Accounting on D.O.A only)

➢ Refer Ind AS 110 for Accounting in CFS for Post acquisition Period
➢ Refer Ind AS 110 for detailed discussion on meaning of “Controlling
Interest”
Have Patience for its meaning till the understanding of
110 : Don’t whatsapp me till then
“Acquisition Method in CFS on D.O.A”
Aspect I: Identify Fair Value of Assets & Liab. of Subsidiary on date
of Acquisition of Shares which are to be incorporated in CFS
in the books of Acquirer.
CA-Final Financial Reporting 104

Aspect II : Identify the value of Non Controlling Interest which is

held by Outside Shareholders in Subsidiary Company.

NCI

Method I : Proportionate Method II : Fair Value

Method Method

“NCI = N. Asset in x % of shares” “NCI =No. of Shares x Fair Value Per”

Subsidiary held by held by share in
Co. outside outsiders Subsidiary co.
Shareholders

Note : In Study Material of ICAI, All Questions have been solved by

Proportionate Method due to which we will Prefer it in the
absence of any Specific Information.

Aspect 3 : Identify Goodwill/ Capital Reserve on D.O.A of shares by

the following Entry :-
Journal
Proportionate GW
Assets a/c Dr xxxx (fair value)
Goodwill a/c Dr xxxx (Bal fig.) If NCI is Computed by
To Liabilities xxxx (Fair value) Proportionate method then
To NCI xxxx (Method I) GW will belong to Holding only
To Investments xxxx (PC)
To Capital Res. xxxx (Bal fig.)
(Being Assets/ Liab. acquired on Acquisition Date)

OR
CA-Final Financial Reporting 105

Full Goodwill
Assets a/c Dr xxxx (fair value)
Goodwill a/c Dr xxxx (Bal fig.) If NCI is Computed at fair
To Liabilities xxxx (Fair value) value then It will belong to
To NCI xxxx (Method I) Holding & NCI.
To Investments xxxx (PC)
To Capital Res. xxxx (Bal fig.)
(Being Assets/ Liab. taken over on Acquisition Date)

Statement Showing Calculation of Goodwill/ Capital Reserve

Cost of Investments made in Acquiree (PC) xxxx

NCI xxxx
Total xxxx
Net Assets (xxxx)
Goodwill/ Capital Res. xxxx
[GW/C Res = (PC + NCI) - N. Assets]
Solution of Q.54

N. Assets a/c Dr 130 Crores

Goodwill a/c Dr 20 Crores (Bal Fig.) (Full GW)
To Investments 120 Crores
To NCI 30 Crores (Fair Value)
(Being Acquisition of B Ltd. Recorded in CFS on DOA)

Solution of Q.55
Journal Entry

Assets a/c Dr 130 Crores

Goodwill a/c Dr 16 Crores (Proportionate GW)
To Investments 130 Crores
To NCI (130 x 20%) 26 Crores
(Being Acquisition made of B Ltd. on Acquisition Date)
CA-Final Financial Reporting 106

Solution of Q.56
Journal Entry

Assets a/c Dr 130 Crores

To Investments 90 Crores (PC)
To NCI 26 Crores (130 x 20%)
To Capital Res. (Bal fig.) 14 Crores
(Being Acquisition made of B Ltd. on Acquisition Date)

Solution of Q.57

Calculation of Goodwill/ Capital Res.

Method I Method II

Purchase Consideration 15,00,000 Purchase Consideration 15,00,000

NCI (500,000 x 40%) 2,00,000 NCI (Fair Value) 10,00,000
N. Assets Total 17,00,000 Total 25,00,000
Net Assets (500,000) Net Assets (5,00,000)
Goodwill 1200,000 Goodwill 20,00,000

Q. 58: Homework
Q. 59: Homework
Q. 60: Homework

Solution of Q.61

Calculation of Goodwill

Purchase Consideration 525

NCI (100000 Shares x 40% x 775) 310 fair Value
Total 835
N. Assets (640 – 50) (590)
GW 245 (Full)
CA-Final Financial Reporting 107

Solution 62

Method I : NCI by Proportionate Method

NCI = N. Assets (Fair Value) x % of Shares held by NCI in Subsidiary

= 100 Crores x 10%
= 10 Crores

Method II : NCI by fair Value Method

It is already Given in question at 15 Crores

Q. 63. HW
Q. 64. HW
Q. 65. HW

*Part 7*

Additional Concepts under PART B : Significant Equity Interest

*V.V.Imp
Concept 1 : Step by Step Acquisition

Step by Step Acquisition

Case I : If Previous Equity Case II : If Previous Equity

Interest Was 20% Interest was Less
or more in Acquiree than 20% in Acquiree
CA-Final Financial Reporting 108
*Imp
Case I : If previous equity interest was 20% or more in Acquiree

If Acquirer obtains control over Acquiree through multiple

Acquisitions then It Will be considered as Step by Step Acquisition. In
this case, % of Earlier Investment is very Important which were held
by Acquirer before the Establishment of Holding/Subsidiary
Relationships.
If Earlier Investments in Equity Shares were for 20% or more then
Consolidated Financial Statements would have been Prepared by the
Acquirer with its Acquiree as Per Ind AS 28 (Associates).
On Acquisition date, the Acquirer will have to De-Recognise
Investment in Associate. The following Points should be considered: -

I. Investment in Associates in CFS shall be de-Recognised at “Fair

value” which Prevails on “Acquisition Date”
II. Gain/ Loss on De-Recognition will also be computed as follows :-
Gain/Loss = Fair value of Investment – Carrying Amt of Investment
in Associate in Associate in CFS

Journal Entry

Assets a/c Dr xxxx (Fair Value)

Goodwill a/c Dr xxxx (Bal fig)
To Liabilities xxxx (Fair Value)
To NCI xxxx
To PC xxxx (Current Acquisition)
To Investments in
Associates xxxx (Carrying Amount) Fair Value
To *Gain on De-Recog. xxxx (Fv – C. Amount)
To Bargain Purchase xxxx (Bal Fig)
(Being De- Recognition of Associate but Recognition of Subsidiary
made at Fair Value)
Notes:
1. If Fair value becomes Less than Carrying Amount of Associates
then Loss on De-Recognition will be debited before Computing
Goodwill/C Res.
CA-Final Financial Reporting 109

2. Gain or Loss on De-Recognition of Associate will be transferred to

Consolidated P&L A/c .

Observation on Concept

If An Associate becomes Subsidiary due to increase in Investment of

Equity Interest of company then we will De-Recognise Investment in
Associate in CFS at Fair value before computing GW/CR on Acquisition
of Subsidiary.

Solution of Q.69

Journal Entry

i. Net Assets a/c Dr 880 Lacs

Goodwill a/c Dr 120 Lacs (Bal fig)
To Cash 600 Lacs (60%)
To Invest. in E (Associate) 40 Lacs (Carrying Amount in CFS)
To Gain on De-Recog. (400 – 40) 360 Lacs
(Being Acquisition of Subsidiary & De-Recognition of Associate made)
ii. Gain on De-Recognition of Associate Dr 360
To P&L A/c 360
(Being Gain Recognised)

Solution of Q.70 (Nov’20 Exam) (12 marks)

Accounting in the books of A ltd.

i. Net Assets Dr 60,00,000

Goodwill (Bal fig.) Dr 3950,000
To NCI 750,000
PC To Cash (PC) 59,00,000
(65%) To E.S Capital (1L x 10) 10,00,000
To Contingent Consideration 300,000
(25%) To Investments 600,000
To Gain on Invest. 14,00,000
(Being Recognition of Subsidiary made)
CA-Final Financial Reporting 110

ii. Gain on Investments Dr 14,00,000

To P&L 14,00,000
(Being Gain on De-Recognition recognised)

Note: Acquisition Cost will be written off in P&L A/c as per Ind AS 103.

Case II: If % of Investments (Earlier) are below 20% in Acquiree

In the Given Case, Accounting Entries shall be quite similar as we

passed in Case I Except De-Recognition of Investments. We will De-
recognise the carrying Amount of Earlier Investments which is
disclosed in Separate Financial Statements Of Acquirer on Acquisition
Date as per Ind AS 109. The Difference between the Carrying Amount
of De-recognised Investments & Fair Value on these Investments On
Acquisition date will be considered as “Gain/ Loss on De-Recognition
of Investments.”

We will Transfer the above Gain/Loss on De-Recognition to P&L/ OCI

as per opted Model of Accounting under Ind AS 109.

Assets a/c Dr xxxx (fair value)

Goodwill a/c Dr xxxx (Bal fig.)
To Liabilities xxxx (fair value)
To PC xxxx (Current Payment)
To NCI xxxx
To Investment (109) xxxx
To Gain xxxx (Fv- C. Amount)

PL or OCI

Opted Model
*Imp
Solution of Q.84 Discussed in Class
CA-Final Financial Reporting 111

*Part 8*

Concept 2 : Investments in Associates with “OCI”

(Extra Concept in Step by Step)

In Case An Acquirer has share in OCI Reserves of an Associate in CFS

(Ind AS 28 : Equity Method) then the share of Acquirer in OCI
Reserves of the Associate will Also be De-Recognised by transferring
it to P&L or Retained Earning according to Nature of OCI Reserve on
Acquisition Date (i.e., Revaluation Res. to R.E / FCTR to P&L Etc.)
There will be no change in Rest of Accounting as we discussed in
Concept I

Journal :

1. Assets a/c Dr xxxx (F.V)

Goodwill a/c Dr xxxx (Bal fig)
To Liabilities xxxx (F.V)
To NCI xxxx
To PC xxxx (Current)
To Invest. in Associates xxxx (Carrying Amount)
To Gain on Invest. xxxx
(Fair value – Carrying Amount)
(Being Acquisition of Subsidiary Recognised)

2. Gain on Investments a/c Dr xxxx

OCI Reserves a/c Dr xxxx De-Recognition of share
To P&L xxxx in OCI res. of Associates
To R.E xxxx on Acq. Date
(Being Profits Recognised)

*V.V.Imp
Solution of Q.71
Journal Entry
CA-Final Financial Reporting 112

i. N. Assets a/c Dr 30,000 Crores

Goodwill a/c Dr 4000 Crores (Bal fig)
To Cash 25000 Crores (PC : 70%)
To Investment in Associates 8850 Crores (Carrying Amount)
To Gain on Invest. 150 (9000 – 8850)
(Being Acquisition of Subsidiary made)

ii. Gain on Investment a/c Dr 150 Crores

OCI Reserves : FCTR Dr 100 Crores
R. Res Dr 50 Crores
To P&L (150 + 100) 250
To R.E (Rev. Res) 50
(Being OCI Res. & Gain on Invest. Recognised)

Solution of Q.72

Journal Entry

i. Assets a/c Dr 1200

Goodwill a/c Dr 104 (Bal fig)
To Liabilities 200
To D.T Liab 40
To NCI (960 x 40%) 384
To Cash (30% : New) 350
To Invest. in Associate 300 (Carrying Amount)
To Gain on Invest. 30 (330 – 300)
(Being Acquisition of Subsidiary made)

ii. Gain on Invest. Dr 30

OCI Res. Dr 100 (CFS : FVOCI)
To P&L 130
(Being Profit recognised on De-Recognition)

*Imp
Concept 3 : Acquiring Control Over an Enterprise “without
CA-Final Financial Reporting 113

acquisition of Shares”

It may be Possible that An Acquirer obtains control over the other

Enterprise due to Buy Back of shares by other Enterprise. If an
Acquirer has significant influence before Buy Back of shares by that
Entity, but after Buy Back of shares, Significant influence converts
into Controlling Interest then Acquisition method will be Applicable
even if Acquirer has not made any further Investment for
Acquisition of Controlling Interest.
All Entries shall remain same as we recorded in case of Step by Step
method as follows :-

Assets a/c Dr xxxx (fV)

Goodwill a/c Dr xxxx (Bal fig)
To Liab. xxxx (F.V)
To NCI xxxx
To Invest in Asso. xxxx (carrying)
To Gain on Inv. Xxxx (FV- CA)

Solution of Q.73

1. Calculation of % of Controlling Interest after Buy Back

Total No. of Issued shares by Y ltd 100 million

Buy Back of shares (10 million)
No. of shares issued after Buy Back 90 million
No. of shares held by X Ltd in y ltd 46 million
% of Controlling Int. = 46 x 100 = 51.11%
90
% of NCI = 100 – 51.11 % = 48.89%

2. Accounting under Acquisition Method

CA-Final Financial Reporting 114
Assets a/c Dr 14,000
Cash a/c Dr 1800
To Liab. 2000
To NCI (13800 x 48.89%) 6747
To Invest. in Asso. 6900 (Carrying amount)
To Bargain Purchase (Bal) 153
(Being Acquisition of Subsidiary made)

Note : In the Given question, Fair Value of Associate is not given due
to which we have Not computed Gain/ Loss on De-Recognition
of Associate. We cannot use 110 Per share value for fair
valuation of Associate because its Buy Back Price which is
normally offered at higher value than fair value to make the
offer attractive.
Q.67 : Homework
Solution of Q.66 Discussed in Class

*Part 9*
*Imp
Concept 4:Accounting for Post-Acquisition Profits in Subsidiary

After Initial Recognition on DOA as per Ind AS 103, Post acquisition

Results of Subsidiary Company shall be adjusted in Consolidated
Financial Statements with the Help of the following Points :-

1. The Post acquisition Profits/ Losses in Subsidiary Co. Should be

distributed Between Holding and NCI in the Proportion of their
Holdings. (i.e., Profits/ Loss is the Post acquisition change in the
Reserve & Surplus of Subsidiary company. It may be a change in P&L,
GR, Capital Res., OCI etc.)

2. The holding co. will maintain the nature of Post-acquisition Profit.

It means that Share in Post-acquisition P&L will be added to PL of
CA-Final Financial Reporting 115
Holding, share in Post acq. GR will be added to GR of Holding.
(Note : This Point is not Valid for NCI because we have to show NCI as
a consolidated Figure)
*Imp
Solution of Q.44

Case I

Assumption : SC + Res. = N. Assets …………………..On DOA

i. Post acq. Profits : Closing Balance in R.E - Opening Balance in R.E

(1.4.x1 – 31.3.x2)
= 70,000 – 50,000
= 20,000 Profit earned by Subsidiary
After DOA
ii. NCI (Proportionate Method) :

Net Assets on DOA (SC + Res) 150000

(100,000 + 50,000)
% of NCI 10%
NCI on 1.4.x1 (150,000 x 10%) 15000
Add : Share of NCI in Post acq
Profits (20,000 x 10%) 2000
NCI on 31.3.x2 17000

iii. GW/ C. Res (DOA) : Purchase Consideration (90%) 140,000

NCI on DOA (10%) 15000
155,000
N. Assets on DOA (SC + Res) 150,000
Goodwill 5000

iv. R.E of Holding : Stand Alone R.E of Holding 200,000

Add : Share in Post Acq. R.E of Sub (20000 x 90%) 18000
Closing Balance (Consolidated) 218000

Case II
CA-Final Financial Reporting 116
1. Post acq. Profit (Loss) = Closing Balance in R.E – Opening Bal in R.E
= 20,000 – 30,000
= 10,000 Losses (decline in R.E)
N. Assets on DOA
2. NCI : DOA (100,000 + 30,000) x 15% 19500
Post acq. Losses (10,000) x 15% (1500)
NCI on 31.3.x2 18,000

3. GW/ C. Res (DOA) = (Purchase Consideration + NCI) – N. Assets

= (104000 + 19500) – 130,000
= 6500 (Bargain Purchase)

4. Holding R.E (Consolidated) = Own R.E 200,000

share in Post acq Loss (8500)
(10000) x 85%
191500

Case III

i. Post acq. Profit/ Loss (Subsidiary) = Closing Bal. – opening

in R.E Bal. in R.E
= 20,000 – 20,000
=0
ii. NCI : Net Assets on DOA (SC + Res) 70,000
% of NCI 20%
NCI on DOA 14,000
Post acq. Results -
NCI on 31.3.x2 14,000

iii. GW/ CR (DOA : 103) : (PC + NCI) – N. Assets

= (56000 + 14000) – 70,000
=0
iv. Holding R.E will be 200,000 because there is no Profit or Loss in
Post acq Period.

Case IV
CA-Final Financial Reporting 117
i. Post acq. Profits in Subsidiary = 56,000 – 40,000 = 16,000
(CB) (OB)
ii. GW = 100,000 – 90,000 = 10,000
(PC) - (NA)
iii. Holding R.E = 200,000 + (16,000 x 100%) = 216,000
* There will be no NCI because 100% shares are held by Holding.

Concept 5 : “Negative NCI”

As per the Provisions of Ind AS 110, Non Controlling Interest can be

shown at “Negative Value” if share of NCI in Post acquisition Losses
is more than its Earlier share in N. Assets of Subsidiary. The
disclosure of Negative NCI is not allowed under AS-21, but It is
allowed under 110.

Conclusion : Under Ind AS 110, NCI may be +, - or 0 as per Position of

Net Assets on B/s date.

Solution of Q.45

i. Calculation of Goodwill :
Purchase Consideration (70%) 10,00,000
NCI on DOA (1.4.x1) 324,000
(SC + Res. = N. Assets) (1080000 x 30%)
1324,000
N. Assets on 1.4.x1 (1080,000)
GW 244,000

ii. Calculation of NCI :

NCI on 1.4.x1 (1080000 x 30%) 324,000
Losses in X1 – X2 (250,000) x 30% (75,000)
NCI on 31.3.x2 249,000

Losses in x2 – x3 (400,000) x 30% (120,000)

NCI on 31.3.x3 129,000
CA-Final Financial Reporting 118
Losses in x3-x4 (500,000) x 30% (150,000)
NCI on 31.3.x4 (21,000)
Losses in x4 – x5 (120,000) x 30% (36,000)
NCI on 31.3x5 (57,000)
Profit in x5 – x6 (50,000 x 30%) 15,000
NCI on 31.3.x6 (42,000)
Profit in x6 – x7 (100,000 x 30%) 30,000
NCI on 31.3.x7 (12,000)
Profit in x7 – x8 (150,000 x 30%) 45,000
NCI on 31.3.x8 33,000
*Imp
Concept 6 : Uniform Accounting Policies

As per the Provisions of Ind AS 110, Consolidated Financial

Statements should be Prepared on the basis of same Accounting
Policies. As per the Provisions, Accounting Policies of Holding co. and
its subsidiary company should be same if “Both have similar
Transactions and similar Events in similar circumstances.” If
Accounting Policies are different in Separate statements of Both
companies then It will be the Responsibility of subsidiary co. to
adjust its financial statements as per the Requirements of Holding
company.

Exception

If Nature of Business is not same of Both the Entities then Both will
not have Similar Transactions due to which Different Policies are
allowed for Consolidation Financial Statements.

Solution of Q.46
As per the Provisions of Ind AS 16, Change in method of Depreciation
is not a Change in Policy, but It will be considered as change in
Estimation. In the Given case, MNC is Applying WDV, but PQR is

applying SLM which is allowed in CFS because Both Have different

Estimations regarding life of Assets. There will be No requirement of
CA-Final Financial Reporting 119
any adjustment in Financial Statement for the Given difference.

Solution of Q.47
As per the Provisions of Ind AS 110, Uniform Accounting Policies are
mandatory in CFS if Holding company & Subsidiary Company (Both) have
similar nature of Transactions and Events in similar circumstances.
In the Given case, Nature of Business is different for all Entities
due to which the Given Entities shall not have Similar Transactions.
On the basis of above discussion, it can be said that different costing
formulas Can be applied for valuation of stock by all Entities.

*Part 10*

Concept 7 : Uniform Reporting Periods

As per the Provisions of Ind AS 110, Reporting Periods of Holding

company and Subsidiary company shall be same. Usually, Reporting
Periods are same if Holding & Subsidiary (Both) are Indian Entities.
The reporting Periods may be different only if Subsidiary company is
a foreign company. In such case, It will be the responsibility of
Subsidiary company to Prepare/ adjust its financial statements
according to the reporting date of Holding company. If it is
impracticable for subsidiary to do so Then the difference between
Reporting Periods cannot be for more than 3 months. The Following
Additional Points may also be considered in the Given case :-

i. The classification of Current and Non-Current Items of

Subsidiary company Will be changed/Adjusted from the Point of
view of date of consolidation if Different Reporting Period is
taken from Subsidiary Statements. It means that An item which is
Non-Current for subsidiary according to its reporting date, may
be considered as a current Item from the Point of view of
Reporting date of CFS.

ii. If Subsidiary company is a foreign company, then Its financial

statements would have been Prepared according to Local GAAP, but
CA-Final Financial Reporting 120
local GAAP may be different From Ind AS. So financial statements
of subsidiary shall be adjusted from the Point of view of Ind AS in
CFS.

Solution of Q.48

If Reporting Periods are different of Holding & subsidiary then the

Gap between Reporting Periods cannot be more than 3 months. In
addition, Classification of Current and Non-Current Items will be
made from the Point of view of “Reporting Date of CFS.”

Solution of Q.49

In the Given case, Adjustment in financial statements of subsidiary

company will be Required for the disclosure of Long Term Loans. As
per Indian GAAP, the Specified Loan will still be considered as Non
Current Liability, because all the terms & Conditions have been fixed
as these were earlier in original contract before Approval on financial
statements. If consolidation is done in India, we should apply
Accounting rules as per Indian standards.

*Imp
Concept 8 : Elimination of Profits/ Loss on Inter Group
CA-Final Financial Reporting 121

Transactions
(we will discuss this concept to the Extent it related with B/s)
Stock/Goods
Case I : Sale/ Purchase of “Inventory” between Holding & Subsidiary

Transactions

Down Stream Transactions Upstream Transactions

If holding co. Sells Goods to If Subsidiary co. Sells Goods

Subsidiary co. to its Parent co.

Elimination of Unrealised Profit Elimination of Unrealised

on Closing stock held by Subsidiary Profit on Closing Stock held
will be made in Holding company by Holding company will be
PL as follows : made Proportionately against
Holding co. consolidated P&L
and NCI as follows :

Consolidated PL Dr xxxx
To Inventory xxxx Cons. P&L Dr xxxx
(Being Unrealised Profit Cancelled NCI Dr xxxx
or Eliminated) To Inventory xxxx
(Being Unrealised Profit
Eliminated)

Note: In Study material of ICAI, the Entries are Given from the
Point of view of Cons. P&L A/c which is Pending for discussion.
We are covering B/s concepts here.

Case II : Sale/ Purchase of PPE or Intangibles between Holding &

Subsidiary
CA-Final Financial Reporting 122

The Entire concept will be same as we have discussed in case “Case I”

in above Except the calculation of Unrealised Profits. It may be
Possible that Buyer of Asset has Calculated Depreciation on it due to
which carrying Amount of the sold Assets Becomes Lower than Original
Transaction value. So, the following formula should be Applied for
calculating unrealised Profit in such Transaction :-

Unrealised Profit = Total Profit x Carrying Amount of Assets

Total Value

Down Stream Up Stream

Cons. P&L Dr xxxx Cons. P&L Dr xxxx

To PPE xxxx NCI a/c Dr xxxx
(Being Unrealised Profits Eliminated) To PPE xxxx
(Being Unrealised
Profits Eliminated)

Solution of Q.54

In the Given case, Subsidiary co. is Selling Goods to Holding co. So, the
Given Transaction is an Upstream Transaction. We will Eliminate
Unrealised Profit of Rs.15,000 as follows :-

Cons. P&L Dr (15000 x 60%) 9000

NCI Dr (15000 x 40%) 6000
To Inventory 15000
(Being Unrealised Profits Eliminated in B/s)

Solution of Q.55
In the Given case, Holding co. has sold Goods to Subsidiary company
CA-Final Financial Reporting 123
which indicates that the Given Transaction is down stream and Holding
co. will Eliminate it in full as Follow :

Cons. P&L a/c Dr 15000

To Inventory 15000
(Being Unrealised Profits Eliminated)

Solution of Q.56

In the Given case, Transaction is downstream due to which Holding co.

will bear full Elimination. In the Given case, 50% of sold Goods are
lying with subsidiary due to which Unrealised Profit will be computed as
follows :

Unrealised Profit = 40 x 120 = 20 Lacs

240

Journal : Cons. P&L Dr 20

To Inventory 20
(Being Unrealised Profit Eliminated)

Note : A DTA of 6 lac should be created for difference in Tax Base and
A/cs base in CFS After Elimination of Profit [(120 – 100) x 30%]

Solution of Q.57
The Given Transaction is an Upstream Transaction due to which the
following Calculations are required to be made :

I. Unrealised Profit = 20 x 60 = 10 Lacs

120
II. Journal : Cons. P&L Dr (80%) 8
NCI Dr (20%) 2
To Inventory 10
III. DTA = (60 – 50) x 30% = 3

Solution of Q.58
CA-Final Financial Reporting 124
I. Calculation of Carrying Amount of PPE in the books of Buyer

Purchase Cost for Subsidiary 120

Depreciation 120 (12)
10 y
Carrying Amount at B/s date 108

II. Unrealised Profit = 20 x 108 = 18 Lacs

120
III. Journal : Cons. P&L a/c Dr 18
To PPE 18
(Being Unrealised Profits Eliminated)

*Part 11*
*V.Imp
Concept 9 : Changes in Interest without Losing Control in
Subsidiary Co.

Cases

I II
If Holding co. acquires further If Holding Company Sells a
shares in Subsidiary co. small Portion of its Holding
in Subsidiary co.
CA-Final Financial Reporting 125

Case I : If Holding Buys shares in Subsidiary in addition to Existing

Holdings

A. In Stand Alone Financial: Investments in Shares Dr xxxx

Statements Of Parent co. To Bank xxxx
(Being Investments made in Equity
Instruments)
“We will Apply rules Specified in Ind AS 109”

FVPL or FVOCI As per Cons. B/S

*Imp Proportionate
B. In Consolidated Financial : *NCI a/c Dr xxxx (Carrying Amt)
Statements Of *To Bank xxxx (Payment)
Parent co. (Being Payment made to NCI for
Further Acquisition of shares)

* The Difference between carrying Amount of NCI and Payment made

to NCI will be Transferred to “Other Equity: R.E.” Such Profit or
Loss will not be routed through P&L A/c , but It will be
transferred to other Equity Directly.
Retained Earnings

Solution of Q.60

Journal Entries

In SFS of A ltd.: Investments in B Ltd. a/c Dr 4000 (200000 x 20%)

To Bank 4000
(Being Investment in Equity of B ltd. made)
Carrying Amt
In CFS of A ltd. : Non Controlling Interest a/c Dr 2000(4000/40% x 20%)
Other Equity (Bal fig.) a/c Dr 2000
To Bank 4000
(Being NCI reduced from 40% to 20%)
CA-Final Financial Reporting 126

Solution of Q.61

Statement showing Changes in NCI

Payment made for Additional 10% shares 2600

Carrying Amount of NCI (6600/30% x 10%) (2200)
Loss on Acquisition 400

Note 1: The Amount of Loss on Acquisition will be transferred to

other Equity Directly without routing it through P&L A/c.
Note 2 : There will be no impact on Goodwill due to change in NCI
because we are Considering change in NCI at carrying Amount.
*Imp
Solution of Q.62

In SFS of A ltd.

Journal Entry : Investments in B Ltd a/c Dr 32

To Bank 32
(Being further Investments made in B ltd.)
(Same format as
given in question) B/s of A ltd. (after further Invest.)

Non Current Assets :

PPE 627
Financial Assets:
Investments in B ltd. (150 + 32) 182

Current Assets :
Cash (200 – 32) 168
Other C. Assets 23
Total 1000
CA-Final Financial Reporting 127

Equity :
S. Capital 200
Other Equity 800
Total 1000

In Consolidated financial Statements of A ltd.

Journal: NCI a/c Dr 30 (90/30% x 10%)

Other Equity a/c Dr 2
To Bank 32
(Being NCI reduced from 30% to 20%)
(Same format as Given in Question)
Consolidated B/s
Non Current Assets :
PPE 827
GW 10

Current Assets :
Cash 230–32 198
Other C. Assets 93
Total 1128
Equity :
S. Capital 200
Other Equity (870– 2) 868
NCI (90– 30) 60
Total 1128
CA-Final Financial Reporting 128

Case II : If Holding co. Sells stake in Subsidiary, but It retains the

control
A. In SFS of Holding co. :
*Bank a/c Dr xxxx (SP)
*To Investments xxxx (Carrying Amount in B/s)
(Being Investments Sold)

* Profit or Loss on sale of Investment will be transferred to P&L

(FVPL) or OCI (FVOCI) as per Opted model under Ind AS 109.

B. In CFS of Holding co. : Bank a/c Dr xxxx (SP)

To NCI xxxx
i. N. Assets (Excluding GW) x % *
ii. N. Assets (Including GW) x %*
(Being A Portion of Investments sold to NCI)

*Note 1 : While Computing changes in NCI, we will consider carrying

Amount of N. Assets on the date of sale of stake. We can
calculate N. Assets including GW As well as Excluding GW
assuming method of Initial Recognition of GW. “If We
assume that GW was recorded initially by Proportionate
method then we will not consider it in change in NCI, but if
we assume that It was recorded at full Value on DoA then
we can consider it while making changes in NCI.”

Note 2 : Difference between Selling Price of sold stake and changes

PL in NCI will be Transferred to “other Equity : R.E” as we did in
Other Case I.
Equity
(R.E)
Solution of Q.63

In the Given case, we cannot assume Proportionate Goodwill because

100% stake was with Holding company due to which GW was recorded at
its full value on DoA. So, we Will consider Goodwill in N. Assets while
making changes in NCI as follows :-
CA-Final Financial Reporting 129

In CFS of Holding co. : Bank a/c Dr 900,000

To NCI (18L x 40%) 720,000
To other Equity (Bal) 180,000
(Being NCI recorded due to sale of 40% stake)

In SFS of Holding : Bank a/c Dr 900,000

To Investments 400,000
(10,00,000/100% x 40%)
To Gain on Disposal 500,000
(Being investment sold)
FVPL or FVOCI
109

Solution of Q.64

Statement Showing Changes in NCI

Selling Price for 30% sold Portion 500

NCI Share in Existing N. Assets including GW (450)
(1300 + 200) x 30%
*Gain on Sale 50

*It will be transferred to other Equity : R.E.

Note : We have included GW in Net Assets for Changes in NCI because

100% shares were held by Holding co. at initial Recognition which
indicates that full Goodwill Was recorded at that time.
Additionally, It is also mentioned that valuation of NCI is
required at fair value method due to which full GW method has
adopted.
CA-Final Financial Reporting 130

Solution of Q.59
Journal Entry
In CFS of Holding Co.
Bank a/c Dr 100
To NCI (*300 x 20%) 60
To Other Equity (Bal) 40

(Being 20% stake sold by Holding to Outsiders)

Note = same Note will be Given as in Earlier 2 Questions on Wholly
Owned Subsidiaries.
*V.V.Imp
Concept 10 : Accounting for “Loss of Control”

In SFS of Investor :
*Bank a/c Dr xxxx (SP)
*To Investment xxxx (Carrying Amount)
(Being Investments Sold)
*Profit or Loss will be transferred to PL/ OCI as per Opted Model in
Ind AS 109

In CFS of Investor : We will De-Recognise Subsidiary from CFS as

follows :

Cash a/c Dr xxxx (SP)

NCI a/c Dr xxxx (Carrying Amount)
Investments a/c Dr xxxx (Fair value : Present) If some shares
are retained
To N. Assets xxxx (Carrying Amount)
To GW xxxx (Carrying Amount)
(Being Subsidiary De- Recognised)

*Difference in above Entry will be taken as Profit or Loss on De-

Recognition of Subsidiary and It will be transferred to “P&L A/c.”

It will be routed through Other Equity : R.E (Not allowed)

PL
CA-Final Financial Reporting 131

Solution of Q.65
Calculation of % of Shares held by Holding co. (Prior and after Exercise
of Option)
i. Prior to Exercise of Option :-

% of Holding = 30,000 Shares x 100 = 60%

50,000 Shares

ii. After Exercise of Option

% of Holding = 30,000 Shares x 100 = 40%
75,000 Shares
Comments : After Exercise of option, It is Clearly indicated that
Holding co. has Lost its Control over its Subsidiary due to
increase in No. of shares held by NCI. We will have to De-
Recognise Subsidiary in this case.

Journal Entry for De- Recognition

*NCI (450,000 x 40%) Dr 180,000

Investments (Retained) Dr 360,000 (30,000 x 12) F.V
To N. Assets 450,000
To GW (Partial) 20,000
To P&L (Bal fig.) 70,000
(Being Subsidiary De-Recognised)

*We will not include GW because it was calculated under Partial Method.

Solution of Q.66
In Separate financial Statements

Bank a/c Dr 200,000 (SP)

To Investments in
Subsidiary 160,000 FVPL 109
To Gain on Disposal (Bal fig) 40,000 FVOCI
(Being Investments Sold)
CA-Final Financial Reporting 132

In Consolidated financial Statements

*NCI (225,000 x 20%) Dr 45,000

Cash Dr 200,000
To N. Assets 225,000
To GW (Partial) 12,000
To P&L (Bal fig.) 12,000 (Gain on De-recognition)
(Being Subsidiary De-Recognised)

Solution of Q.67

In Separate Financial Statements of Investor

Bank a/c Dr 67,50,000 (SP)

To Investments 30,00,000 (50,00,000/100% x 60%)
To Gain on Sale 37,50,000
(Being Investments Sold) FVPL or FVOCI
109
In Consolidated Financial Statements of Investor

Bank a/c Dr 67,50,000

Investment a/c Dr 45,00,000 (F.V : Given)
To N. Assets 80,00,000
To GW 10,00,000
To P&L (Gain) 22,50,000 (Bal)
(Being De-Recognised of Subsidiary made)

Solution of Q.68

In Separate financial Statements of Investor

Bank a/c Dr 85,50,000 (SP)

To Investments 45,00,000 (50,00,000/100% x 90%)
To Gain on Sale 40,50,000 PL 109
(Being Investments Sold) OCI
CA-Final Financial Reporting 133

In Consolidated Financial Statements of Investor

Bank a/c Dr 85,50,000

Investment a/c Dr 950,000 (F.V : Given)
To N. Assets 80,00,000
To GW 10,00,000
To P&L (Gain) 500,000 (Bal. fig)
(Being De-Recognised of Subsidiary made)
*Imp
Exception to Concept 9 & 10

If Loss of control takes place due to Multiple sale of shares then It

may affect other Equity in Place of PL. If it is Proved that Multiple
Disposals are related to each other then we will consolidate all
disposals and we will take it as De-recognition Of Subsidiary.

Solution of Q.69

In the Given case, Shares have been sold in 2 transactions within one
month due to which we will not account for these transactions
Separately, but we will take it as a Single Transaction of De-
Recognition of Subsidiary as follows :-

Bank a/c Dr 800,000 (Total)

NCI a/c Dr 180,000
To N. Assets 900,000
To P&L (gain) 80,000
(Being De-Recognition of Subsidiary made)
CA-Final Financial Reporting 134

*Part 12*
Concept 11 : Accounting for Dividends Received from Subsidiary
Company
Accounting

Unit I Unit II
In SFS of Holding co. In CFS of Holding co.

Unit I : Stand Alone Financial Statements

As per the Provisions of Ind AS 109, the Parent co. will credit its P&L
A/c for Received Dividend from its Subsidiary. There is no concept of
Pre- acq. Dividend or Post acq. Dividend in Ind AS 109. Whenever an
Investor receives Dividend from its Subsidiary then Dividend
Income will be credited to P&L A/c. The Following Entries may be
considered :-

Step I : At the time of “Declaration of Dividends in EGM”

i. Dividend Receivable Dr xxxx

To Dividend Income xxxx
(Being Income Recognised)
ii. Dividend Income a/c Dr xxxx
To SOPL xxxx
(Being Income transferred to P&L)

Step II : At the time of Collection of Dividend

Bank a/c Dr xxxx

To Dividend Receivable xxxx
(Being Dividend Received)

*As per the rules, there will be no Accounting in the books of

Investor if Dividend is Proposed by BoD and It is Pending for
Approval in AGM.
CA-Final Financial Reporting 135

Unit II : Adjustment of Dividends in CFS

E.g.
i. Holding co. acquired 90% shares in Subsidiary on 1.4.20 for Rs. 160,000
ii. Position of Subsidiary on 1.4.20 : Share Capital : 100,000
PL : 20,000
iii. Position of Subsidiary on 31.3.21 : Share capital : 100,000
PL : 30,000
iv. Sub. Paid Dividend of Rs. 10,000 during 20-21
v. Holding co. Own Balance in P&L : Rs.200,000
Show Balance in Consolidated P&L of Holding Company

Solution
I. Calculation of Post acq. Profits earned by Subsidiary
before dividends
Closing Balance in PL of Subsidiary 30,000
Add : Paid Dividends during 20-21 10,000
Closing Balance before Dividends 40,000
Balance in PL on DoA (20,000)
Profits earned by Subsidiary after DoA
But before Dividends 20,000

II. Calculation of Consolidated Balance in PL of Holding co.

Balance in Holding co. 200,000

Share of Holding in Post acq Profits 18,000
Of Subsidiary (20000 x 90%)
Elimination of Received Dividend (10,000 x 90%) (9000)
Closing Balance 209000

Step I : Calculate Post acq. Profits Earned by Subsidiary after DOA as

follows :-
Closing Balance in P&L of Subsidiary co. xxxx
Add Back : Paid Amount of Dividends during the year xxxx
Closing Balance before Dividends xxxx
Balance in PL on DOA (xxxx)
Post acq changes in PL xxxx
CA-Final Financial Reporting 136

Step II : Calculate Consolidated Balance in PL of Holding co. as follows:

Own Balance of Holding co. in PL xxxx

Add : Share in Post acq changes xxxx
Elimination of Received Dividends from Sub. (xxxx)
Consolidated Balance in PL xxxx

*Concept of DDT/ CDT has not been discussed Now because It has
been withdrawn by Govt. “If there is any discussion in old RTP/MTP
on DDT then Please skip that Question.”

Solution of Q.50

I. Accounting for Dividends in the books of XYZ ltd. (SFS)

At the time of Collection in Next year (X2- X3) :

1. Bank a/c Dr 24,000 30,000 x .8

To Dividends 24000
(Being Dividends Received)
2. Dividends a/c Dr 24,000
To P&L a/c 24,000
(Being Income recognised)

II. Acquisition Entry (DOA : 1.4.x1)

N. Assets a/c Dr 150,000 (fair value)

Goodwill a/c Dr 25,000 (Bal fig)
To NCI (140,000/80 x 20) 35,000
To Cash 140,000
(Being Controlling Int. initially Recog.)

III. Calculation of NCI

NCI on 1.4.x1 35000
Post acq Profits (20000 x 20%) 4000
NCI 39,000 (31.3.x2)
CA-Final Financial Reporting 137

Solution of Q.51

Acquisition Date (1.4.x1)

N. Assets Dr 150,000
GW Dr 20000 (Bal)
To NCI (150,000 x 20%) 30,000
To Cash 140,000
(Being Acq. Date Accounting made)

NCI = DOA 30,000

Post 4000 (20,000 x 20%)
34,000

Solution of Q.52

N. Assets a/c Dr 160,000

GW a/c Dr 15000 (Bal)
To NCI (140,000/80 x 20%) 35,000
To Cash 140,000

NCI = DOA 35,000

Post 4000
39,000

Solution of Q.53

Net Asset Dr 160,000

GW Dr 12,000 (Bal)
To NCI (160000 x 20%) 32000
To Cash 140,000

NCI = 32000 + 4000 = 36000

CA-Final Financial Reporting 138
*Imp
Concept 12 : Treatment of Cumulative PSC held by NCI

If cumulative Pref. Shares (Held by NCI) which are classified as Equity

Instrument (Refer 109) are Given in Subsidiary B/s then Post acq
Profits will be distributed between Holding & NCI only after Providing
Dividend on Such Cumulative Capital.

Solution of Q.72

Profits Earned by Subsidiary 500,000

Cumulative Dividend (10,00,000 x 10%) (100,000)
Free Profit 400,000

Holding - .8 NCI - .2
320,000 80,000

*Part 13*

Solution of Q.3 (8 marks)

Application of Ind AS 103

(DOA) (In CFS)

Building a/c Dr 3300

Stock a/c Dr 600
T.R a/c Dr 250
Cash a/c Dr 700
Goodwill a/c Dr 1300 (Bal fig)
To T.P 150
To Cash/ Invest. 6000 (100%)
(Being Initial Recognition made)
CA-Final Financial Reporting 139

Consolidated B/s for Blue heaven ltd. with its Subsidiary Orange
Country limited

Particulars Rs.
Assets :

NCA : Goodwill (103) 1300

P.P.E (7000 + 3300) 10300

C.A : Inventories (700 + 600) 1300

T.R. (300 + 250) 550
Cash (1500 + 700) 2200
Total 15,650
Shareholders funds :-
Share Capital 5000
Other Equity : R.E. 10200

Current Liab :
T. Payables (300 + 150) 450
Total 15650

Solution of Q.4 (8 marks)

Application of Ind AS 103
(DOA) (In CFS)

Building a/c Dr 3300

Stock a/c Dr 600
T.R a/c Dr 250
Cash a/c Dr 700
Goodwill a/c Dr 975 (Bal fig)
To T.P 150
To Cash/ Invest. 4500 (75%)
To NCI (4700 x 25%) 1175 (25%)
(Being Initial Recognition made in CFS)
CA-Final Financial Reporting 140

Cons. B/s as at 31.3.2012

NCA : Goodwill (103) 975

P.P.E 10300

C.A : Stock 1300

T.R. 550
Cash 2200
Total

Shareholders funds :-
Share Capital 5000
Other Equity : R.E. 10200
NCI 1175

Current Liab :
T. Payables 450
Total

Solution of Q.6 (6-8 Marks)

De-recognition of Subsidiary

Trade Payable a/c Dr 900

Cash a/c Dr 3000
(Bal fig.) To P&L 440 (Profit on sale)
To GW 180
To PPE 1340
To Inventory 40
To T.R 900
To Cash 1000
(Being Investments De-Recognised)
CA-Final Financial Reporting 141

B/S after De- Recognition

Not Current Assets :

1. GW (380 - 180 ) 200
2. Building (3240 - 1340) 1900

Current Assets :
1. Stock (140 - 40) 100
2. TR (1700 - 900) SOI 800
3. Cash (3100 - 1000 + 3000) 5100
8100

Shareholders fund :
S. Capital 1600
R.E (4260 + 440) 4700

Current Liab. : T.P (2700 – 900) 1800

8100

Solution of Q.7

De-recognition

Trade Payable a/c Dr 450

Cash a/c Dr 1000 (90%)
Investment a/c Dr 128 (1730 – 450) 10%
P&L Dr 152 (Bal: Loss)
To GW 90
To PPE 670
To Inventory 20
To Debtors 450
To Cash 500
CA-Final Financial Reporting 142

Balance sheet
Not Current Assets :
GW (190 - 90) 100
PPE (1620-670) 950
Invest. 128

Current Assets :
Stock (70 - 20) 50
Debtors (850 - 450) 400
Cash (1550 – 500 + 1000) 2050
3678

Share capital 800

RE (2130 – 152) 1978
TP (1350 – 450) 900
3678

Extra Questions
Solution of Q.1

W.N # 1 Calculation of F.V Adjust & Dep. Adj. in P&M (1.10.11) – DOA

I. F.V Adjust.
Carrying Amount of P&M (1.4.2011) (1350,000/90% x 100%) 15,00,000
Depreciation for 6 months (75000)
(1.4.11 – 1.10.11) (15L x 10% x 6/12)
Carrying Amount of P&M (1.10.11) 14,25,000
Fair value of P&M (1.10.11) 20,00,000
F.V Adj. + 575000

II. Dep. Adj.

Dep. On P&M in CFS 175,000
(15L x 10% x 6/12) + (20L x 10% x 6/12)
Dep. On P&M in SFS (150,000)
(15L x 10% x 12/12 ) Dep 25,000
CA-Final Financial Reporting 143

W.N #2 Calculation of Post acq. Profits

(1.10.11 – 31.3.2012)

Closing Balance in R.E 820,000

Dividend Paid (20L x 10%) 200,000
Closing Balance before Dividends 1020,000
Opening Balance (1.4.11) (300,000)
Current year Profit (11-12) 720,000
Profits upto DOA (1.4. – 1.10) 6/12 (360,000)
Post acq Profits 360,000
Dep. Adjust on F.V Adj. (25000)
335,000

W.N #3 Calculation of Equity on DOA : 103

Share Capital 20,00,000

Reserves 10,00,000
R.E. : 1.4.11 300,000
1.4.11 – 1.10.11 360,000

F.V. Adjust : P&M 575000

L&B 10,00,000
Inventory 150,000
T. Payables (100,000)
Equity (DOA) 52,85,000

W.N # 4 Calculation of GW/ CR (103)

Investments made by DEF 3400,000

Share in N. Assets on DOA (52,85,000)
C Res 18,85,000
CA-Final Financial Reporting 144

W.N # 5 Other Equity (Cons.)

Res R.E Cap Res Total
Balance with DEF 24,00,000 572,000 - 29,72,000
Post acq. Adj. - 335,000 - 335000
Distributed Profits - (200,000) - (200,000)
By XYZ lltd.
Bargain Purchase - - 18,85,000 18,85,000
Total 24,00,000 707,000 18,85,000 49,92,000

W.N #6 PPE :

A. L&B
DEF 15,00,000
XYZ 18,00,000
F.V Adj. 10,00,000 43,00,000

B. P&M
DEF 24,00,000
XYZ 13,50,000
F.V Adj. 575,000
Dep. (25,000) 43,00,000
Total 86,00,000

W.N # 7 Inventory
DEF 12,00,000
XYZ 364,000
F.V Adj. 150,000 17,14,000

W.N. # 8 Trade Receivables

DEF 598000
XYZ 400,000 998,000

W.N # 9 C & CE
DEF 145,000
XYZ 80,000 225,000
CA-Final Financial Reporting 145

W.N # 10 Trade Payables

DEF 471,000
XYZ 174,000
F.V Adj. 100,000 745,000

Cons. B/s of DEF with its Subsidiary XYZ as on 31.3.12

Non Current Assets :

A. PPE 6 86,00,000

Current Assets :
A. Inventories 7 17,14,000
B. Financial Assets :
T. Receivable 8 998,000
C & C.E 9 225,000
Total 1,15,37,000

Equity :
A. Share Capital - 50,00,000
B. Other Equity 5 49,92,000

Current Liab :
A. Financial Liab :
Trade Payables 10 745,000
BOD - 800,000
Total 1,15,37,000
CA-Final Financial Reporting 146
*Imp
Solution of Q.2

W.N # 1 Calculation of F.V Changes in P&M (1.10.11)

I. P&M :
Carrying Amount of P&M (1.4.2011) (270,000/90 x 100) 3,00,000
Depreciation @ 10% p.a (15000)
(1.4.11 – 1.10.11)
Carrying Amount of P&M (1.10.11) 285,000
Fair value of P&M 400,000
Appreciation 115000

II. Dep. Adj.

In CFS : (3L x 10% x 6/12) 15,000
(4L x 10% x 6/12) 20,000
35,000
In SFS : 3L x 10% x 12/12 (30,000)
Dep. Adj 5,000

W.N #2 Calculation of Post acq Profits in Krishna ltd.

(1.10.11 - 31.3.12)

Closing Balance in R.E 164,000

Dividend Paid to be added back 40,000
(400,000 x 10%) 204000
Opening Balance in R.E (1.4.11) (60,000)
C.Y Profits 144,000
R.E Upto DOA (1.4 – 1.10) 6/12 (72,000)
Post acq. Profit 72,000
Dep Adj. (5000)
Net Post Profit 67,000
CA-Final Financial Reporting 147

W.N # 3 Calculation of Equity on DOA in Krishna ltd.

Share Capital 4,00,000

Reserves 2,00,000
R.E. : 1.4.11 60,000
1.4.11 - 1.10.11 72,000

F.V. Adjust : P&M (W.N #1) 1,15,000

L&B 2,00,000
Inventory 30,000
T. Payables (20,000)
Equity (1.10.11) 10,57,000
i)Ram Ltd (.60) 6,34,200
ii)NCI (.40) 4,22,800

W.N #4 Calculation of NCI

Share in Equity (1.10.11) 422,800

Share in Post acq Profits (67000 x .4) 26800
Distributed Profits (40000 x .4) (16000)
433,600

W.N #5 Calculation of GW/ CR (DOA)

Investment made 800,000

Share in Equity on DOA (634,200)
GW 165,800

W.N #6 Other Equity (Consolidated)

Reserves R.E Total
Balance in Ram ltd. 600,000 114400 714,400
Post acq Profits - 40200 40200
(67000 x .6)
Distributed - (24000) (24000)
Profits-(40000x .6)
600,000 130,600 730,600
CA-Final Financial Reporting 148

W.N # 7 PPE

L&B
R 3,00,000
K 3,60,000
F.V Adj. 2,00,000 8,60,000
P&M
R 4,80,000
K 2,70,000
F.V Adj. 1,15,000
Dep. Adj (5,000) 8,60,000
Total 17,20,000

W.N # 8 Inventories
R 2,40,000
K 72,800
F.V Adj. 30,000 342,800

W.N. # 9 Trade Receivables

R 119600
K 80000 199600

W.N # 10 C & CE
R 29,000
K 16,000 45,000

W.N # 11 Trade Payables

R 94,200
K 34,800
F.V Adj. 20,000 149,000
CA-Final Financial Reporting 149

Cons. B/s

Non Current Assets :

PPE 7 17,20,000
GW 5 165,800
Current Assets :
A: Inventory 8 342800
Financial Assets :
TR 9 199600
Cash & Cash Equ. 10 45000
24,73,200

Equity :
Share Capital - 10,00,000
Other Equity 6 730,600

NCI 4 433600

Current Liab :
Financial Liab :
TP 11 149,000
BOD - 160,000
24,73,200
*Imp
Solution of Q.5

W.N #1 Calculation of Post acq Profits

C.Y Profits (1.4.2012 – 31.3.2013) 550

Dep. On F.V. Adj (300/20Y) (15)

Inventory Sold with higher value in CFS (100)

435
CA-Final Financial Reporting 150
Question.4
W.N # 2 NCI :
DOA (4700 x .25) 1175
Post (435 x .25) 108.75
1283.75

W.N # 3 Other Equity (Consolidated)

R.E (Blue heaven) 11000
Share in Post acq Profits 326.25
(435 x .75)
Amort. Of GW (975/10Y) (97.5)
11228.75

W.N # 4 PPE : B 6500

O 2750
FV Adj 300
Dep. (15) 9535

W.N # 5 GW : DOA 975

Amort. (97.5) 877.5

W.N # 6 Inventory
B 800
O 550 1350

W.N # 7 Trade Receivable

B 380
O 300 680

W.N # 8 C and CE
B 4170
O 1420 5590

W.N # 9 Trade Payable :

B 350
O 170 520
CA-Final Financial Reporting 151

Cons B/s (31.3.13)

NCA : A. PPE 4 9535
B. GW 5 877.5
CA : Inventories 6 1350
Financial Assets :
TR 7 680
CCE 8 5590
18032.5

Equity :
Share Capital - 5000
Other Equity 3 11228.75
NCI 2 1283.75
Current Liab : T.P 9 520
18032.5

*Part 14*
*Imp
Solution of Q.8 (Elimination of Intra Group Transactions)

In the books of Airtel Infrastructure Pvt. Limited

1.4.x0 Building (PPE) a/c Dr 10,25,000

To Bank 10,25,000
(Being Building Purchased)

31.3.x1 Depreciation a/c Dr 25000 1025000 – 500000

21 years
To Building 25000
(Being Depreciation Charged)

1.4.x1 Bank a/c Dr 11,00,000

To Building (PPE) 10,00,000
To Gain on Disposal 1,00,000 (Bal)
(Being Building Sold to its Holding co.)
CA-Final Financial Reporting 152

In the books of Airtel Telecom.

1.4.x1 Building a/c Dr 11,00,000

To Bank 11,00,000
(Being Building Purchased)

31.3.x2 Depreciation a/c Dr 37500 11,00,000 – 350,000

20Y
To Building 37500
(Being Depreciation Charged)

In consolidated Financial Statements

i. Cons. P&L a/c Dr 100,000

To PPE 100,000
(Being Unrealised Profit fully Eliminated)
ii. PPE a/c Dr 5000*
To Cons. P&L 5000*
(Being Reversal of Dep made)
* 11,00,000 – 350,000 - 10,00,000 – 350,000 ये होने चाहहए था
20Y 20Y
ये हो चक
ू ा
* V.V. Imp
Solution of Q.9 (Similar concept of OCI in Q 40)
(Revise Q.40: Reversal/Derecognition of OCI)
In CFS of AB Ltd.
PL RE
i. De- Recognition of Subsidiary :

Bank a/c Dr 56 (Sold)

Investment a/c Dr 16 (Fair value)
NCI a/c Dr 6 (60 x 10%)
To N. Assets 60
To Gain (PL) on De-recognition 18 (Bal fig)
(Being De- Recognition of Subsidiary made)
CA-Final Financial Reporting 153

ii. De- Recognition of OCI (Re- Cyclable in P&L) :

FVOCI Reserve (Debt Inst.) a/c Dr 5.4

FVOCI Reserve (FCTR) a/c Dr 7.2
To P&L 12.60
(Being OCI Recycled in P&L)

iii. De- Recognition of OCI (Non Recyclable in P&L) :

FVOCI Res. (Equity Instruments) a/c Dr 3.6

To FVOCI Reserve (Loss) 2.70
To R.E (Bal fig.) .90
(Being OCI de-recognised in R.E)

Unit II : Consolidated Cash Flow statements

As per the Provisions of Ind AS 110, Preparation of Consolidated CFS

is very Simple. We will consolidate all cash flows of Holding & Subsidiary
on line by line and on Item by Item basis. The following Points should
be considered additionally :-

i. We will Eliminate Intra Group Transactions while Preparing

Consolidated CFS.
ii. On Date of Acquisition of Shares (Initial Consolidation)
➢ Purchase of Controlling Interest will be reported by Holding under
Investing Activities.
➢ Purchase of Additional shares in Subsidiary after Buying controlling
Int. will be reported under financing Activities
➢ On DOA, Cash Outflow will be reported under Investing Activities as
follows :
[Payment made for controlling Int. – Cash received from Subsidiary in
Net Assets on DOA]
CA-Final Financial Reporting 154

Solution of Q.10

i. The Acquisition of Initial Control will be reported under

Investing Activities On Net Basis. The Holding co. has paid 15 Lacs in
Cash for acquisition of 70% controlling Interest in Subsidiary co. ,
but Subsidiary cash Rs.250,000 in Cash Balance which will Be debited on
Initial consolidation. So, Net cash outflow of Rs.1250,000 will be
Reported under Investing Activities.
ii. The company has acquired further shares after buying
controlling Int. for Rs.800,000 and this Payment will be reported
under Financing Activities.

Solution of Q.73

Consolidated Cash Flow Statement of P ltd. with its Subsidiary Q ltd.

Cash from Operating Activities

Profit after Tax (30950 + 8960) 39,910
Add back :
Current Tax (15000 + 4000) 19,000
Deferred Tax (2000 + 1000) 3000
Depreciation (7000 + 4000) 11000
Finance Cost (2700+1000 - 1000) 2700
Changes in Provisions (1350 + 1960) (3310)
Reversal of Interest Income (1000) - 1000 0

Working Capital Adjustments :

Inventories (15000)+(5000) (20000)
Debtors (Decrease)* 18000 OB - 15000 CB 3000
Payable (Increase)* 8000 OB - 9000 CB 1000
Advance Tax (15000 + 4000) (19000)
Cash from OA (Total A) 37,300
CA-Final Financial Reporting 155

Cash from Investing Activities :-

Purchase of PPE (17000 + 5000) (22000)
Acquisition of Subsidiary (36000 - 1000) (35000)
Interest Income (1000 - 1000) 0
Dividend Income (1680 - 1680) 0
Cash from IA (Total B) (57000)

Cash from Financing Activities :

Dividend Paid (8000+2400 - 1680) (8720)
DDT Paid (1350 + 400) (1750)
Interest Paid (2700+1000 - 1000) (2700)
Cash from FA (Total C) (13170)
DA + IA + FA (Changes) (32870)
Add : Opening Balance 38000
Closing Balance 5130

Note :
1. We have Eliminated Interest Paid/ Int. Received between P&Q
(Rs.1000)
2. We have also Eliminated Dividend Paid/ Dividend Received between
P&Q (Rs.1680)
3. *We have calculated Increase or Decrease in Trade Receivables and
Payables after Eliminating Inter company Balance of Rs.3000

Consolidated P&L
As per the Provisions of Ind AS 110, Consolidated P&L is Prepared by
Aggregating All incomes and Expenses of Holding & Its Subsidiary on
Line by Line and Item by Item basis but Subject to Elimination of
Inter Company Transactions.
Sale/ Purchase Int Exp./Int Income etc.

Note : we will also consolidate “OCI” Portion of Holding & Subsidiary

but subject to Elimination of Inter company Transactions.
CA-Final Financial Reporting 156
Holding has measured its invest in sub. At fair value in

Consolidated statement of P&L of P ltd with its Subsidiary Q ltd.

Revenues :
A. Sales (200000 + 80000 - 20000) 260,000

B. Other Income (3000 - 3000) 0

Total A 260,000

Expenses :
A. Raw Material consumed (110,000 + 48000 - 20000) 138,000

B. Changes in Stock (5000 + 3000) (8000)

C. Employees Benefit Exp. (30000 + 10000) 40,000
D. Finance Cost (2700 + 1000 - 1000) 2700

E. Depreciation (7000 + 4000) 11000

F. Other Expenses (10350 + 6040 -2000) 14390

Total B 198090
PBT (A-B) 61910
Current Tax (15000 + 4000) (19000)
D Tax (2000 + 1000) (3000)
PAT 39910

Share of P ltd (39910 – 2688) 37222

Share of NCI (8960 x 30%) 2688
Q. x 30%
Other Comprehensive Income :
i. Fair value Gain from
Investment in Subsidiary (1000 - 1000) 0
ii. Fair value Gain on other (500 + 250) 750
Investments 750
Share of P ltd. (750 - 75) 675
Share of NCI (250 x 30%) 75
Q. x 30%
CA-Final Financial Reporting 157

*Imp
Consolidated SOCE
While Preparing consolidated SOCE, the following points should be
considered :-
A. We can Prepare it under 3 headings :
i. Share capital
ii. R & S (other Equity)
iii. NCI*
*NCI can be calculated in a separate Note also

B. Take Share capital & Opening Balance in other Equity of Holding

Company only.
[Note : We will ignore Capital & other Equity on DOA of Subsidiary co.
because these Balances Got Eliminated against Investments
made by Holding in Subsidiary Under 103 Acquisition method
resulting GW/ C. Res.]

C. We will consider holding company’s Own Profits during the Period

And its share in Post acq Profits of Subsidiary company including
OCI.
D. NCI’ Share in Profits and OCI will be added to NCI Column

E. Eliminate Unrealised Profits on Inventory and PPE (if any) out of

Holding’ PL and NCI according to Nature of Transaction
(upstream/ Down stream)

F. Holding co. will Eliminate its share in Dividend in Subsidiary which

has been received By it during the year because we take Profit in
subsidiary before dividends.

G. DDT on Dividend Paid by Subsidiary will be deducted before it is paid

after Distribution of Profits.
CA-Final Financial Reporting 158

Consolidated Statement of changes in Equity of P ltd. with its

Subsidiary Q ltd. Other Equity
Share GRes. P&L FV Total NCI
Capital (RE) Res. Other
OCI Equity
(A) (B) (C) (D) (B+C+D)
Opening Balance
(1.4.x1) 20,000 100000 20,000 - 140,000 16500
10000 x30%
10
Profits during (300 x 55)
the year X1-x2 - - 37222 - 37222 2688
Share in OCI :
X1 - x2 - - - 675 675 75
Elimination of
Dividend - - (1680) - - (720)
Received
Dividend Paid
By P including
CDT - - (9350) - - -
Transfer to
Reserve - 20000 (20000) - - -
DDT Paid by
Subsidiary - - (280) - - (120)
Dividend
Income not
Yet Recorded in
PL of P - - 1680 - - -
20000 120000 27592 675 148267 18423
Consolidated B/S
I. Accounting on DOA
N. Assets a/c Dr 50,000
Goodwill a/c Dr 2500 (Bal fig)
To Cash 36000
To NCI 16500
CA-Final Financial Reporting 159
(Being Initial Recognition made)

II. Consolidated B/s of P ltd. with its Subsidiary Q ltd.

Non Current Assets :
i. PPE (117000 +45000) 162,000
ii. Goodwill (DOA) 2500
iii. Financial Assets :
Non Current Invest. (42500 + 1250 -*37000) 6750
Long Term Loan (10000 - 10000) 0

Current Assets :
1. Stock (35000 + 15000) 50,000
2. Financial Assets :
Receivables (10000 + 8000 - 3000) 15000

Cash (900 + 4230) 5130

Total 241380
Equity :
Share Capital SOCE 20000
Other Equity SOCE 148267
NCI SOCE 18423

Non Current Liab. :

Borrowings (30000 + 10000-10000) 30000

DTL (7000 + 2000) 9000

Long Provisions (4600 + 930) 5530

Current Liab. :
Trade Payable (8000 + 4000 - 3000) 9000

S.T Prov. (1050 + 110) 1160

241380
*Invest in Subsidiary
DOA 36000
FV 1000
37000
CA-Final Financial Reporting 160

*Part 15*

Part IV : Investment Entities

As per the Provisions of Ind AS 110, “Consolidated Financial

Statements are Exempted to An Investment Entity Even if It has a
Subsidiary.” An Investment Entity will measure its Investments in
Subsidiary as per Ind AS 109 at FVPL Model (FVOCI is not Allowed). The
Understanding about Investment Entities can be made only with the
Help of following Additional Concepts :-

Concept 1 : Meaning of Investment Entity

As per the provisions of Ind AS 110, An Entity can be classified as an

Investment Entity if It fulfils the following 3 conditions: -

Condition I: It takes funds from one or more Investors and It

Provides Investment Management services to its investors.
+
Condition II: It will Invest the raised funds from Investors in
Investments (e.g. Equity, debt etc) for “Capital
Appreciation & Investment Income”.
+
Condition III: It will measure its investments at fair value.

Concept 2 : Exit Strategy

As per the Provisions of Ind AS 110, An Investment Entity does not

Plan to hold its Investments for indefinite period. So, It should have
Exit Strategy from Perpetual Investments otherwise It cannot be
considered as an Investment Entity. If Investments have a
maturity date then Investment Entity will not require any Exit
Strategy.
Redeemable Irredeemable
securities Equity Deb. etc.
CA-Final Financial Reporting 161

Concept 3 : Earning on Investments

As per the provisions of Ind AS 110, the main objective of an

investment Entity For buying investments should be Earning on
Investments “through Appreciation or Investment Income,” but
there should not be Existence of any other Benefit. “It Means that
Investment Entity cannot take any other Benefit from
Investments for itself or for any other member in Group.” If it is
so then there will be no Exemption from consolidation.

Concept 3 : Rule for Parent of Investment Entity

If an Investment Entity has a Parent company which is not an

investment Entity itself then such Parent company will “Consolidate
Investment Entity and all Subsidiaries of Such Investment Entity.”
It can also be said that Exemption is available to an Investment co.
but not to its Parent co. which is non investment co.

E.g. A Ltd (Non Investment co.)

(.8)
B ltd (Investment co.)

X Ltd ( .60) y Ltd ( .70)

Solution :
1. B ltd. is Exempted from Consolidation
2. A ltd will consolidate B, X & Y (all)

Solution of Q.2, Q.3, Q.4 Discussed in Class

Solution of Q.1
Meaning of IE : write
All the conditions are satisfied in the Given case, So, It can be
classified as an Invest. Entity.
CA-Final Financial Reporting 162

*Imp
Concept 4 : If An Entity becomes An Investment Entity

If a Parent company which is already preparing Consolidated Financial

Statements With its Subsidiary and Such Parent company becomes an
Investment Entity then It Will Stop Preparing CFS from Such date.
It will derecognise its subsidiary as follows :

NCI a/c Dr xxxx (Carrying Amount)

*Investments a/c Dr xxxx (Fair value : Existing)
To N. Assets xxxx (Carrying Amount)
To GW xxxx (carrying Amount)
(Being Subsidiary de-recognised because Holding becomes An Invest.
Entity)
*Loss/ Gain in above Entry will be transferred to P&L A/c.

Solution of Q.5

Concept 5 : If an Entity ceases to be an Investment Entity

If an Investment Entity ceases to be an Investment Entity then

All Exemptions From CFS will stand withdrawn. The date of change in
Status will be considered as Deemed date of Acquisition and the
following Entry will be Passed :-

Apply 103 on Such Date : N. Assets Dr xxxx (Fair value)

GW (Bal fig) Dr xxxx
To NCI xxxx (I or II)
To Invest. xxxx (Fair value)
CA-Final Financial Reporting 163

*Part 16*

“Accounting for chain Holding”

E.g. A Ltd.
(A holds 80% Investment in B)
B Ltd 20% NCI
(B holds 70% Investment in c)
C Ltd 30% NCI
Calculate % of NCI in C ltd for consolidation in chain holding.

Solution

Calculation of NCI in C ltd.

Direct NCI (100% - 70%) 30%

Indirect NCI (70% x 20%) 14%
Total 44%

*The Remaining 56% will be given directly to A ltd.

Note : Now, we will not Give any share in C to B because we have

directly made Distribution of C to A & A’ NCI.

E.g. A Ltd. (80% in B ltd)

B Ltd (80% in c ltd)

C Ltd
Information relating to C : 1) DOA : SC + Res = 500,000
2) Post acq Profits : PL = 200,000
Information relating to B: 1) DOA : SC + Res = 1800,000
2) Post acq Profit : PL = 400,000

Cost of Investments : A made in B = 10,00,000

B made in C = 10,00,000
CA-Final Financial Reporting 164

Calculate GW/CR on DOA, Also calculate Holding company share in Post

Profits Assuming A’ R&S is having Balance of 15,00,000 and NCI on
closing Date.

Solution
Calculation of % of NCI in C ltd. & % of A ltd. in C ltd

Direct NCI in C ltd from B’ Point of view 20%

Indirect NCI in C ltd from A Point of view 16%
(80% from B in C x 20%) 36%
A share in C ltd (100 -36) 64%

Calculation of Required values in C limited

1. DOA (103) : N. Assets a/c Dr 500,000
Goodwill a/c Dr 480,000 (Bal Fig)
(A’ NCI has been To NCI (36%) 20 16 180000
cancelled in B’ To Invest/ Cash (64%) 800,000
Investment) 10,00,000 (10,00,000 x 80%)
80% A 20% A’ NCI
Note : A NCI will sacrifice their share in B Investment in C because
they have taken Direct share in C

2. Calculation of NCI : Initial DOA (36%) 180,000

Share in Post Profits 72000
(200000 x 36%) 252000

3. Holding PL : Own Balance of A 15,00,000

Share in C (200000 x 64%) 128000
1628000
Calculation of Required values in B ltd
DOA (103) : N. Assets a/c Dr 1800,000
To NCI x 20% 160000
(18L - 10L) invest in c
To Investments 10,00,000
To C. Res 640,000
(Being Initial Recog. Made)
CA-Final Financial Reporting 165

NCI = Initial 160,000

Share in Post (400,000 x 20%) 80,000
240,000

Holding PL = After Consolidation with C 1628000

Share in B (400000 x 80%) 320,000
19,58,000

DOA : bottom co. DOA : NCI of middle co.

Investment cost will be reduced (reduced by share in Investments

of Middle co. in Bottom co.)
From point of view of TOP Co.
*Imp
Solution of Q.70

W.N # 1 Calculation of % of NCI in SS and share of P in SS

Direct NCI in SS ltd form Point of view of S 25%

Indirect NCI in SS ltd from Point of view of P 15%
(75% of S in SS x 20% NCI in P)
Total NCI 40%

Share of P in SS ltd = 100% - 40% = 60%

Accounting Procedure for SS ltd.

i. Calculation of Post acq Profits

a) Reserves = Closing Balance 80 (31.3.x2)

Opening Balance 60 (1.4.x1)
Increase in x1 - x2 20 (12m)
Increase upto DOA (10) (20 x 6/12) 30.9.x1
Increase in Post acq Period 10
CA-Final Financial Reporting 166

b) P&L = Closing Balance 60 (31.3.x2)

Opening Balance (30) (1.4.x1)
Increase in X1- X2 30
Increase upto DOA (15) (30 x 6/12) (30.9.x1)
Increase in Post acq Period 15
Unrealised Profit (10L x 25/125) (2)
13

ii. Calculation of NCI in ss ltd

NCI on DOA (320 x 40%) 128

Share in Post acq Profits :
Res 10 x 40% 4
PL 13 x 40% 5.2
137.2

iii. Calculation of GW/ Cap Res. On DOA in SS

30.9x1
N. Assets a/c Dr 435 NA=Equity
To Cap Res. 83 (Bal fig) =SC + Res +PL
To NCI 128 =320+70+45=435
To Investments 224 (280 x 80%)
(Being initial Recognition made) P. share

iv. P’ Share in Post acq Profits of SS

1. Reserves : 10L x 60% = 6
2. P&L : 13L x 60% = 7.80

Accounting Procedure for S ltd.

1. Calculation of Post acq Profits (30.9.x1 - 31.3.x2)

Res PL
Closing Balance (31.3.x2) 100 50
Opening Bal (1.4.x1) (80) (20)
Increase (X1-X2) 20 30
CA-Final Financial Reporting 167
Increase upto 30.9.x1 (6/12) (10) (15)
Increasing in Post acq 10 15

2. Calculation of NCI

NCI on DOA (400 x 20%) 80

Share in Post acq. : Res 10 x 20% 2
PL 15 x 20% 3
Share of NCI in Investment of S ltd. (56)
(280 x 20%)
NCI 29

3. Calculation of GW/ CR on DOA

N. Assets a/c Dr 525 NA= Equity

To NCI 80 = SC + Res + PL
To Investment 340 = 400 + 90 + 35 = 525
To C. Res (Bal) 105
(Being initial Recog made)

4. P share in Post acq Profit :

Res 10 x 80% = 8
Pl 15 x 80% = 12

Calculation of consolidated Balances

1. P Res = 180 + share in SS : 6 + share in S : 8 = 194
2. P PL = 160 + 7.8 + 12 = 179.8
3. Total NCI = 137.2 (ss) + 29 (s) = 166.20
4. Total C. Res = 83 + 105 = 188
5. Total Other Equity of P = 194 + 179.8 + 188 = 561.8
6. Trade Payables = 470 + 230 + 180 = 880
7. B/R - B/P (Net = 72 + 30 - 70 - 30) = 2
8. Cash = 228 + 40 + 40 = 308
9. Receivable = 260 + 100 + 220 = 580
10. Stock = 220 + 70 + 50 -2 = 338
11. PPE = 320 + 360 + 300 = 980
12. Sc = P = 600
CA-Final Financial Reporting 168

*Part 17*
Solution 12
(i) As per the provisions of Ind AS 110, An Intermediate Parent can
be Exempted from preparation & presentation of CFS only if the
following conditions are satisfied :
a) It should not be a listed Entity
b) It should not be in listing process also
c) It should be a subsidiary of other Entity and It has informed
Its members that it is not preparing CFS and no member
has raised any objection.
d) Its ultimate parent company is preparing and presenting CFS
as per Ind AS.

In the Given case, GD ltd. is a Partly Owned Subsidiary of G Ltd

and wholly owned subsidiary of Gamma Ltd. If GD Ltd is assumed
to satisfy all the specified conditions as mentioned in above then
It can avail Exemption from preparing CFS.

(ii) If ultimate control is assumed with mr.x in the group then GD

Ltd can not avail Exemption from CFS because mr.x cannot
prepare and Present Consolidated Financial statements as per
Ind AS.
Note : Ind AS can not be applied as an Individual.

* Imp
Solution 13

W.N#1
Calculation of Net Assets of S Ltd.As at 1.4.x1

Share capital 5,00,000

Reserves (R.E.) 1,25,000
N. worth as at 6,25,000
1.4.x1
Add: fair value adjustment in plant 2,00,000
N. worth/N. Assets 8,25,000
CA-Final Financial Reporting 169

W.N#2
Calculation of PC as at 1.4.x1

Payment in cash 10,00,000

Payment in shares (2,00,000 shares x 1.80) 3,60,000
Deferred consideration (5,00,000 x .75) 3,75,000
PC 17,35,000

W.N#3
Calculation of GW/C Res as at 1.4x1

Purchase consideration (w.n#2) 17,35,000

Fair value of NCI 3,80,000
21,15,000
N. Assets (W.N#1) (8,25,000)
GW 12,90,000

Revised GW after impairment = 12,90,000 - 2,58,000 = 10,32,000 (B/S)

A NCI

W.N#4
Calculation of Post acq.Profits of S Ltd
(1.4.x1 - 31.3.x3)
Closing Balance as at 31.3.x3 3,00,000
Opening Balance as at 1.4.x1 (1,25,000)
Increase in R.E (2years) 1,75,000

Depreciation on F.V.Adjust. (80,000)

(2,00,000/5Y x 2Y)
Net RE 95,000
CA-Final Financial Reporting 170

W.N#5
Calculation of NCI as at 31.3.x3
NCI as at 1.4.x1 3,80,000
Share in Post acq. R.E. (95,000 x20%) 19,000
Share in GW Impairment (2,58,000 x 20%) (51,600)
NCI as at 31.3.x3 3,47,400

W.N#6
Calculation of consolidated R.E. of A Ltd.

Balance with A Ltd 14,00,000

Share in Post acq. R.E. (95,000 x 80%) 76,000
Share in GW Impairment (2,58,000 x 80%) (2,06,400)
Unwinding cost on Deferred consideration (78,750)
(37,500 + 41,250) Net R.E 11,90,850

W.N#7
Calculation of Deferred consideration as at 31.3.x3

Deferred consideration as at 1.4.x1 3,75,000

Add : Unwinding cost @10% for x1-x2 37,500
Deferred Consideration as at 31.3.x2 4,12,500
Add: Unwinding cost@10% for x2-x3 41,250
Deferred consideration as at 31.3.x3 4,53,750

W.N#8
Calculation of share capital & other Equity (A Ltd)
A. Share capital as per B/S 20,00,000
Shares issued in PC (2,00,000 x 1) 2,00,000
22,00,000

B. Other Equity : R.E (W.N#6) 11,90,850

Sec. Premium (2,00,000 x .8) 1,60,000
13,50,850
CA-Final Financial Reporting 171

W.N#9
Calculation of PPE
A Ltd. 55,00,000
B Ltd 15,00,000
F.v. Adjust 2,00,000
Depreciation (80,000)
71,20,000

Cons. B/S
Notes ₹
Non Current Assets :
i) PPE W.N#9 71,20,000
ii) Intangible Assets (GW) W.N#3 10,32,000

Current Assets
i) Inventory - 6,50,000
ii) Financial Assets :
a) T. Receivable - 6,00,000
b) C & CE - 2,50,000
Total 96,52,000

Equity:
Share Capital W.N#8 22,00,000
Other Equity W.N#8 13,50,850
Non controlling Interest W.N#5 3,47,400

Non Current Liab. - 34,00,000

Current Liab - 23,53,750
(12,50,000 +6,50,000+4,53,750) Total 96,52,000
CA-Final Financial Reporting 172

Solution 14
In the Given case, Angel Ltd. should consider pharma Ltd .as its
Subsidiary instead of an Associate because voting pattern shows
that Angel Ltd has control over Relevant Activities of Pharma ltd.
the company Angel Ltd. has 45% share (Directly and Indirectly) of
Pharma ltd and public has 52% shares , but 6% - 8% public is
Participating in AGM due to which Angel ltd. has become the biggest
shareholder while taking decision on Relevant Activities.

In the given case, Bank has also rights to take some decision
in pharma but those Rights are Protective Rights to secure the
Given funds and these rights do not impact the power of Angel Ltd.

So, pharma should be considered as a subsidiary of Angel Ltd.

Q.16, Q.17, Q.18, Q.19, Q.20, Q.21: Homework

Solution 22
In SFS : Bank a/c Dr 114 (80%)
Investment a/c Dr 28.5
To Investments (100%) 75
To Gain (Bal) 67.5
(Being Invest. Sold)

In CFS : Bank a/c Dr 114

Invest. a/c Dr 28.5
To N . Assets 120
To GW 15
To Gain (Bal) 7.5
(Being Subsidiary Derecognize)

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal
CA-Final Financial Reporting 173

Chapter 3 - IND AS : 28
Accounting for Associates in CFS *Imp
*Part 1*
Important Notes

1. The Provisions of Ind AS-28 are also applicable on Accounting

Joint ventures in CFS, but we will Discuss it in Next Topic. We will
be discussing Associates only in Current Topic.
2. While Preparing SFS of an Investor, we can not Apply Ind AS 28 for
Accounting of Investments in Associates because we will refer Ind
AS 27 for SFS which refers 109 for it. It means that we are covering
CFS of An Investor in Ind AS 28.

*Imp
Concept 1 : Legal Understanding

As per the Provisions of Companies Accounting Rules 2014, It

is mandatory for an Investor Company to Prepare Consolidates
Financial Statements whether it has a Subsidiary, an Associate or a
Joint Arrangement.

Note: It means Subsidiary is not Necessary for Preparing CFS because

CFS can be Prepared with an Associate or Joint arrangements
without having any Subsidiary as per Company Law. The Procedure
of consolidation may be different for all Entities because we
have different Rules under different IND-AS for all these
Entities.

Different Situations for CFS :-

‘’For Investor + Subsidiary = CFS under 103, 110
Reference Investor + Associate = CFS under 28
Only’’ Investor + Joint venture = CFS under 28, 111
Investor + Subsidiary + Associate + = 103, 110, 28, 111
J.V
CA-Final Financial Reporting 174

Concept 2 : Meaning of Associate

As per the Provisions of Ind AS-28, An Associate is a Company

in which ‘’An Investor has Power to Exercise *Significant Influence’’.

*Significant Influence means Power of Participation in Operating &

Financial Decisions of Relevant Activities

General Rule : If any Investor has 20% - 50% in voting Power of an

Entity then It is Generally assumed that It has
Significant Influence over such Entity. The Specified
Equity Interest can be acquired directly or Indirectly
through Subsidiary.
e.g. : X Ltd. 28 e.g. : X Ltd. 103, 110, 28
(Direct Invest.) 40% OR 60%
Y Ltd. (Indirect Y Ltd.
Invest.) 40%
Z Ltd.

Exceptional Rule for Participation

As per the Provisions of Ind AS-28, there may be some situations

where Participation can be Proved without Voting Power or with Less
than 20% Voting Power.
The following situations may be covered under this Rule :-

A. Technical Knowledge Assistance from other Entity

B. Interchange of Managerial Personnel
C. Material Transactions with other Entity
D. Representation on BOD

Note : In all above Points, It will be assumed that Participating

Companies have Significant Influence over the Entity.
CA-Final Financial Reporting 175

For Application of Equity Method under Ind AS-28, share in voting

Power is must. The above Associates are theoretical Associates only

(A-D)
Question 2, 3, 4, 5, 1, 13 (Imp), 14: Discussed in class
Q. 15, Q.16 : Homework

Concept 3 : Accounting for Associates in CFS under ‘’Equity

method’’

(Special Note : Under Equity method, Full consolidation is not allowed

as in case of Consolidation of a Subsidiary)

Step I : Initial Recognition will be made at cost identifying Goodwill

or Capital Reserve

Journal (CFS)
at cost
Investment is Associates Dr xxxx
To Bank xxxx
(Being Investments made in Associates)

W.N#
Calculation of GW/CR
Cost of Investments made xxxx
% Share in Net Assets at Fair value (xxxx)
+ GW
- Cap Res
CA-Final Financial Reporting 176

Cons. B/S (Extracts)

Non current Assets :

Financial Assets :
Investment in Associates :
Share in Net Assets xxxx
GW/C Res + xxxx xxxx

e.g.
i) D.O.A : 1.4.24
ii) % of shares acquired by x in Y : 40%
iii) COI : 25 Lacs
iv) N. Assets of Y on 1.4.24 : 40 Lacs

Apply Step I on initial Recognition

Solution :
Calculation of GW/C Res on 1.4.24

Cost of Investments 25,00,000

Share in N. Assets (40L x 40%) (1600000)
GW 900000

Cons. B/S (Extracts)

NCA :
Financial Assets
Investment in Y Ltd.
Share in N. Assets 16,00,000
GW 9,00,000 25,00,000
CA-Final Financial Reporting 177

*Part 2 *

Step II : Recognise share in Post-acquisition Profits/ Losses

Note : The Investor company should calculate its share in

Post acquisition Profit or Loss of Associate Company
for True & Fair Presentation of Investment in
Associate in CFS under Equity method.

Journal Entry

i) Share in Post acq. Profit : Investment in Associates Dr xxxx

To Cons. P&L xxxx
(Being share in Profits of Associates Co.
Recognised)

ii) Share in Post acq. Losses : Cons. P&L a/c Dr xxxx

To Investment in Asso. xxxx
(Being share in Loss Recognised)

Cons. B/S (Extracts)

Non current Assets :

Financial Assets :
Investment in Associates
Share in N. Assets (Fair value) xxxx
GW/C. Res. + xxxx
Share in Post acq. Profits xxxx
Share in Post acq. Losses (xxxx) xxxx

Not to be Presented in Exams

Equity :
Other Equity :
Cons. P&L : Balance in PL of Investor xxxx
Share in Post acq. Profits xxxx
Share in Post acq. Losses (xxxx) xxxx
CA-Final Financial Reporting 178

Step III : Adjust the Balance of Investment in Associate due to

Dividend Paid by Associate

Note : We will reduce the value of Investment in Associate

due to decline in Equity because of Dividend Distribution

Cons. B/S (Extracts)

Non current Assets :

Financial Assets :
Invest. in Associates
Share in N. Assets (Fair value) xxxx
GW/C. Res. + xxxx Net Retained
Share in post acq. Profits/Losses + xxxx Equity
Share in Dividend Paid (xxxx) xxxx

Q. 6
Solution :
Journal Entries

(i) Investment in Ram Ltd. Dr 10,00,000

To Bank 10,00,000
(Being Initial Recog. made at cost)

(ii) Investment in Ram Ltd. Dr 80,000

To Cons. P&L 80,000
(Being share in Post acq. Profit of Rs.200,000 @ 40% recognised)

(iii) Cons. P&L a/c Dr 40,000

To Investment in Ram Ltd. 40,000
(Being Decline in Investments recognised due to Dividend Paid of
Rs.100,000 @ 40%)

Note : Net Entry can also be shown for Profits & Dividends
CA-Final Financial Reporting 179

Concept 4 : Special Points while Applying ‘’Equity method’’

Case I : Share in Post acq. ‘’OCI’’

If Any Associate company Generates ‘’OCI’’ in Post acquisition Period

then the Investor company should also compute its share in ‘’OCI’’ of
Associate company as we calculate share in Normal Profits. The
Investor company will Pass the following Entry for Profits in the
nature of ‘’OCI”’ :

Journal : *Investment in Associates a/c Dr xxxx

To Cons. OCI xxxx
(Being share in OCI of Associate Recognised)

*vice-versa for ‘’OCI Losses’’

*Imp
Q. 9 [OCI & Normal Profits]

Investment in Associate Limited

(In Lacs)
Initial Recognition (1.4.2015)
Share in N. Assets (900 x 20%) 180
Goodwill (200-180) 20 200

Post acq. Adjustments :

a) 2015-16 : Share in Post acq. Profits (100 x 20%) 20
Share in Post acq. OCI (10 x 20%) 2
Share in Dividend Paid (100 x 20%) (20)
Investment in Associate as at 31.3.16 202

b) 2016-17 : Share in Post acq. Losses (40 x 20%) (8)

Share in Post acq. OCI (10 x 20%) 2
Share in Dividend Paid (100 x 20%) (20)
Investment in Associate as at 31.3.17 176
CA-Final Financial Reporting 180

31.3.16 31.3.17
Investment in Associates 202 176

*Decline in value = 202-176 = 26

*Imp
Case II : Elimination Unrealised Profits

If Intra Group Transactions have taken place between Investor

company & its Associate (Goods/Assets) then we will Eliminate
Unrealised Profits while Appling Equity method in CFS subject to
following Points :-

(i) There is No Concept of Upstream or Downstream Transactions

with Associates as we discuss in Ind AS 110.

(ii) The Investor company will Eliminate Unrealised Profits to the

Extent of its share in Associate only.

(iii) The Investor company will Eliminate its share in Unrealised

Profits only if there is some Closing Stock with Purchasing
company.
(iv) The Investor company will reduce the Balance of Invest. in
Associate due to Elimination of Unrealised Profits.

Journal : Cons. P&L Dr xxxx

To Investments xxxx
(Being Unrealised Profit Eliminated)

Q. 7 (Unrealised Profits)

Accounting for Investment in Sahu Ltd.

i) Share in Unrealised Profits = Rs.10,000 x 30% x 40% = Rs.1,200

(Stock) (GP) (Share)
Ratio in Asso.
CA-Final Financial Reporting 181

ii) Journal : Cons. P&L a/c Dr 1200

To Invest. in Associate 1200
(Being Elimination of Unrealised Profits made)

Q. 11 *Imp
Investment in Associates

A Ltd. B Ltd.
Share in N. Assets on DOA 180 630
Goodwill 20 20
Initial Recognition at cost 200 650
Share in Profit acq. Profits 16 36
(80 x 20%) (120 x 30%)

Elimination of Unrealised Profits :-

C. Stock x A Ltd. = (200 x *20%) x 20% (8) -
Profit Rate B Ltd. = (100 x *10%) x 30% - (3)
Investment as at 31.3.16 208 683

*A Ltd. = 500 – 400 x 100 = 20%

500

B Ltd. = 300 – 270 x 100 = 10%

300

Q. 12 [Unrealised Profits]
Investment in Associates
Share in N. Assets on DOA 130
Goodwill (150-130) 20
Cost of Investments 150

Share in Post acq. Profits (100 x 20%) 20

Elimination of Unrealised Profit on PPE (8.67)
50 Lacs x 130 Lacs x 20%
150 Lacs ______
Invest. as at 31.3.16 161.33
CA-Final Financial Reporting 182

*Part 3*

Q. 23 (Unrealised Profits)

Calculation of Stock Reserve to be Eliminated

Case I : Goods Sold by N Ltd. to M Ltd.

Unrealised Profit to = 4,00,000 x 10% x 40% = 16,000

be Eliminated
Unsold Profit Share
Stock Ratio in Associate

Case II : Goods sold by M Ltd. to N Ltd.

The calculation of Unrealised Profits, which is to be

Eliminated, will remain same as we have calculated in Case I because
there is no concept of Upstream or Downstream Transaction in Ind
AS-28. It means that It is quite irrelevant whether Goods are sold by
Investor to Associate or vice versa.

Q. 24 *Imp (2-4 marks)

Case I : Accounting in the books of X Ltd.

a) SFS : Journal
Bank a/c Dr 8,00,000
P&L (Loss on sale) Dr 2,00,000 (Bal. fig)
To Assets 10,00,000
(Being Assets De-recognised at Loss)

b) CFS : In the Given Case, X Ltd. has sold its Asset to Y Ltd. at
Loss. So, there is no Unrealised Profit for Elimination in
CFS.
CA-Final Financial Reporting 183

Case II : Accounting in the books of X Ltd.

SFS : Journal
PPE a/c Dr 8,00,000
To Bank 8,00,000
(Being Assets Purchased)

CFS : In the Give case, Y Ltd. (Associate/JV) has incurred a Loss of

Rs.2,00,000 at the time of Sale of Assets. Under Equity
method, X Ltd. will compute its share in Loss of Y Ltd. while
Preparing CFS as Follows :-

Cons. P&L a/c Dr 1,00,000 (2,00,000 x 50%)

To Investment in Y Ltd. 1,00,000
(Being Share in Loss of Associate recognised)

*V.V. Imp
Case III : Adjustment of Depreciation on Fair value

If Fair value of N. Assets is different from Carrying Amount of N.

Assets then Depreciation on Difference in values will also be
considered while Preparing CFS under Equity method. If Fair value
Exceeds Carrying Amount of Assets then Depreciation Exp. will be
deducted (Reduction in Profits) from Investments in Associates in
CFS because Depreciation will get increased due to Increase in value of
Assets.

*vice-versa Adjustment will be made if Fair value of Assets becomes

Less than Carrying Amt.
CA-Final Financial Reporting 184

Investment in Associate

Share in N. Assets (Fair value) xxxx

Goodwill/Cap. Res. + xxxx xxxx
Share in Post acquisition Profits/Losses + xxxx
Share in Dividend Paid (xxxx)
Share in OCI + xxxx
Elimination of Unrealised Profits (xxxx)
Depreciation Adjust. Due to change in value of
Assets:

i) If Fair value Exceeds C. Amt. (xxxx)

‘’Dep. to be charged’’
ii) If Carrying Amt. Exceeds Fair value xxxx
‘’Dep. to be Reversed’’ _____
Closing value of Invest. xxxx

Q. 8 (Dep. Adjust.)

Calculation of Closing value of Investment in D Ltd. on the Date of

‘’CFS’’

Initial Recognition :

Share in N. Asset (Fair value) 1,80,000

(6,00,000 x 30%)
Goodwill (2,50,000 – 1,80,000) 70,000 2,50,000

Share in Post acquisition Profits (1,00,000 x 30%) 30,000

Share in Post acq. OCI in Loss [(20,000) x 30%] (6,000)
Share in Dividend Paid (9,000 x 30%) (2,700)

Increase in Dep. due to increase in value of Assets (3,000)

6,00,000 – 5,00,000 x 30%
10Y _______
Closing of Investments 2,68,300
CA-Final Financial Reporting 185

Q. 20 (Dep. Adjust.)

Calculation of Closing value of Investments in ‘’CFS’’

Initial Recognition :

Share in Fair value of N. Assets 1,00,000

(4,00,000 x 25%)
Goodwill (125000-100000) 25000 1,25,000

Share in Post acquisition Profits (40,000 x 25%) 10,000

Share in Post acquisition OCI Income (10,000 x 25%) 2,500
Depreciation Adj. (4,00,000 – 3,00,000) x 25% (1250)
20 years ______
Closing value of Investment in CFS 1,36,250

*Imp
Q. 10 (Dep. Adjust.)

Calculation of Closing value of Investments

Initial Recognition :
Share in N. Assets at Fair value 200L
(1000Lacs x 20%)
Goodwill (210-200) 10L 210L
Share in Post acq. Profits (80L x 20%) 16L
Increase in value
Depreciation Adjust. (35L x 200L) x 20% (3.5L)
400L ______
Closing value of Investments 222.50
CA-Final Financial Reporting 186

Q. 18
Journal Entries
(In CFS of A Ltd. : Investor)
(i) Investment in B Ltd. Dr 1,00,000
To Bank 1,00,000
(Being Investments made in Associate)

(ii) Investment in B Ltd. Dr 3,000

To Cons. P&L (10,000 x 25%) 2,500
To Cons. OCI (2000 x 25%) 500
(Being Share in Post acq. Profits recognised)

Note : We have ignored the amount of declared dividend because we

consider only Paid dividends while Preparing CFS under Equity
method.

*Imp
Case IV : Investment if Classified as Held for Sale

If the Investor company wants to sell its investments in Associates

and Declares at as ‘’Held for Sale’’ then It will discontinue the
application of Ind AS 28 and It will recognise such an Investment
under Ind AS 105 in SFS.

Exception
In case the Investor company still wants to keep some
Investments out of Total Investments then we will Apply the
following Ind AS on Retained Portion:-

Retained Investments

Case I : If Retained shares Case II : If Retained shares

are 20% or more are Less than 20%

SFS : 109 CFS : 28 SFS : 109 ‘’CFS : No’’

Need
CA-Final Financial Reporting 187

Q. 27
In the Given case, Ram Ltd. has 50% shares of Sham Ltd. out of which
It wants to sell 10% shares. As per the Provisions, Ram Ltd. should
classify these (10%) shares as NCA Held for sale under Ind AS 105. The
Ram Ltd. should continue the Application of Ind AS 28 on remaining
40% Shares.

*Part 4*

*Imp
Case V : Investments in Associates if Held by an
‘’Investment Company’’

As per the Provisions of Ind AS-28, An Investment Entity is

Exempted from Application of Equity method in CFS if It has
Significant Influence in other Entity. In the Given case, It will value
its Investments in Associates as per Ind AS 109 : FVPL method.
[Same concept we had studied in Ind AS 110]

Exception
If any Equity Interest is held by a Non Investment Entity in
the Group with an Investment Entity then It will follow the Normal
Accounting Procedure.

Important Note :
On the basis of Given Explanation in above Exception, It can be said
that Investment Entities shall follow 109, but Non Investment
Entities shall follow Ind AS 28 Even if these Entities are working in
Same Group.

e.g. X Ltd. Invest. Co. e.g. X Ltd. Invest. Co.

60% 60%
Y Ltd. Non Invest. Co. 10% Y Ltd. Non Invest. Co.
40% 10%
Z Ltd. Z Ltd.
CA-Final Financial Reporting 188

60% 10%
X = 109 on Investment in Y X = 109 on Invest. in Y & Z
Y = 28 on Investment in Z Y = 28 on Z Ltd.

*Exemption from Equity method can not be claimed by Non

Investment Companies .

Q. 19 : Homework

Q. 29 *Imp

Case I : P

X Y
(S1) (S2)

25% 20%
Z

In the Given case, Group holds 45% shares in Z Ltd. out of which
25% Interest in Z Ltd. is held by X Ltd. and remaining 20% is held by Y
Ltd. The company X Ltd. is an Investment Company because It is
venture capital organisation. So, X Ltd. will Apply 109 : FVPL on its
Investment in Z Ltd. , but Y Ltd. is a Non Investment Company which
will Apply Equity method for its 20% Investments in Z Ltd.

Case II : P

X Y
(S1) (S2)

10% 10%
Z

Home work
CA-Final Financial Reporting 189

Case II : P

X Y
(S1) (S2)

30% 10%
Z Ltd.

Home work

Q. 28 (General question)

Calculation of Closing value of Investment in XYZ Ltd. in CFS as at

31.3.2020

Initial Recognition :

Share in Fair value of NA (1,10,00,000 x 35%) 38,50,000

Goodwill (47,50,000-38,50,000) 9,00,000 47,50,000

Share in Post acq. Profits (8,00,000 x 35%) 2,80,000

Share in Post acq. OCI (2,00,000 x 35%) 70,000
Share in Dividend Paid (12,00,000 x 35%) (420000)
Share in Dep. Adjustment (20,00,000 x 35%) (70000)
10Y
Closing value of Invest. in CFS 46,10,000

Q. 30 : Discussed in class

Case VI : De-recognition of Associates in CFS

Journal
(At the time of Sale of Associate)
CA-Final Financial Reporting 190

Bank a/c Dr xxxx (Sold Portion)

Investment a/c Dr xxxx (Retained Portion at fair value)
To Investment in Associate xxxx (Carrying Amt. in CFS)

*Diff. in Entry will be a Gain or Loss on De-recognition and It will be

transferred to ‘’P&L’’

Q. 26 (Sale of Associates/De-recognition of Associates)

Journal : Bank a/c Dr 80,000 (Sold)
Investments a/c Dr 120000 (Fair value : Retained)
To Investment 100000 (CA)
To Gain (P&L) 100000 (Bal. fig)
(Being Investment in Associate/JV De-recognised)

Q. 21 : (Adjustment of Pref. Dividend)

Calculation of KL Ltd. share in Post acq. Profits of MN Limited

Profits Earned by MN Ltd. Rs.4,00,000

Profit to be set aside for cumulative PSC (Rs.1,00,000)
@ 10% on 10,00,000 ____________
Net Profit available for Equity holders Rs.3,00,000

KL Ltd. Share in MN Ltd. @ 50% Rs.1,50,000

Journal : Investment in MN Ltd. Dr 1,50,000

To Cons. P&L 1,50,000
(Being share in Profit recognised)

Q. 22
Impact on CFS of A Ltd. due to Sale of Investments by its Associate
B Ltd.

In the Given case, B Ltd. has Earned 100Lacs on Sale of Investment

in which A Ltd. will compute its share under Equity method. So,
Investment in B Ltd. in CFS will be increased by 20Lacs (100 x 20%)
CA-Final Financial Reporting 191

Journal : Invest Dr 20L

To Cons. P&L 20L
(Being share in Profit recognised)

Q. 17 : Homework (Same 110)

*Part 5*

*Imp
Case VII : Adjustment of Losses in Associates

If share in Losses of an Associate Exceeds Carrying Amount of

Investment in Associates then the Investor can recognise its share
in Losses to the Extent of Carrying Amount only and Excess of
Losses over Carrying amount will remain ‘’Unrecognised’’. It means
that Investment in Associate will be reported at ‘’NIL’’ value.

Important Note

In case the Associate Company reports Profits in Subsequent Periods

then share of Investor company in Profits of Associates will be
Adjusted against Unrecognised Losses firstly. If share in Profit
Exceeds Unrecognised Losses only then Investment in Associate will
be shown at Positive value to the Extent of Excess Profits after
Covering up Unrecognised Losses.

e.g.
i) Initial Cost : 20,00,000
ii) Share in Profit/Loss :
Ist year : Profit 200000
IInd year : Loss 2300000 [Major fire in Asso.]
rd
III year : Profit 1,10,000

Show closing value of Investment in Associate at the end of each

year.
CA-Final Financial Reporting 192

Solution :
Investment in Associates

Initial Recognition 20,00,000

Ist year : Share in Profits 2,00,000
Closing value at the end of Ist year 22,00,000
IInd year : Share in Losses (23,00,000)
_______
Closing value at the end of 2nd year *NIL
[*Unrecognised Loss = 1,00,000]

IIIrd year : Share In Profits 110000

Unrecognised Losses (100000) 10,000
Closing value of Investments at the end 10,000
of 3rd year

*V.V. Imp
Case VIII : Adjustment of Losses in Associate company
against other Investments

e.g.
X Ltd. has following Investments in its Associate :-

i) Investment in Equity shares : 10,00,000 -8=2-2

ii) Investment in Pref. shares : 5,00,000 -5
iii) Investment in Debentures : 2,00,000 -2
1 UR

Share in Profits/Losses under equity method :

Ist year : Share in Loss 8,00,000

IInd year : Share in Loss 10,00,000
IIIrd year : Share in Profit 15,00,000

Show closing value of Investments for all years

CA-Final Financial Reporting 193

Solution :
Statement showing Closing value of Investments

` Debentures PSC Equity shares

Carrying Amount 2,00,000 5,00,000 10,00,000

Share in Losses (Ist

year) - - (8,00,000)

Closing value of Invest.

at the end of Ist year 2,00,000 5,00,000 2,00,000

Share in Losses (IInd - - (*2,00,000)

year)
*Unrecognised Loss =10
-2 =8L

Allocation of
Unrecgnised Losses (200000) (5,00,000) -
over other Invest.
*Unrecognised Loss = 8
-5-2 = 1L __________ __________ ______________

Closing value at the end

of 2nd year NIL NIL NIL

Add: Share in Profit 15L

Unrecognised (1L)
Losses
Balance Profit 14L 2,00,000 5,00,000 7,00,000
___________ __________ (Bal. fig)
Closing value at the end 2,00,000 5,00,000 7,00,000
Of 3rd year
CA-Final Financial Reporting 194

If Investor company has other Investments as well in

Associate company then Unrecognised Losses under Equity method
shall be adjusted against Carrying Amount of other Investments If
Associate company reports Profits subsequently then It will be
Added to Carrying Amount of Investments in the order of solvency
after adjusting Unrecognised Losses.

Important Note

“Carrying Amount of other Investments will be taken from SFS after

Applying Ind AS 109 before adjusting share in Unrecognised Losses.

Q.25 *V.V.Imp

Statement showing Closing value of Investments at the end of Each

Year

At the end of Ist year:-

Loan PSC Equity Shares
Opening Values 300,000 500,000 10,00,000
Fair value Loss under 109 (50,000) (50,000) -
SFS
Revised carrying Amount 250,000 450,000 10,00,000
Share in Losses under
Equity method - - (16,00,000)
*Unrecognised Loss :6L
(16-10)
250,000 450,000 *Nil
Adjustment of Unrecog.
Loss of Rs.600,000 (150,000) (450,000)
Closing value at the end
of Ist year 100,000 Nil Nil
CA-Final Financial Reporting 195

At the end of 2nd year

Loan PSC ESC
Opening values 100,000 Nil Nil
Shares in Losses:
Equity method 200000
F.V Loss on P.S.C 50000
250000
Recognised Loss (100000) (100,000) - -
Unrecog. Loss 150000

Closing value at the end Nil Nil Nil

Of 2nd year

At the end of 3rd year:

Deb PSC ESC
Opening Value Nil Nil Nil
(Unrecog. Loss 150000)
F.V Gain (109) 50,000 100,000 -
Adjust. Of opening (50,000) (100,000) -
Unrecog. Loss
Closing Value Nil Nil Nil

At the end of 4th year

Opening Value Nil Nil Nil

F.V Gain - 50,000 -
Share in Profit of Rs.10L 300,000 500,000 200,000
(Bal. fig)
Closing Value 300,000 550,000 200,000

At the end of 5th year

OB 300,000 550,000 200,000

F.V Gain - 30,000 -
Profit Share - - 10,00,000
Closing Value 300,000 580,000 12,00,000
CA-Final Financial Reporting 196

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal
CA-Final Financial Reporting
197

Chapter 4 - IND AS 111

JOINT ARRANGMENT
*Part 1*

Coverage

Joint Arrangements

Joint Operations Joint Ventures

(Ind AS 111) (Ind AS 28)

Concept 1 : Meaning of Joint Arrangement

As per the Provisions of Ind AS 111,“Joint Arrangement is a contractual

Arrangement whereby Two or more Parties obtain Joint Control over
relevant Activities of an Entity.” The following Additional Definitions
should also be understood :-

A. Meaning of Contractual Arrangement : As per the Provisions of Ind

AS 111, Two or More Parties must be bound by a Contractual
Arrangement. The contract may be in written form between the
Parties or Evidenced by Articles of Association or Voting Pattern
Agreement as per Recent meetings etc.

B. Meaning of Joint Control : As per the Provisions of Ind AS 111, Joint

Control Means Two or more Parties will take decisions about
“Relevant Activities” of an Entity with Unanimous Consent. It can
also be said that No Investor can take decisions in his own capacity.
It means that one Investor can block other Investor from taking
decisions. So, Two or more Investors are required to Exercise
control.
CA-Final Financial Reporting
198

C. Meaning of Relevant Activities :

- We have already discussed it in Ind AS 110 -

“Refer Q.1 – Q.13 for Understanding of Joint Control”

Solution of Q.1, Q.2, Q.3, Q.4, Q.5, Q.6, Q.7, Q.8, Q.9, Q.10, Q.11, Q.12, Q.13
Discussed in Class
*Part 2*

Concept 2 : Types of Joint Arrangement

Types

1 Joint Operation 2 Joint Venture

(Ind AS 111) (Ind AS 28)

How to Identify Joint Operation & Joint Venture in a Joint

Arrangement
Joint Arrangement

If Joint Arrangement is not If Joint Arrangement is a

a Separate Vehicle/Entity Separate Vehicle/ Entity

It means that Joint

Arrangement cannot It’s a corporate It’s a non
hold Assets & Liab Entity corporate
in its Name Entity
It can hold Assets (i.e.,
Joint Arrangement is a & Liab. in its Name Partnership
“Joint Operation” & because company is a firms)
Investors shall be called Separate Legal Entity
as “Joint Operators” It cannot hold
It’s a “Joint Assets & Liab.
Venture”And in its Name &
CA-Final Financial Reporting
199
Investors are Partners are
“Venturers” Directly
Responsible for
all Activities due
To unlimited Liab.

It’s a “Joint Operation”

Solution of Q.14, Q.15, Q.16, Q.17 Discussed in Class

Solution of Q.18

The Given Case is a Joint Operation because Investors have direct

share in Assets & Liab.
*Imp
Exception to Corporate Entities

If the following 2 conditions are satisfied then we will assume a Joint

venture in the Form of Joint Operation even if Separate vehicle is a
company :- Joint Arrangement
I. If Output of company is directly shared by Investors (i.e., It
means that Investors have direct Involvement in Economic
Benefits of Company)
II. If Company is Economically dependent on Investors (i.e., Price of
output is also Controlled by the Investors)
Joint Arrangement
Solution of Q.19 (Imp)( 3-4 Marks), Q.20 Discussed in Class
Joint Arrangement
Concept 3 : Accounting for Joint Operations
(In SFS and CFS of Operators)

There is no separate vehicle in case of Joint Operations due to which we

cannot show Investment in Shares in SFS as we show in case of
Investment in Subsidiaries, Associates or J.V. The Accounting will be
same in the books of Joint Operator whether these are SFS or CFS. We
will Apply “Proportionate Consolidation method” for calculating
Proportionate share of Operator in Joint Operation.
CA-Final Financial Reporting
200

➢ Calculate Proportionate share in Assets of J.O

➢ Calculate Proportionate share in Liab of J.O
➢ Calculate Proportionate share in Incomes of J.O
➢ Calculate Proportionate share in Expenses of J.O

Solution of Q.21

Statement Showing P Share in Assets & Liab of PQ

Machinery (100%) 250,000

Cash (50000 x 50%) 25000
Bank Loan (75000 x 100%) 75000
Other Loan (75000 x 50%) 37500
Capital (As per Study Mat : 150000 x 50%) 75000

Solution of Q.22

Calculation of AB ltd. Share in Assets & Liab of PQR

Building 1 (240 x 100%) 240

Building 2 (200 x 50%) 100
Cash (40 x 50%) 20
Employees Benefit Plan (100 x 50%) 50
Loan (XYZ) (240 x 100%) 240
Equity (140 x 50%) 70
*Imp
Concept 3 A : Accounting for Transactions between Operator
& Joint Operation

If A Joint Operator Sells or Purchases an Asset to/by Joint Operation

then Operator will record the transaction to the Extent of other
Operator share in Joint Operation.
CA-Final Financial Reporting
201

Solution of Q.23
In the books of A
Bank/ other Operator a/c Dr 32 (80 x 40%)
Loss on sale Dr 8 (20 x 40%)
To Asset 40 (100 x 40%)
(Being Asset sold to other Operator)

Solution of Q.24
In the books of A

Asset a/c Dr 32 (80 x 40%)

To Bank 32 (80 x 40%)

Loss of 20 will be shared by Both Operators in ratio of 60:40

Concept 4 : Accounting for Joint Venture

FVPL
i. In SFS of Investor : Ind AS 109 or
FVOCI
ii. In CFS of Investor : Ind AS 28 (Equity Method)
(Refer all questions done for Associates)

* Imp *Part 3*
Solution of Q.88 [IND AS 103 mixed with Ind AS 111]
(iii) Calculation of N.Assets
(Acquired by x Ltd from z Ltd)

PPE (5,00,000 x 1/3rd ) 1,66,667

ROU Assets (20,000 x 1/3rd ) 6,667
CWIP (2,00,000 x 1/3rd ) 66,667
Loan Receivable (50,000 x 1/3rd ) 16,667
Stock (30,000 x 1/3rd ) 10,000
Trade Receivable (1,00,000 x 1/3rd ) 33,333
Other C. Assets (50,000 x 1/3rd ) 16,667
Total Assets 3,16,668
CA-Final Financial Reporting
202

Provisions (2,00,000 x 1/3rd ) 66,667

Other Liabilities (1,00,000 x 1/3rd ) 33,333
Trade Payables (2,00,000 x 1/3rd ) 66,667
DTL : 30,000
*Tax Base (PPE + WIP) 4,00,000
Fair value (PPE + WIP) 7,00,000
Diff 3,00,000 x 30% x 1/3rd
*Assumed Equal to Carrying Amt
Total Liab 1,96,667
Net Assets (A-L) 1,20,001
PC 1,00,000
Cap. Reserve (1,20,001-1,00,000) 20,001
(OCI)

Journal
(In the books of x co.)

30.6.x1
PPE a/c Dr 1,66,667
ROU Asset a/c Dr 6,667
CWIP a/c Dr 66,667
Loan Receivable a/c Dr 16,667
Inventory a/c Dr 10,000
T. Receivable a/c Dr 33,333
O.C. Assets a/c Dr 16,667
To Provisions 66,667
To other Liab. 33,333
To Payables 66.667
To D.T.Liab. 30,000
To Cash (PC) 1,00,000
To Cap Res (OCI) 20,001 (W.N#1)
rd
(Being 1/3 of business of L aquired)

(iv) B/S of x = HW
CA-Final Financial Reporting
203

(iii) Acquisition Date

In the Given Question, Acquisition Date should have been identified on

the date of sale agreement between the parties which is 31.5.x1, but
Govt. Approval is mandatory for Modification in Joint Venture due to
which Acquisition Date should be considered 31.6.x1

(i) Identification of Business

Acquisition or Asset Acquisition

In the Given Case, Company x and company y have acquired business

From company 2 instead of Asset Acquisition. The company 2 has
Participating Rights in AWM/01 Block which has input in the form of
workforce and machinery and substantive process in the form of
Exploration of oil. So we should consider the transaction of Business
Acquisition.

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal
CA-Final Financial Reporting 204

Chapter 5 - IND AS 27
SEPARATE FINANCIAL STATEMENTS
*Part 1*

Ind AS 27 : Accounting for Investments in Subsidiary, Associate or J.V

in SFS of Investor
Investor

Separate Financial Statements Consolidated Financial Statements

For Accounting of Investments 1 If Investor has Subsidiary :

In SFS of Investor Apply 110
whether it is a Subsidiary, 2 If Investor has an Associate:
Associate or J.V : Apply 27 Apply 28
3 If Investor has a J.V :
Apply 28
Accounting Rule

Rule : An Investor will Apply Ind AS 109 for Accounting for Investments
in SFS for S/A/JV “On Fair value basis”

Exception

If any Investment is held for sale under Ind AS 105 then Carrying
Amount will be taken as value

Accounting for Dividends from Investee

Investor will Transfer the Dividends to P&L as an Income whenever it

has certainty To collect the Dividends
Declaration in AGM
Accounting for Investments held by Investment Entity

- Please watch video No. 15 Given in 110 -

CA-Final Financial Reporting 205

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal
CA-Final Financial Reporting 206

Chapter 6 - IND AS 112

DISCLOSURES (Notes to A/c)
*Part 1*

Disclosures (Additional)
Stand Alone
Separate Financial statements Consolidated Financial Statements

I. Additional Disclosures in Notes to A/cs in SFS

a) If an Entity avails Exemption from consolidation then Disclosures

should be Given about such Exemptions.

b) List of Significant investment in :-

i. Subsidiaries
ii. Associates
iii. Joint Venture (J.V)
iv. Joint Operation (J.O)

c) Basic Information regarding Subsidiaries, Associates or Joint

Arrangements as Follows :-
i. Name
ii. Principal Place of Business
iii. Proportion of Ownership
d) Method of Accounting

II. Additional Disclosures in CFS to be made

a) Regarding Subsidiary
b) Regarding Associate & J.V
CA-Final Financial Reporting 207

a. Subsidiary
i. Name of Subsidiaries
ii. Principal Place of Business
iii. % of Ownership
iv. Method used to determine control
v. NCI (Method)
vi. Dividend Paid
vii. Inter Company Eliminations

b. J.V & Associate

i. Name Asso.
ii. Nature of Relationship JV
iii. Principal Place of Business JO
iv. % of Ownership
v. Equity Method or FV

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal