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Financial Accounting

Ind AS 103- Business Combinations

Presented to: Ms. Sheetal Thomas

Lecturer, I2IM, CHARUSAT

Done by: Jay Ravailya-14BBA054

Sachin Patel-14BBA048
Krishna Patel- 14BBA062
Overview of Presentation
Definition and Scope
The Acquisition Accounting Process(7 Steps)
Accounting for Common Control Business Combinations
Difference between AS 14(Accounting for Amalgamations) and Ind AS
103(Business Combinations
History of the standards
IFRS 3 global
Issued 1983 IAS 22 Accounting for Business Combination (Issued by IASC)
Revised 1998 IAS 22 Business Combination (IASC)
2004 IFRS 3 Business Combination (Issued by IASB)

AS 14 (IGAAP) India
Issued 1994 Accounting for Amalgamations

Ind AS 103 (Ind AS) India

Notified on 16th February 2015
Definition of Business
Business: An integrated set of activities and assets that is capable of being
conducted and managed for the purpose of providing a return in the form
of dividends, lower costs or other economic benefits directly to investors or
other owners, members or participants.

Ability to
Input Process Output(Gener
ate Revenue)

Does the acquired set of Assets and Process meet the definition of
If goodwill is present in a transferred set of activities and assets, the
transferred set shall be presumed to be a business.
Definition of Business Combination
Business Combination: A transaction or other event in which an acquirer
obtains control of one or more businesses.
If an entity acquires an asset or a group of assets, including any liabilities
assumed, that does not meet the definition of a business, then the
transaction is not a business combination.
Ind AS 103, Business Combinations applies to all Business Combinations
and is also applicable to businesses under common control
However it is not applicable to:
Accounting for the formation of a joint arrangement in the financial
statements of the joint arrangement itself
Acquisition of an asset/ group of assets does not constitute a
business( cost allocated to assets/liabilities on the basis of their relative
fair values at the date of purchase). Such a transaction does not give
rise to goodwill.
The Acquisition Accounting Process
1. Identify the Acquirer
2. Determine the acquisition date
3. Identify and measure consideration transferred
4. Indentify and measure identifiable net assets
5. Measure non-controlling interest(NCI)
6. Determine goodwill or gain on a bargain purchase
7. Recognize any measurement period adjustments
Step 1: Identify the Acquirer
The acquirer is the entity that obtains control of the acquiree
Use Ind AS 27, Consolidated Financial Statements to determine who has
control, hence consideration of factors identified in Ind AS 103:
Relative voting rights in combined entity
Existence of large minority voting interest in combined entity
Composition of governing body and senior management of combined
Terms of exchange of equity interest
Relative size entities
Shareholders of Hyper Ltd
of wiper Ltd (50%)

Cyber Ltd

The chairman of wiper Ltd is appointed as the chairman of cyber Ltd.

Step 2: Determine the Acquisition Date
The acquisition date is the date on which the acquirer obtains control of
the acquiree
Date on which fair values of identifiable assets acquired and liabilities
assumed are determined and goodwill is measured.
Date from which profit or loss and other comprehensive income of the
acquiree is included in the consolidated financial statements of the acquirer
Implementation Issues:
Designating an effective date of acquisition
Shareholder approval
Regulatory approval
Public offers
Acquirer consulted on major decisions
Date of acquisition in business combination achieved in stages
Step 3: Identify and Measure Consideration
Consideration transferred is measured at fair value on the acquisition date,
and includes: Assets transferred, Liabilities incurred to previous owners
and Equity interest issued
Acquisition-related costs are excluded from the consideration transferred,
and expensed as incurred.
Costs related to issue of equity or debt recognized in accordance with
financial instruments standard.
Contingent consideration is an obligation of an acquirer to transfer
additional assets or equity interests to the former owners of an acquiree as
part of the exchange for control if specified future events occur or
conditions are met.
Recognized at fair value at acquisition date
Classified as liability or equity according to Ind AS 32
May be an asset
Factors to assess whether a transaction is part of a business combination
or is a separate transaction are:
The reason for the transaction
Who initiated the transaction
The timing of the transaction
Transaction entered into primarily for the benefit of the:
Acquiree/former owner- Likely to be a part
Combined entity Likely to be separate
Settlement of the pre-existing relationships
Remuneration of employees or former owners of the acquiree for future
Reimbursement of the acquiree or its previous owners for paying the
acquires acquisition related costs.
Step 4: Measure Identifiable Net Assets
Definition of asset/liability at the acquisition date
Must be exchanged as a part of acquisition instead of a separate
Contingent liability(exception)
Consider deferred tax impact
at fair value at acquisition date
The acquirers application of the recognition principle and conditions may
result in recognizing some assets and liabilities that the acquiree had not
previously recognized as assets and liabilities in its financial statements.

Charged related cost

Brand name Developed internally
as expense
Step 5: Measure non-controlling interest
NCI are measured at:
Their proportionate interests in fair value of identifiable net assets
Fair value
Should be done transaction-by-transaction basis
Step 6: Determine Goodwill or gain on
Bargain Purchase
1: NCI measured at fair value
Fair value of
Consideration NCI at fair net
Goodwill Transferred value identifiable

2: NCI measured at their proportionate interest

in identifiable net assets
Fair value of
Consideration NCI based on net
Goodwill Transferred net assets identifiable
Step 7: Recognize any measurement period
Measurement period is a period after acquisition date when an entity can
adjust preliminary business combination accounting
If new information obtained about facts and circumstances that existed
at acquisition date
Ends when information obtained or determined not available
Cannot exceed one year
Common Control business combination
It involves entities in which all the combining entities are ultimately
controlled by the same party/parties before and after the business
combination, and control is not transitory.
The accounting is done using pooling of interest method
Pooling of interests is a method of accounting that allows the balance
sheets of two companies to be added together during an acquisition or
merger. Pooling of interests is one of the accounting methods that
companies can choose to employ when combining assets.
Difference between IFRS 3 and Ind
AS 103

IFRS 3 Ind AS 103

IFRS 3 require such gain to be Ind AS 103 on this and such

taken to profit and loss account gain treated as capital
Gain on Bargain where as there is a carve out in reserve only.

IFRS 3 excludes from common Ind AS 103 require such

control business combination combination to be accounted
from its scope. using pooling of interest
Method method.
Ind AS 103 vs AS 14
Ind AS 103 AS 14

Ind AS 103 defines a business AS 14 only deals with

Scope combination which has wider. amalgamation.

Ind As 103 prescribe only Paragraph 7 of AS 14 states

acquisition method for every two method of accounting
Method of combination. for amalgamation
accounting Pooling of interest method
and Purchase method.

Ind AS 103 requires the As per Paragraph 12 of AS

acquired identifiable assets 14 there is a choice of Book
Recognition of net liabilities and non controlling value or Fair value.
Assets acquired interest to be recognised at fair
value under acquisition method.
Ind AS 103 vs AS 14

Ind AS 103 AS 14

Ind AS 103 deals with AS 14 does not prescribe

accounting for common accounting for such
Common control control transactions, transactions different from
transactions which prescribes a method other amalgamations.
of accounting different
from Ind AS 103.
Ind As 103 deals with the existing AS 14 does
reverse acquisitions. not deal with the same
Reverse acquisition