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Financial Reporting · Ind AS 103 Business Combinations

Business Combinations Under Common Control (Ind AS 103 Appendix C)

Updated 5 October 2026

A common control business combination is one where all combining entities are ultimately controlled by the same party both before and after the combination, and that control is not transitory. Ind AS 103 Appendix C requires the pooling of interests method: carry over book values, restate comparatives, and transfer the difference to capital reserve. No goodwill arises.

Understand Business Combinations Under Common Control

A business combination under common control is a combination in which all the combining entities or businesses are controlled by the same party or parties both before and after the combination, and that control is not transitory. Typical cases are a parent merging two of its subsidiaries, or a parent absorbing a subsidiary.

The acquisition method of Ind AS 103 does not apply here. Nothing changes for the group as a whole. The same ultimate controller owns the same net assets before and after. So no fair valuation, no new goodwill and no bargain purchase gain is recognised. Appendix C prescribes the pooling of interests method instead.

Under this method, the transferee records the assets and liabilities of the transferor at their existing carrying amounts, as they appear in the transferor's books. If the two entities follow different accounting policies, the policies are made uniform and the effect is adjusted in reserves. No new assets or liabilities are recognised, except as needed to align policies.

The financial information in the financial statements in respect of prior periods is restated as if the combination had occurred from the beginning of the preceding period presented in the financial statements, irrespective of the actual date of the combination. If common control was obtained after that date, the prior period information is restated only from the date common control was obtained.

The difference between the consideration and the amount of share capital of the transferor is not goodwill. Appendix C requires the identity of the reserves to be preserved, so the transferor's reserves appear in the transferee in the same form. It also says the difference between the amount recorded as share capital issued (plus any additional consideration in cash or other assets) and the share capital of the transferor is transferred to capital reserve, presented separately from other capital reserves, with its nature and purpose disclosed in the notes.

If the consideration exceeds the transferor's share capital, the difference is a debit. Appendix C does not spell out this debit case separately. It only says the difference is transferred to capital reserve. Some exam questions instruct you to adjust the debit against the transferee's reserves, capital reserve first and then other reserves. Treat that as an exam convention under the question's instruction, not as a rule of the standard.

This is the key difference from IFRS 3, which excludes common control combinations from its scope entirely.

Key rules to remember

Common control test
Same party controls all combining entities before AND after the combination, and control is not transitory
If this fails, apply the acquisition method instead.
Carrying amounts
Transferee records transferor's assets and liabilities at existing book values
No fair value, no new intangibles or goodwill. Policies are aligned if they differ.
Difference on pooling
Difference = Share capital issued (plus any cash or other consideration) − Share capital of transferor
Do not call it goodwill. Under Appendix C it is transferred to capital reserve, shown separately from other capital reserves. It is a debit if consideration exceeds the transferor's share capital. Appendix C does not spell out the debit case. If the question instructs that a debit be adjusted against the transferee's reserves, capital reserve first, follow it as an exam convention.
Reserves
In a merger of entities, the identity of the transferor's reserves is preserved and they appear in the transferee in the same form
Reserves keep their identity. The difference is dealt with through capital reserve, not by recasting the transferor's reserves. Any adjustment of a debit difference against the transferee's reserves is an exam convention that applies only when the question instructs it.
Comparatives
Restate prior periods as if combined from the beginning of the preceding period presented, irrespective of the actual date of the combination
If common control was obtained after that date, restate only from the date common control was obtained.
Intra-group balances
Eliminate balances and transactions between the combining entities
Do this before totalling the assets and liabilities.

How to solve Business Combinations Under Common Control questions

Use this sequence for any question on a combination of entities under common control.

  1. 1Confirm common control: same ultimate party before and after, and not transitory. If not, switch to the acquisition method.
  2. 2Note the date from which the businesses were under common control, and the beginning of the preceding period presented.
  3. 3List the transferor's assets, liabilities and reserves at carrying amounts. Ignore any fair values given in the question for recording.
  4. 4Align accounting policies if they differ and adjust the effect in reserves.
  5. 5Eliminate intra-group balances such as loans, receivables and payables between the two entities.
  6. 6Compute the difference: consideration (shares issued plus any cash or other assets) less transferor's share capital. Never treat it as goodwill.
  7. 7Preserve the transferor's reserves as they are. Deal with the difference through capital reserve, shown separately. If it is a debit (consideration higher), adjust it against capital reserve/other reserves as the question instructs.
  8. 8Prepare the restated balance sheet and state that comparatives are restated, plus the required disclosures.

Quickest way: Pool, add, balance

When to use it: Use when you must produce the post-combination balance sheet or the journal entry fast.

  1. Check the words: 'under common control' or 'subsidiaries of the same parent' means Appendix C.
  2. Add both balance sheets line by line at book value, after removing intra-group items.
  3. Share capital of the transferee increases by the shares issued.
  4. Compute difference = shares issued at face value (plus any other consideration) − transferor's share capital.
  5. Keep the transferor's reserves unchanged. Take the difference to capital reserve if it is a credit. If it is a debit, adjust it against capital reserve/other reserves as the question instructs.
  6. Check that total assets equal total equity and liabilities.

Common mistakes in Business Combinations Under Common Control

  • Recording the transferor's assets at fair value and creating goodwill

    Students default to the acquisition method taught for ordinary combinations.

    Fix: If there is common control, use carrying amounts only. Goodwill from the combination is never recognised.

  • Not restating comparatives

    Students stop at the closing balance sheet.

    Fix: State that prior periods are restated as if the combination occurred from the beginning of the preceding period presented, irrespective of the actual date of the combination, or only from the date common control began if that is later.

  • Forgetting to eliminate intra-group balances

    The loan or receivable is buried in the data.

    Fix: Scan for dues between the two entities and cancel them before adding.

  • Treating the difference as goodwill or profit

    The difference looks like purchase consideration minus net assets.

    Fix: Compare consideration with the transferor's share capital, and deal with the difference through capital reserve, never as goodwill.

  • Recasting or merging the transferor's reserves to absorb the difference

    Students think an excess must reduce the transferor's reserves.

    Fix: Preserve the identity of the transferor's reserves in the same form. Take the difference to capital reserve as Appendix C says. If the question instructs that a debit be adjusted against the transferee's reserves, follow that instruction and say it is as per the question.

  • Ignoring the 'not transitory' condition

    Students read only the same-parent fact.

    Fix: If control is temporary, such as a planned sale soon after, the combination is not under Appendix C. Check the facts.

  • Saying IFRS 3 also prescribes pooling

    Students assume Ind AS 103 mirrors IFRS 3 fully.

    Fix: Write that IFRS 3 excludes common control combinations, while Ind AS 103 Appendix C gives pooling of interests.

Worked examples

Example 1

P Ltd holds 100% of A Ltd and B Ltd. A Ltd absorbs B Ltd and issues 40,000 equity shares of ₹10 each to P Ltd for B Ltd's net assets. B Ltd's balance sheet: share capital ₹3,00,000; general reserve ₹1,00,000; net assets at book value ₹4,00,000 (fair value ₹6,00,000). A Ltd has a capital reserve of ₹30,000 and other reserves of ₹2,00,000. The question instructs that any debit difference be adjusted against A Ltd's reserves, capital reserve first. Show the accounting for A Ltd.

Show the solution
  1. P Ltd controls both before and after, and control is not transitory. Appendix C applies, so use pooling of interests.
  2. Record B's net assets at book value ₹4,00,000. Fair value of ₹6,00,000 is ignored.
  3. Shares issued: 40,000 × ₹10 = ₹4,00,000. A's share capital increases by this amount. B's own share capital of ₹3,00,000 is cancelled on absorption.
  4. Difference = ₹4,00,000 − B's share capital ₹3,00,000 = ₹1,00,000, a debit, as shares issued exceed transferor's capital. Appendix C routes the difference through capital reserve and does not separately spell out the debit case.
  5. Preserve the identity of B's general reserve of ₹1,00,000 in A's books in the same form, as Appendix C requires.
  6. The question instructs that the debit be adjusted against A's reserves, capital reserve first. Follow this as an exam convention, not as a rule of the standard: ₹30,000 against capital reserve (now nil) and the balance ₹70,000 against other reserves (₹2,00,000 falls to ₹1,30,000).
  7. Journal in A's books: Dr Net assets ₹4,00,000; Dr Capital reserve ₹30,000; Dr Other reserves ₹70,000; Cr Share capital ₹4,00,000; Cr General reserve ₹1,00,000.
  8. Check: debits ₹4,00,000 + ₹30,000 + ₹70,000 = ₹5,00,000 = credits ₹4,00,000 + ₹1,00,000 = ₹5,00,000. Net effect on A's equity = ₹4,00,000 + ₹1,00,000 − ₹1,00,000 = ₹4,00,000, equal to the net assets added.

Answer: A Ltd records B's net assets of ₹4,00,000 at book value, increases share capital by ₹4,00,000 and preserves the identity of the general reserve of ₹1,00,000. The ₹1,00,000 debit difference is adjusted against A's reserves (₹30,000 against capital reserve and ₹70,000 against other reserves) only because the question instructs it; this is an exam convention, not the standard's rule. Net equity added is ₹4,00,000. No goodwill is recognised.

Example 2

Entity X takes over a business of Entity Y from their common parent M for ₹5,00,000 cash and issues no shares. Y continues as a separate entity. The net assets of the business at book value are ₹4,20,000 (fair value ₹5,50,000). M controls both X and Y before and after, permanently. The question instructs that any excess of cash paid over book value be adjusted against X's reserves. How is it accounted for by X?

Show the solution
  1. Common control exists and is not transitory, so use Appendix C pooling of interests.
  2. Record the business's net assets at book value ₹4,20,000, not fair value ₹5,50,000.
  3. No shares are issued and Y continues as an entity, so there is no merger of entities. Y's reserves are not carried over. Preserving the transferor's reserves applies when entities merge.
  4. Excess of cash paid over book value of net assets = ₹5,00,000 − ₹4,20,000 = ₹80,000. It is not goodwill.
  5. As instructed, adjust the ₹80,000 against X's reserves. This follows the question's instruction as an exam convention.
  6. Journal entry in X's books: Dr Net assets ₹4,20,000; Dr Reserves ₹80,000; Cr Cash ₹5,00,000.
  7. Check: debits ₹4,20,000 + ₹80,000 = ₹5,00,000 = credits ₹5,00,000. Net effect on X's equity = −₹80,000, which equals net assets ₹4,20,000 − cash ₹5,00,000.
  8. Comparatives: restate X's prior period information as if the business transfer occurred from the beginning of the preceding period presented, irrespective of the actual date. If M obtained common control of the business later than that date, restate only from the date common control began.

Answer: X records the business's net assets at ₹4,20,000 and, as the question instructs, adjusts the ₹80,000 excess of cash paid (₹5,00,000) over book value against its reserves. Y's reserves are not preserved because this is a business transfer, not a merger of entities. No goodwill or gain is recognised. Comparatives are restated from the beginning of the preceding period presented, or from the date common control began if that is later.

Exam tips

  • Start every answer by testing the common control conditions. Marks are given for stating them.
  • For theory, write the contrast with IFRS 3 in one line: IFRS 3 excludes common control, Ind AS 103 Appendix C prescribes pooling.
  • In numericals, ignore fair values given as distractors and use carrying amounts.
  • Always mention restating comparatives and the date from which they are restated.
  • Preserve the identity of reserves and take the difference to capital reserve. If the question instructs that a debit be adjusted against other reserves, follow it and note that it is as per the question's instruction.
  • In case-scenario MCQs, check whether control is transitory before choosing the method.

Practice questions from Ind AS 103 Business Combinations

Business Combinations Under Common Control: frequently asked questions

What is the pooling of interests method under Ind AS 103?

It records the transferor's assets, liabilities and reserves at existing carrying amounts. No fair values and no goodwill arise. Prior period information is restated as if the entities were combined from the beginning of the preceding period presented, irrespective of the actual date of the combination. If common control was obtained later, it is restated only from that date.

How does Ind AS 103 differ from IFRS 3 on common control?

IFRS 3 does not apply to combinations of entities under common control. Ind AS 103 covers them in Appendix C and requires the pooling of interests method.

Is goodwill recognised in a common control combination?

No. Under Appendix C, the difference between the share capital issued (plus any additional consideration) and the transferor's share capital is transferred to capital reserve and presented separately from other capital reserves. Appendix C does not spell out the debit case. If a question instructs that a debit be adjusted against the transferee's reserves, follow it as an exam convention. It is never shown as goodwill.

Does a parent merging with its wholly owned subsidiary count as common control?

Generally yes, if the same party controls both before and after and the control is not transitory. Check the facts in the question, because the conditions must be met.