Financial Reporting · Ind AS 103 Business Combinations

Ind AS 103: Consideration Transferred and Goodwill or Bargain Purchase

Updated 5 October 2026 · Fact-checked

Under Ind AS 103, goodwill = consideration transferred (at acquisition-date fair value, including contingent consideration) + non-controlling interest + fair value of previously held interest, minus net identifiable assets at fair value. If negative, it is a bargain purchase: reassess, then recognise the gain in OCI and accumulate it in capital reserve.

Understand Consideration Transferred and Goodwill or Bargain Purchase

In the acquisition method, the acquirer pays something to get control of a business. That payment is the consideration transferred. It is measured at fair value on the acquisition date. It is the sum of the fair values of assets transferred, liabilities incurred to former owners and equity interests issued by the acquirer.

Some deals promise more money later if a target is met, such as a profit or revenue figure. This is contingent consideration. You include it in the consideration at its acquisition-date fair value, even if payment is not yet certain. If it is a financial liability, later changes in its fair value go to profit or loss. If it is classified as equity, it is not remeasured. Changes that arise from new information about facts at the acquisition date, within the measurement period, adjust goodwill instead.

Goodwill is a residual. You add up what the acquirer gave and what it already holds, then deduct what it got. What it gave is the consideration transferred. Add the non-controlling interest (NCI) and the fair value of any equity interest the acquirer held before. Deduct the net identifiable assets, which are assets acquired less liabilities assumed, all at fair value. Under Ind AS 103, NCI that is a present ownership interest can be measured at fair value or at its proportionate share of net identifiable assets. The choice is made transaction by transaction.

If the result is negative, you have a bargain purchase. Before recognising any gain, you must reassess that you identified all assets and liabilities correctly and reviewed the measurement procedures. Under Ind AS 103, if a gain remains, it is recognised in other comprehensive income on the acquisition date and accumulated in equity as capital reserve. This differs from IFRS 3, which takes the gain to profit or loss. If there is no clear evidence that it is a bargain purchase, it is recognised directly in equity as capital reserve. This treatment is a known Ind AS carve-out.

Acquisition-related costs, such as legal and advisory fees, are not part of consideration. You expense them when incurred. Costs of issuing debt or equity are accounted for under the relevant Ind AS, not added to consideration.

Key rules to remember

Consideration transferred: Fair value of assets transferred + liabilities incurred + equity issued + contingent consideration (at fair value); All at acquisition-date fair value. Exclude acquisition costs and payments for separate transactions, such as post-combination services.
Goodwill: (Consideration transferred + NCI + fair value of previously held interest) − net identifiable assets at fair value; NCI at fair value or proportionate share of net identifiable assets, a choice for each deal. A positive result is goodwill.
Bargain purchase: Net identifiable assets at fair value − (Consideration + NCI + previously held interest), when positive; Reassess first. Under Ind AS 103 the gain goes to OCI and accumulates in capital reserve, or directly to capital reserve if there is no clear evidence of a bargain purchase.
Net identifiable assets: Fair value of identifiable assets acquired − fair value of liabilities assumed; Include identifiable intangibles and contingent liabilities that are present obligations and can be measured reliably. Deferred tax is recognised under Ind AS 12.
Acquisition costs: Expensed in profit or loss when incurred; Not part of consideration and not part of goodwill.

How to solve Consideration Transferred and Goodwill or Bargain Purchase questions

Use this order for any consideration, goodwill or bargain purchase question. Work in a tidy table so marks are easy to give.

1Fix the acquisition date, the date control passes. Use fair values on this date only.
2List each element of consideration: cash, shares issued at fair value on that date, other assets and contingent consideration at fair value.
3Remove items that are not consideration: acquisition costs, share issue costs and payments for post-combination services or reimbursements.
4Find net identifiable assets at fair value. Adjust book values for fair value changes, unrecorded intangibles, and deferred tax where given.
5Measure NCI as the question directs: fair value or proportionate share of net identifiable assets. Add any previously held interest at fair value.
6Compute goodwill as the total of consideration, NCI and previously held interest less net identifiable assets.
7If the result is negative, reassess identification and measurement, then pass the bargain purchase entry as per Ind AS 103.
8Pass the acquisition journal entry and state the treatment of acquisition costs and later changes in contingent consideration.

Quickest way: Three-line goodwill check

When to use it: Use this for MCQs and for the closing check of written answers.

Line 1: write Consideration + NCI + earlier stake, all at fair value.
Line 2: write Net identifiable assets at fair value after adjustments.
Line 3: subtract line 2 from line 1. A positive figure is goodwill. A negative figure means reassess, then book the gain as capital reserve under Ind AS 103.
Scan the facts for traps: acquisition costs, book value instead of fair value, and contingent consideration left out.

Common mistakes in Consideration Transferred and Goodwill or Bargain Purchase

Adding acquisition costs such as legal fees to consideration.
Students follow the old rule of capitalising costs, or think of them as part of the cost of investment.
Fix: Expense them in profit or loss. Under Ind AS 103 they are never part of consideration or goodwill.
Leaving out contingent consideration because payment is uncertain.
Students apply the probability test used for provisions.
Fix: Include it at acquisition-date fair value. The uncertainty is reflected in the fair value.
Using book values of the target's assets rather than fair values.
The balance sheet is given first and fair value details come later in the question.
Fix: Rework every asset and liability at fair value, add unrecorded identifiable intangibles and tax effects, then compute goodwill.
Recognising a bargain purchase gain in profit or loss, as IFRS 3 does.
Students learn the IFRS 3 treatment first.
Fix: For Ind AS 103, show the gain in OCI and accumulate it in capital reserve, after reassessment. Use capital reserve directly if there is no clear evidence.
Forgetting to add NCI or the previously held interest in the goodwill formula.
Students treat every question as a 100% acquisition.
Fix: Always write the three-part total first, even when NCI is nil.
Adjusting goodwill for every later change in contingent consideration.
Students do not distinguish measurement period adjustments from later events.
Fix: Adjust goodwill only for new information about facts at the acquisition date within the measurement period. Other changes in a liability go to profit or loss. Equity-classified amounts are not remeasured.

Worked examples

Example 1

A Ltd acquires 100% of B Ltd on 1 April 2026. It pays ₹60,00,000 in cash and issues 2,00,000 shares with a fair value of ₹30 each on that date. It agrees to pay a further ₹10,00,000 if B's revenue exceeds a target. The fair value of this obligation at acquisition is ₹6,00,000. A Ltd pays ₹2,00,000 as legal fees. The fair value of B's net identifiable assets is ₹1,10,00,000. Compute goodwill and state the treatment of legal fees.

Show the solution

Cash: ₹60,00,000.
Shares issued: 2,00,000 × ₹30 = ₹60,00,000.
Contingent consideration at fair value: ₹6,00,000. It is included although payment is uncertain.
Consideration transferred = 60,00,000 + 60,00,000 + 6,00,000 = ₹1,26,00,000.
NCI is nil because 100% is acquired. There is no previously held interest.
Goodwill = 1,26,00,000 − 1,10,00,000 = ₹16,00,000.
Legal fees of ₹2,00,000 are not consideration. They are expensed in profit or loss.

Answer: Consideration transferred is ₹1,26,00,000 and goodwill is ₹16,00,000. Legal fees of ₹2,00,000 are expensed.

Example 2

P Ltd acquires 80% of Q Ltd for ₹70,00,000 in cash on 1 October 2026. Q's net identifiable assets at fair value are ₹1,00,00,000. Case 1: P elects to measure NCI at its proportionate share of net identifiable assets. Case 2: the facts are the same, but P measures NCI at its fair value of ₹22,00,000. Compute goodwill or the bargain purchase result in each case.

Show the solution

Case 1: NCI = 20% × 1,00,00,000 = ₹20,00,000.
Total = 70,00,000 + 20,00,000 = ₹90,00,000.
Net identifiable assets = ₹1,00,00,000.
Result = 90,00,000 − 1,00,00,000 = −₹10,00,000. This is a bargain purchase of ₹10,00,000.
P Ltd first reassesses the identification and measurement of Q's assets and liabilities, and the consideration. If the gain remains, Ind AS 103 requires it in OCI, accumulated as capital reserve, or directly in capital reserve if there is no clear evidence of a bargain purchase.
Case 2: Total = 70,00,000 + 22,00,000 = ₹92,00,000.
Result = 92,00,000 − 1,00,00,000 = −₹8,00,000. This is a bargain purchase of ₹8,00,000, treated in the same way after reassessment.
The NCI measurement basis changes the amount: a higher NCI value reduces the bargain purchase gain.

Answer: Case 1 (NCI at proportionate share): bargain purchase of ₹10,00,000. Case 2 (NCI at fair value ₹22,00,000): bargain purchase of ₹8,00,000. In each case, after reassessment, if there is clear evidence of a bargain purchase the gain is recognised in OCI and accumulated in capital reserve; otherwise it is recognised directly in capital reserve.

Exam tips

Start every answer with a small table headed Consideration, NCI, Previously held interest, Net identifiable assets. Marks are given for each component.
Read the question for the NCI measurement basis. If it is silent, state your assumption and apply it consistently.
When a gain appears, write the words reassess first, then give the Ind AS 103 treatment, and mention the difference from IFRS 3 in one line.
In MCQs, check for acquisition costs and for contingent consideration. Most wrong options come from including the first or omitting the second.
For contingent consideration, state the classification (liability or equity), because the subsequent treatment depends on it.

Practice questions from Ind AS 103 Business Combinations

Consideration Transferred and Goodwill or Bargain Purchase in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalPurchase Consideration and Goodwill

Consideration Transferred and Goodwill or Bargain Purchase: frequently asked questions

What is the difference between goodwill and capital reserve in Ind AS 103?

Goodwill is an asset that arises when consideration plus NCI plus earlier stake exceeds net identifiable assets. Capital reserve arises in a bargain purchase, when net identifiable assets exceed that total. Goodwill is tested for impairment, not amortised. The capital reserve is an equity component.

How is contingent consideration accounted for under Ind AS 103?

It is included in consideration at acquisition-date fair value. If it is a financial liability, later changes in fair value go to profit or loss. If it is classified as equity, it is not remeasured. Changes from new information about acquisition-date facts within the measurement period adjust goodwill.

Are acquisition-related costs part of goodwill?

No. Costs such as legal, advisory and valuation fees are expensed as incurred. Costs of issuing debt or equity are accounted for under the relevant Ind AS.

Is bargain purchase gain taken to profit or loss under Ind AS 103?

No. After reassessment, the gain is recognised in OCI and accumulated in equity as capital reserve. If there is no clear evidence of a bargain purchase, it goes directly to capital reserve. This differs from IFRS 3, which uses profit or loss.