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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Aarav Ltd acquires control of Bhavya Ltd. The fair value of net identifiable assets acquired is ₹50 lakh and the consideration transferred is ₹42 lakh, with no non-controlling interest. Aarav Ltd has clear evidence that the business combination is a bargain purchase. Under Ind AS 103 as notified in India, how is the gain of ₹8 lakh recognised?

The gain of ₹8 lakh is recognised in other comprehensive income and accumulated in equity as capital reserve. Ind AS 103 departs from IFRS 3, which uses profit or loss, because clear evidence exists that the transaction is a bargain purchase. Direct equity recognition applies only without such evidence.

  1. AIn profit or loss as other income
  2. BIn other comprehensive income and accumulated in equity as capital reserveCorrect
  3. CDirectly in equity as capital reserve, bypassing other comprehensive income
  4. DAs a deduction from the carrying amount of non-current assets acquired

Explanation

Ind AS 103 differs from IFRS 3 on bargain purchase gains. The gain is recognised in other comprehensive income and accumulated in equity as capital reserve when there is clear evidence of the underlying reason. Recognising it in profit or loss is the IFRS 3 treatment and does not apply here. Direct recognition in equity applies only where clear evidence is absent.

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