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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Arjun Ltd acquires a business and finds that evidence for the bargain purchase classification is unclear: management cannot identify clear evidence of the underlying reason for it. Net assets at fair value exceed consideration by ₹6 crore, after reassessment. Under Ind AS 103, where is the ₹6 crore recognised?

The ₹6 crore is recognised directly in equity as capital reserve. Ind AS 103 uses other comprehensive income only when there is clear evidence of the reason for the bargain purchase; where such evidence is absent, the gain goes straight to capital reserve in equity.

  1. AIn profit or loss for the period
  2. BIn other comprehensive income and then transferred to capital reserve
  3. CDirectly in equity as capital reserveCorrect
  4. DReduced from goodwill of other acquisitions

Explanation

Ind AS 103 requires recognition in OCI and accumulation as capital reserve when the reason is clearly evidenced. Where there is no clear evidence of the underlying reason for classifying the combination as a bargain purchase, the gain is recognised directly in equity as capital reserve. So it bypasses OCI, making the OCI option wrong.

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