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CMA Final · Corporate Financial Reporting · Absorptions, Amalgamations, External Reconstruction

Arjun Textiles Ltd was acquired on 1 April by Bharat Fabrics Ltd. Arjun had been generating revenue from external customers up to the acquisition date, but Bharat will fully integrate it and stop all external sales from the following month. In applying Ind AS 103 to decide whether an acquired set of activities and assets has outputs, how should Arjun's set be viewed?

The set is considered to have outputs at the acquisition date because it was generating revenue then. Ind AS 103 says this holds even if the acquirer later integrates it and it no longer earns revenue from external customers, so the future integration plan does not change the assessment.

  1. AIt has no outputs at the acquisition date because revenue will stop after integration
  2. BIt has outputs at the acquisition date because it was generating revenue then, even though it will not later generate revenue from external customersCorrect
  3. COutputs are judged only at the end of the reporting period following acquisition
  4. DIt has outputs only if the integration plan is approved by the Tribunal

Explanation

Paragraph B12A states that if the acquired set was generating revenue at the acquisition date it is considered to have outputs at that date, even if it will subsequently stop generating external revenue because the acquirer integrates it. Hence the first option, which looks to the future, is wrong.

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