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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Chitra Ltd acquires control of Dev Ltd. The fair value of net identifiable assets is ₹30 lakh and the consideration transferred is ₹24 lakh. Chitra Ltd has reassessed and finds no clear evidence of the underlying reason for classifying the combination as a bargain purchase. Under Ind AS 103 as notified in India, the ₹6 lakh gain is recognised:

The ₹6 lakh gain is recognised directly in equity as capital reserve. Ind AS 103 routes a bargain purchase gain through other comprehensive income only when clear evidence supports the bargain purchase classification. Without such evidence, it goes straight to capital reserve, not profit or loss.

  1. AIn profit or loss
  2. BIn other comprehensive income, then transferred to retained earnings
  3. CDirectly in equity as capital reserveCorrect
  4. DAs a deferred credit amortised over the useful life of assets acquired

Explanation

Where there is no clear evidence for the underlying reason for classifying the combination as a bargain purchase, Ind AS 103 requires the gain to be recognised directly in equity as capital reserve. Routing via OCI applies only where clear evidence exists. Profit or loss is the IFRS 3 treatment, which Ind AS 103 does not follow.

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