Skip to content

CA Final · Financial Reporting · Ind AS 103 Business Combinations

Ganga Ltd acquires 100% of Yamuna Ltd. The fair value of net identifiable assets is ₹500 crore and the consideration is ₹420 crore. After reassessing that all assets and liabilities were correctly identified and measured, the gain on bargain purchase is ₹80 crore. There is clear evidence of the underlying reason that the transaction is a bargain purchase. How does Ind AS 103 require the gain to be treated?

The gain on bargain purchase is recognised in other comprehensive income and accumulated in equity as capital reserve, because clear evidence exists for the reason. Direct recognition in equity applies only without clear evidence, and recognition in profit or loss is the IFRS 3 treatment, not Ind AS 103.

  1. ARecognised in profit or loss as other income
  2. BRecognised in other comprehensive income and accumulated in equity as capital reserveCorrect
  3. CRecognised directly in equity as capital reserve without passing through OCI
  4. DDeducted from goodwill of other acquisitions

Explanation

Ind AS 103 differs from IFRS 3: the bargain purchase gain goes to OCI and is accumulated in equity as capital reserve when there is clear evidence of the reason. Direct credit to capital reserve applies only where there is no clear evidence. Profit or loss is the IFRS 3 treatment.

Did you get it right without looking?

One question tells you little. A timed set on Ind AS 103 Business Combinations shows your real accuracy, how long you take and where you lose marks.

Practise Ind AS 103 Business CombinationsFree diagnostic mock

More Ind AS 103 Business Combinations questions