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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Gangotri Ltd acquired control of Himalaya Foods Pvt Ltd by buying 100% of its shares. Himalaya Foods operates a running business with inputs, processes and outputs. Under Ind AS 103, how is this transaction characterised?

The transaction is a business combination, because Ind AS 103 defines it as a transaction in which an acquirer obtains control of one or more businesses. Buying all the shares of an operating business gives Gangotri control, and neither the form of consideration nor the target's legal survival changes this.

  1. AA business combination, because the acquirer obtains control of a businessCorrect
  2. BAn asset acquisition, because shares and not assets were bought
  3. CA business combination only if consideration is paid in cash
  4. DA joint arrangement, because both entities continue to exist

Explanation

Ind AS 103 defines a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses. Gaining 100% of a going business satisfies this. The form of consideration or the survival of the legal entity does not alter the characterisation.

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