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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Hemkund Pharma Ltd acquires Zanskar Labs Ltd. Hemkund's valuer finds that the fair value of the net identifiable assets acquired exceeds the consideration transferred, but the valuer can find no clear evidence of the underlying reason why the transaction is a bargain purchase. Under Ind AS 103 as notified, how is the excess recognised?

The excess is recognised directly in equity as capital reserve. Ind AS 103 routes a bargain purchase gain through other comprehensive income only when clear evidence of the underlying reason exists. Where there is no such evidence, it bypasses OCI and goes straight to capital reserve.

  1. AIn profit or loss as a gain on bargain purchase
  2. BIn other comprehensive income, later recycled to profit or loss
  3. CDirectly in equity as capital reserveCorrect
  4. DAs negative goodwill shown under intangible assets

Explanation

Ind AS 103 requires a bargain purchase gain to go to OCI and capital reserve, unless there is no clear evidence for the underlying reason for classifying the combination as a bargain purchase. In that case it is recognised directly in equity as capital reserve. Hence OCI is wrong, as it applies only where clear evidence exists. Profit or loss is the IFRS 3 treatment.

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