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CMA Final · Corporate Financial Reporting · Business Combination under Common Control

Hold Ltd owns 70% of Sub A Ltd and 55% of Sub B Ltd. Sub A Ltd proposes to acquire the business of Sub B Ltd. The other shareholders of each subsidiary are unrelated outsiders. How should this combination be classified under Ind AS 103?

It is a business combination of entities under common control. Both Sub A and Sub B are controlled by Hold Ltd, and the size of the non-controlling interest in either subsidiary does not matter, since a partially-owned subsidiary is still under its parent's control.

  1. AA business combination of entities under common control, because a partially-owned subsidiary is still under the control of the parentCorrect
  2. BNot a common control combination, because outside shareholders hold a significant stake in both entities
  3. CA common control combination only if the non-controlling interest is the same in both entities
  4. DNot a common control combination, because the two entities hold different percentages of ownership in the parent

Explanation

Ind AS 103 states that the extent of non-controlling interests in each combining entity before and after the combination is not relevant to deciding whether entities are under common control, because a partially-owned subsidiary is nevertheless under the control of the parent. Both subsidiaries are controlled by Hold Ltd, so the combination is under common control. The option relying on outside shareholders ignores this rule.

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