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

Holding company H Ltd controls S1 Ltd (80% held) and S2 Ltd. S2 Ltd was excluded from H Ltd's consolidated financial statements in accordance with Ind AS 27, as H Ltd qualified for an exemption from consolidation. S1 Ltd proposes to merge S2 Ltd into itself. Which statement is correct under Appendix C of Ind AS 103?

The merger is a common control combination accounted for by pooling of interests. Appendix C says a subsidiary excluded from consolidation under Ind AS 27 is irrelevant to the common control test, and partial ownership or non-controlling interests do not change the conclusion either.

  1. AThe merger is outside common control accounting because S2 Ltd is not in the group's consolidated financial statements
  2. BThe merger is a common control combination if S2 Ltd is held at more than 50% by H Ltd, but not otherwise
  3. CThe merger is a common control combination; S2 Ltd's exclusion from consolidation under Ind AS 27 is not relevant, and the pooling of interests method appliesCorrect
  4. DThe merger is an acquisition by S1 Ltd because S1 Ltd is only 80% owned by H Ltd

Explanation

Appendix C states that a combining entity being a subsidiary excluded from group consolidated statements under Ind AS 27 is not relevant to deciding common control. It also states that the extent of non-controlling interests is irrelevant, which rules out the 80% argument. The combination is therefore under common control and uses pooling of interests.

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