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CA Final · Financial Reporting · Ind AS 28 Investments in Associates and Joint Ventures

Kaveri Ltd buys 30% of Sagar Ltd for ₹60 lakh. At the date of acquisition the net fair value of Sagar's identifiable assets and liabilities is ₹220 lakh. Under Ind AS 28 as notified in India, what is the accounting for the difference between Kaveri's share of net fair value and the cost?

Kaveri's share of net fair value is 30% of ₹220 lakh, which is ₹66 lakh. Cost is ₹60 lakh, so the excess of ₹6 lakh is transferred to capital reserve under Ind AS 28, not recognised in profit or loss as IAS 28 would require.

  1. A₹6 lakh is transferred to capital reserveCorrect
  2. B₹6 lakh is recognised as income in Kaveri's profit or loss
  3. C₹66 lakh is transferred to capital reserve
  4. D₹6 lakh is recognised as goodwill and tested for impairment separately

Explanation

Share of net fair value = 30% × 220 = ₹66 lakh. Cost is ₹60 lakh, so the excess is ₹6 lakh. Para 32(b) of Ind AS 28 takes this to capital reserve. Taking it to profit or loss is the IAS 28 treatment and is not followed in Ind AS 28. ₹66 lakh confuses the share of fair value with the excess.

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