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CMA Final · Corporate Financial Reporting · Absorptions, Amalgamations, External Reconstruction

Kaveri Textiles Ltd acquires a small unit from Sundaram Mills. At the acquisition date the unit had been generating sales revenue from external customers. Kaveri plans to fully integrate the unit into its own operations so that, after the acquisition, the unit will not sell to external customers. Under Ind AS 103 (paragraph B12A), how is the acquired set of activities and assets viewed with regard to outputs?

The unit is treated as having outputs at the acquisition date because it was generating revenue then. Ind AS 103 paragraph B12A says this holds even if the revenue will later stop, for example because the acquirer integrates the unit and it no longer sells externally.

  1. AIt is considered to have outputs at the acquisition date because it was generating revenue then, even though that revenue will cease after integrationCorrect
  2. BIt is considered to have no outputs because the acquirer will not earn external revenue from it after integration
  3. CIt is considered to have outputs only if the acquirer continues to sell externally for at least one year
  4. DIt is considered an early-stage entity without outputs because the acquirer has changed its use

Explanation

Paragraph B12A states that if an acquired set was generating revenue at the acquisition date, it is considered to have outputs at that date even if later it will not generate revenue from external customers, for example because the acquirer will integrate it. The test is applied at the acquisition date, so the post-acquisition plan does not remove the outputs.

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