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

Mehta Holdings Ltd owns 100% of Alpha Ltd and 60% of Beta Ltd; the remaining 40% of Beta Ltd is held by outside investors. Alpha Ltd proposes to absorb Beta Ltd. A director argues that the combination cannot be a common control combination because outsiders hold 40% of Beta Ltd. Under Appendix C of Ind AS 103, which statement is correct?

It is a common control combination. Appendix C says the extent of non-controlling interests in each combining entity, before or after the combination, is irrelevant, because a partially-owned subsidiary is still controlled by its parent. Mehta Holdings controls both Alpha and Beta, so the 40% outside stake does not matter.

  1. AIt is not a common control combination, because the non-controlling interest in Beta Ltd is material
  2. BIt is a common control combination, because the extent of non-controlling interests before and after the combination is not relevantCorrect
  3. CIt is a common control combination only if the outside investors' stake is below 25%
  4. DIt is a common control combination only if Beta Ltd is first made a wholly-owned subsidiary

Explanation

Appendix C 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, since a partially-owned subsidiary is still controlled by its parent. Both Alpha and Beta are controlled by Mehta Holdings, so the 40% outside holding does not change the conclusion. The options that impose a percentage test or a prior buy-out have no basis in the text.

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