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

Mehta Industries Ltd acquires 30% of Nandi Components Ltd and obtains significant influence. On acquisition, Mehta's share of the net fair value of Nandi's identifiable assets and liabilities exceeds the cost of the investment. How does Ind AS 28 (paragraph 32(b), as modified from IAS 28) require this excess to be treated?

Under Ind AS 28 the excess of the investor's share of the net fair value of the investee's identifiable assets and liabilities over the cost of investment is transferred to capital reserve, consistent with Ind AS 103. It is not taken to profit or loss, which is the IAS 28 treatment.

  1. ATransferred to capital reserve, in line with Ind AS 103Correct
  2. BRecognised immediately in profit or loss, as in IAS 28
  3. CRecognised as negative goodwill shown as a liability
  4. DDeferred and amortised to profit or loss over the useful life of the associate's assets

Explanation

Appendix 1 states that paragraph 32(b) of Ind AS 28 was modified on the lines of Ind AS 103 so that the excess of the investor's share of net fair value over cost goes to capital reserve. IAS 28 takes it to profit or loss, which is why the second option is wrong.

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