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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Mehta Industries Ltd acquires control of Rao Pharma Ltd in a transaction that both boards describe as a 'merger of equals'. Neither party pays a premium, and shares are exchanged. How is this transaction treated under Ind AS 103?

The transaction is a business combination under Ind AS 103. The standard defines it as one in which an acquirer obtains control of one or more businesses and expressly includes true mergers or mergers of equals, so the description and the share-exchange form do not change the treatment.

  1. AIt is a business combination because the acquirer obtains control of a business, even if described as a true merger or merger of equalsCorrect
  2. BIt is outside Ind AS 103 because mergers of equals are excluded from the definition
  3. CIt is accounted for by pooling of interests only because no premium is paid
  4. DIt is treated as an asset acquisition because shares, not cash, are the consideration

Explanation

Ind AS 103 defines a business combination as a transaction in which an acquirer obtains control of one or more businesses. It expressly says that transactions sometimes called 'true mergers' or 'mergers of equals' are also business combinations. The label used by the boards therefore does not remove the transaction from the scope of the standard.

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