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CMA Final · Corporate Financial Reporting · Accounting for Business Combination and Restructuring

Mehta Ltd holds 60% voting rights in Nirmal Ltd, but a minority veto right held by another investor prevented Mehta from controlling Nirmal. The veto right lapses on 1 October, and Mehta transfers no consideration. How is this event treated under Ind AS 103?

The lapse of the minority veto right gives Mehta control of Nirmal, which is a business combination even though no consideration is transferred. Paragraph 43 of Ind AS 103 says the acquisition method applies to such combinations achieved without the transfer of consideration.

  1. ANot a business combination because no consideration is transferred
  2. BA business combination accounted by the acquisition methodCorrect
  3. CA common control combination accounted by pooling of interests
  4. DAn asset purchase recorded at cost

Explanation

Paragraph 43 states that an acquirer sometimes obtains control without transferring consideration, and the acquisition method applies. One listed circumstance is the lapse of minority veto rights that previously kept the acquirer from controlling an acquiree in which it held the majority voting rights. Hence the absence of consideration does not prevent a business combination.

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