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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Meridian Textiles Ltd and Kaveri Fabrics Ltd, two similar-sized Indian companies, combine their businesses in a transaction that both describe as a 'merger of equals'. Neither party is under common control with the other, and one of them obtains control of the other's business. Under Ind AS 103, how is this transaction treated?

The transaction is a business combination under Ind AS 103. The standard's definition covers any event in which an acquirer obtains control of a business, and it expressly says that so-called true mergers or mergers of equals are included. The label or the form of consideration does not change this.

  1. AIt is a business combination, because transactions called 'true mergers' or 'mergers of equals' fall within the definitionCorrect
  2. BIt is outside Ind AS 103, because a merger of equals has no acquirer
  3. CIt is a business combination only if the consideration is paid wholly in cash
  4. DIt is a business combination only if the larger entity is identified as the acquirer by size alone

Explanation

Ind AS 103 defines a business combination as a transaction or event in which an acquirer obtains control of one or more businesses. It states that transactions sometimes called 'true mergers' or 'mergers of equals' are also business combinations. The label used by the parties is irrelevant, and the form of consideration does not decide the scope.

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