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CS Professional · Corporate Restructuring, Valuation and Insolvency · Accounting in Corporate Restructuring: Concept and Accounting Treatment

Meru Ltd acquires 100% of the equity of Kaveri Ltd, an unrelated company, by paying cash to its shareholders. Meru Ltd is clearly the entity that obtains control and the transaction is not between entities under common control. Under Ind AS 103, which method must Meru Ltd use to account for this business combination?

Meru Ltd must use the acquisition method. Ind AS 103 requires this method for business combinations of unrelated parties, where one entity obtains control of another. Pooling of interests is reserved for common control combinations and does not apply to this cash acquisition of an unrelated company.

  1. APooling of interests method
  2. BAcquisition methodCorrect
  3. CEquity method
  4. DProportionate consolidation method

Explanation

Ind AS 103 requires every business combination within its scope to be accounted for using the acquisition method. Pooling of interests applies only to common control combinations under Appendix C, which is not the case here since the parties are unrelated.

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