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CMA Final · Corporate Financial Reporting · Business Combination under Common Control

Meru Ltd owns 70% of Sahyadri Ltd and 100% of Nilgiri Ltd. Sahyadri Ltd, in which outside shareholders hold 30%, is to be merged into Nilgiri Ltd. A trainee argues that the 30% non-controlling interest in Sahyadri Ltd means the combination is not under common control. Which statement is correct under Appendix C of Ind AS 103?

It is a common control combination. The extent of non-controlling interest in each combining entity, before or after the combination, is irrelevant because a partially-owned subsidiary remains under the parent's control. Both Sahyadri and Nilgiri are controlled by Meru Ltd, so no minimum holding or period applies.

  1. AIt is not common control, because the non-controlling interest exceeds 25%
  2. BIt is common control only if the non-controlling interest is eliminated before the merger
  3. CIt is common control, because the extent of non-controlling interest before and after is not relevant as a partially-owned subsidiary is still under the parent's controlCorrect
  4. DIt is common control only if Sahyadri Ltd was consolidated by Meru Ltd for at least three years

Explanation

Appendix C states that the extent of non-controlling interests in each combining entity before and after the combination is not relevant, because a partially-owned subsidiary is still controlled by the parent. Both entities are controlled by Meru Ltd, so it is a common control combination. The other options add thresholds or conditions not present in the text.

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