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

Mr. Arvind Rao holds 60% of Kaveri Ltd and 55% of Godavari Ltd. He is an individual and is not required to prepare financial statements under Ind AS. Godavari Ltd proposes to merge into Kaveri Ltd. Under Appendix C of Ind AS 103, how should the combination be treated?

It is a common control business combination. An individual can control entities, and the combining entities need not be included in the same consolidated financial statements. So the pooling of interests method applies, not the acquisition method, and no 75% holding threshold is required.

  1. AAs a common control business combination, because an individual can control combining entities and the entities need not be in the same consolidated financial statementsCorrect
  2. BAs an acquisition under the acquisition method, because no consolidated financial statements include both entities
  3. CAs outside Ind AS 103, because the controlling party is an individual
  4. DAs a common control combination only if Mr. Rao holds more than 75% in both entities

Explanation

Appendix C states that an entity can be controlled by an individual, who need not be subject to Ind AS reporting. Therefore combining entities need not be part of the same consolidated financial statements for the combination to be one under common control. Accordingly the pooling of interests method applies. The acquisition method option wrongly requires common consolidation.

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