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

Mr. Raghunath Iyer personally holds 60% of the equity shares of Kaveri Textiles Ltd and 75% of the equity shares of Godavari Yarns Ltd. Neither company is part of any consolidated financial statements, and Mr. Iyer is not subject to Ind AS reporting. Kaveri Textiles absorbs Godavari Yarns. Under Appendix C of Ind AS 103, how should this combination be treated?

It is a common control business combination. Appendix C of Ind AS 103 says an individual can control entities without being subject to Ind AS, so the combining entities need not be in the same consolidated financial statements. Different shareholding percentages are also irrelevant.

  1. AAs a common control business combination, because common control does not require the combining entities to be in the same consolidated financial statementsCorrect
  2. BAs an acquisition accounted for under the acquisition method, because no consolidated financial statements include both entities
  3. CAs a common control combination only if Mr. Iyer holds the same percentage in both entities
  4. DAs outside the scope of Ind AS 103 because the controlling party is an individual

Explanation

Appendix C states that an entity can be controlled by an individual who may not be subject to Ind AS reporting, so combining entities need not be part of the same consolidated financial statements for the combination to be one under common control. Percentage holdings do not matter. Hence the combination is a common control business combination.

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