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

Omega Ltd, a wholly-owned subsidiary of Parent P Ltd, transfers its entire manufacturing business to Sigma Ltd, another subsidiary of P Ltd, in exchange for Sigma shares. Sigma's management says the transfer of a business between group entities is outside Ind AS 103 as nothing is bought from an outsider. Which reading follows from Appendix C?

Such a transfer is a common control business combination. Appendix C includes transfers of subsidiaries or businesses between entities within a group, and requires them to be accounted for using the pooling of interests method, regardless of whether anything is purchased from an outsider.

  1. ATransfers of subsidiaries or businesses between entities within a group are common control business combinations, accounted for by the pooling of interests methodCorrect
  2. BSuch transfers are acquisitions and Sigma must apply the acquisition method with goodwill
  3. CSuch transfers are excluded from Ind AS 103 and are accounted for at fair value through profit or loss
  4. DSuch transfers use the pooling method only when the transferor is not wholly owned

Explanation

Appendix C paragraph 3 says common control business combinations include transfers of subsidiaries or businesses between entities within a group. Paragraph 8 requires the pooling of interests method for them. Ownership percentage of the transferor is not a condition, so the last option is wrong.

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