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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Orchid Pharma Ltd acquires 80% of Sahyadri Labs Ltd for ₹90 crore cash. The fair value of Sahyadri's identifiable net assets is ₹120 crore. Orchid elects to measure the non-controlling interest at its proportionate share of identifiable net assets. After reassessing the identification and measurement of assets and liabilities, Orchid finds clear evidence that the transaction is a bargain purchase. How is the result recognised under Ind AS 103?

The gain is ₹6 crore, recognised in other comprehensive income and accumulated in equity as capital reserve. Consideration of ₹90 crore plus NCI of ₹24 crore is ₹114 crore, which is less than net assets of ₹120 crore. Ind AS 103 differs from IFRS 3, which uses profit or loss.

  1. AGoodwill of ₹6 crore is recognised as an asset
  2. BA gain of ₹6 crore is recognised in profit or loss, as under IFRS 3
  3. CA gain of ₹6 crore is recognised in other comprehensive income and accumulated in equity as capital reserveCorrect
  4. DA gain of ₹30 crore is recognised in other comprehensive income and accumulated in equity as capital reserve

Explanation

NCI is 20% × 120 = ₹24 crore. Consideration plus NCI is 90 + 24 = ₹114 crore, which is ₹6 crore below the net assets of ₹120 crore, so there is a bargain purchase gain of ₹6 crore. Ind AS 103 requires the gain to be recognised in OCI and accumulated in equity as capital reserve, unlike IFRS 3, which uses profit or loss. The ₹30 crore option ignores the NCI and compares 90 with 120.

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