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

Parent Ltd holds 60% of Sub X Ltd and 90% of Sub Y Ltd. Sub Y Ltd is merging into Sub X Ltd. Sub X has 40% non-controlling interest. A director argues the merger is not under common control because outside shareholders hold 40% of Sub X and 10% of Sub Y. Under Appendix C of Ind AS 103, which is correct?

The merger is under common control. Appendix C of Ind AS 103 states the extent of non-controlling interests in each combining entity before and after the combination is irrelevant, because a partially-owned subsidiary remains under the control of its parent.

  1. AThe merger is outside common control because the non-controlling interests differ in the two entities
  2. BThe merger is under common control, because the extent of non-controlling interests before and after is not relevant, as a partially-owned subsidiary is still controlled by the parentCorrect
  3. CThe merger is under common control only if non-controlling interests are below 25% in both entities
  4. DThe merger is under common control only if the non-controlling interest is identical in both entities

Explanation

Appendix C says the extent of non-controlling interests in each combining entity, before and after, is irrelevant because a partially-owned subsidiary is still under parent control. Both are subsidiaries of Parent Ltd, so the combination is under common control. The thresholds in other options do not exist in the text.

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