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

Parent Ltd holds 70% of Rishi Ltd and 80% of Sakshi Ltd. Rishi Ltd was excluded from Parent Ltd's consolidated financial statements because Parent Ltd is an investment entity under Ind AS 27. Sakshi Ltd acquires the business of Rishi Ltd. Which statement follows from Appendix C of Ind AS 103?

The combination is under common control and pooling of interests applies. Ind AS 103 Appendix C says that excluding a subsidiary from consolidated financial statements under Ind AS 27 is irrelevant, and that differing non-controlling interests are also irrelevant, because Parent Ltd controls both entities.

  1. AThe combination is not under common control, because Rishi Ltd is outside the consolidated financial statements
  2. BThe combination is under common control, because the exclusion of a subsidiary from consolidation under Ind AS 27 is not relevant, and pooling of interests appliesCorrect
  3. CThe combination is under common control only if Parent Ltd holds more than 75% in both entities
  4. DThe combination must use the acquisition method because the non-controlling interests differ (30% and 20%)

Explanation

Appendix C states that a subsidiary excluded from the group's consolidated financial statements in accordance with Ind AS 27 is irrelevant to the common control test. It also states that the extent of non-controlling interests is irrelevant, which rejects the 30% versus 20% argument. Both entities are controlled by Parent Ltd, so pooling of interests applies.

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