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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Sahyadri Foods Ltd and Konkan Beverages Ltd, two unrelated companies of similar size, agree to combine. Sahyadri issues shares to Konkan's shareholders, and as a result Sahyadri's existing shareholders and the board hold the controlling position in the combined business. The managements describe the deal as a 'true merger' or 'merger of equals'. How does Ind AS 103 treat this transaction?

The transaction is a business combination under Ind AS 103. The standard defines a business combination as one in which an acquirer obtains control of a business, and it states that so-called true mergers or mergers of equals are also covered. The label used by management does not change this.

  1. AIt is outside Ind AS 103 because a merger of equals involves no acquirer
  2. BIt is a business combination under Ind AS 103 because an acquirer obtains control of a businessCorrect
  3. CIt is a business combination only if cash is paid as consideration
  4. DIt is treated as a common control transaction under Appendix C

Explanation

Ind AS 103 defines a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses. It adds that transactions sometimes called 'true mergers' or 'mergers of equals' are also business combinations. The description given by management is therefore irrelevant, and the two companies are unrelated, so Appendix C does not apply.

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