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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Sundaram Ltd acquires control of Kaveri Ltd, a business, by buying 100% of its shares. In the same quarter, Sundaram also acquires 100% of Narmada Traders, which is merely a shell holding one unused plot, with no processes. Under Ind AS 103, which statement is correct as to what qualifies as a 'business combination' per the definition in the standard?

A business combination is a transaction or event in which an acquirer obtains control of one or more businesses. Acquiring control of Kaveri, a business, qualifies. Buying a shell holding only a plot is not acquiring a business, and the form of consideration or the merger label is irrelevant.

  1. AA transaction in which an acquirer obtains control of one or more businesses, so the Kaveri acquisition qualifiesCorrect
  2. BAny purchase of shares of another company, so both acquisitions qualify
  3. COnly transactions described as mergers of equals qualify
  4. DOnly transactions where consideration is paid in cash qualify

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. The Kaveri acquisition meets this. The shell holding one plot is an asset acquisition, not a business, so the claim that any share purchase qualifies is wrong.

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