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CMA Final · Corporate Financial Reporting · Absorptions, Amalgamations, External Reconstruction

Surya Ltd acquires a set of activities and assets from Tara Ltd. At the acquisition date the set was generating revenue from external customers. Surya Ltd plans to integrate it fully, so it will stop generating separate external revenue after the acquisition. Under Ind AS 103, how should Surya Ltd view the set for the purpose of the outputs assessment?

The set is treated as having outputs at the acquisition date because it was generating revenue then. It makes no difference that the acquirer will integrate it and stop external revenue afterwards. Only early-stage sets that have not begun generating revenue are the example of sets without outputs.

  1. AIt has no outputs, because revenue will cease after integration
  2. BIt is treated as having outputs at the acquisition date, even though revenue will not continue after integrationCorrect
  3. COutputs can be assessed only after one full year of post-acquisition operation
  4. DOutputs are irrelevant because only the fair value of the assets decides whether it is a business

Explanation

Paragraph B12A states that a set generating revenue at the acquisition date is considered to have outputs at that date, even if it will later stop generating revenue from external customers, for example because the acquirer integrates it. Only an early-stage entity that has not started generating revenue is the example of a set without outputs. The assessment is made at the acquisition date, not after a year.

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