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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Tapti Ltd acquires 100% of Mahi Ltd. The fair value of net identifiable assets is ₹500 crore and the consideration is ₹420 crore. After reassessment, a gain of ₹80 crore arises, but there is no clear evidence for the underlying reason for the bargain purchase. Under Ind AS 103, how is the ₹80 crore treated?

Where there is no clear evidence of the underlying reason for the bargain purchase, Ind AS 103 requires the gain to be recognised directly in equity as capital reserve. The OCI route applies only with clear evidence, and the gain is not taken to profit or loss.

  1. ARecognised in profit or loss
  2. BRecognised in OCI and then transferred to capital reserve
  3. CRecognised directly in equity as capital reserveCorrect
  4. DRecognised as negative goodwill asset

Explanation

Ind AS 103 requires that where there is no clear evidence for the underlying reason for classifying the combination as a bargain purchase, the gain is recognised directly in equity as capital reserve. The OCI route is for cases with clear evidence. Negative goodwill is not carried as an asset.

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