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CMA Final · Corporate Financial Reporting · Accounting for Business Combination and Restructuring

Tarang Ltd obtains control of Ujjwal Ltd when Ujjwal repurchases some of its own shares from other investors, raising Tarang's existing holding above 50% of voting rights. Tarang transfers no consideration. How is this event treated under Ind AS 103?

This is a business combination accounted for under the acquisition method. Ind AS 103 recognises that control may be obtained without transferring consideration, and lists an acquiree's repurchase of its own shares enabling an existing investor to gain control as an example. Lack of consideration does not take it outside the standard.

  1. ANot a business combination because no consideration was transferred
  2. BA business combination to which the acquisition method appliesCorrect
  3. CA common control combination accounted for under pooling of interests
  4. DAccounted for only as a change in investment, with no consolidation

Explanation

Ind AS 103 paragraph 43 states that an acquirer sometimes obtains control without transferring consideration, and the acquisition method applies. A repurchase by the acquiree of its own shares allowing an existing investor to gain control is listed as an example. Absence of consideration therefore does not remove it from the standard.

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