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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Two listed Indian companies, Sundaram Ltd and Kaveri Ltd, are of similar size. They agree a 'merger of equals' under which Sundaram issues shares to Kaveri's shareholders. Sundaram's directors will hold a bare majority of the combined board, and the transaction is not between entities under common control. How does Ind AS 103 treat this?

It is a business combination. Ind AS 103 states that transactions sometimes called true mergers or mergers of equals are business combinations as defined, so an acquirer must be identified and the acquisition method applied. Pooling of interests applies only to common control combinations, which this is not.

  1. AIt is outside the Standard because no party pays cash
  2. BIt is a business combination, as true mergers or mergers of equals fall within the definitionCorrect
  3. CIt is accounted for by pooling of interests, as it is a merger of equals
  4. DIt is a business combination only if the legal form is an amalgamation

Explanation

The Ind AS 103 definition expressly says that transactions sometimes called true mergers or mergers of equals are also business combinations. An acquirer must therefore be identified, here Sundaram. Pooling of interests is reserved for common control combinations under Appendix C, which is not the case here.

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