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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Under Ind AS 103, Arjun Industries Ltd acquires Meru Components Ltd. The fair value of net identifiable assets acquired exceeds the consideration, and the management has clear evidence of the underlying reasons that make it a bargain purchase. How is the resulting gain recognised, in contrast with IFRS 3?

Where clear evidence of the reason for the bargain purchase exists, Ind AS 103 requires the gain to be recognised in other comprehensive income and accumulated in equity as capital reserve. This differs from IFRS 3, which takes the gain to profit or loss.

  1. AIn profit or loss, the same as IFRS 3
  2. BIn other comprehensive income and accumulated in equity as capital reserveCorrect
  3. CDirectly in equity as capital reserve, bypassing other comprehensive income
  4. DAs a deferred income liability amortised over the useful life of the acquired assets

Explanation

IFRS 3 recognises the bargain purchase gain in profit or loss. Ind AS 103 requires it to be recognised in other comprehensive income and accumulated in equity as capital reserve. Direct recognition in equity applies only where there is no clear evidence for the underlying reason for the bargain purchase, which is not the case here.

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