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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Under Ind AS 103 as notified in India, Vindhya Steel Ltd acquires a business and the fair value of net identifiable assets exceeds the consideration transferred. Vindhya's valuer has concluded there is clear evidence that the underlying reason is a bargain purchase. Where is the resulting gain recognised?

The gain is recognised in other comprehensive income and accumulated in equity as capital reserve. Ind AS 103 departs from IFRS 3, which takes the gain to profit or loss. Since clear evidence of the bargain purchase reason exists, the direct-to-equity route is not used.

  1. AIn profit or loss for the period, as under 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 credit amortised over the useful life of the acquired assets

Explanation

Ind AS 103 differs from IFRS 3 here. Where there is clear evidence of the underlying reason for a bargain purchase, the gain is recognised in OCI and accumulated in equity as capital reserve. Recognition in profit or loss is the IFRS 3 treatment, which is why it is wrong in India. Direct recognition in equity applies only when there is no clear evidence.

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