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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Vindhya Engineering Ltd acquires 100% of Narmada Castings Ltd for cash of ₹80 crore. The fair value of Narmada's identifiable net assets is ₹95 crore. After reassessing that all assets and liabilities were correctly identified and measured, Vindhya concludes that there is clear evidence of why the deal is a bargain purchase. Under Ind AS 103, how should the ₹15 crore excess be accounted for?

The ₹15 crore bargain purchase gain is recognised in other comprehensive income and accumulated in equity as capital reserve. Ind AS 103 departs from IFRS 3, which uses profit or loss, because clear evidence of the reason for the bargain purchase exists. Direct recognition in equity applies only without such evidence.

  1. ARecognised in profit or loss on the acquisition date, as under IFRS 3
  2. BRecognised in other comprehensive income and accumulated in equity as capital reserveCorrect
  3. CDeducted from the carrying amount of non-current assets acquired
  4. DRecognised directly in equity as capital reserve without passing through other comprehensive income

Explanation

The excess of net identifiable assets over consideration is ₹95 crore − ₹80 crore = ₹15 crore, which is a bargain purchase gain. Ind AS 103 differs from IFRS 3 by requiring the gain to go to OCI and accumulate in equity as capital reserve when there is clear evidence of the reason. Recognising it in profit or loss is the IFRS 3 treatment. Direct recognition in equity applies only when there is no clear evidence.

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