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CA Final · Financial Reporting · Ind AS 103 Business Combinations

Vrinda Ltd acquires a business and, after reassessing identification and measurement of assets and liabilities, still finds a bargain purchase gain of Rs 40 lakh. Management cannot find clear evidence of the underlying reason for it being a bargain purchase. Which treatment follows Ind AS 103 as notified?

Vrinda Ltd recognises the Rs 40 lakh directly in equity as capital reserve. Ind AS 103 routes a bargain purchase gain through OCI only when there is clear evidence of the reason; absent such evidence, it goes straight to equity, and nothing is taken to profit or loss.

  1. ARecognise Rs 40 lakh in profit or loss
  2. BRecognise Rs 40 lakh in OCI and then transfer it to capital reserve
  3. CRecognise Rs 40 lakh directly in equity as capital reserveCorrect
  4. DRecognise Rs 40 lakh as negative goodwill amortised over five years

Explanation

Where there is no clear evidence of the underlying reason for classifying the combination as a bargain purchase, Ind AS 103 requires the gain to be recognised directly in equity as capital reserve, bypassing OCI. Option B applies only when clear evidence exists. Profit or loss is the IFRS 3 treatment, and negative goodwill amortisation is not permitted.

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