2. Ind AS 103 - Business Combinations
applies to a transaction or other event that meets the definition of
a business combination.
• Not apply to:
1. Joint ventures.
2. Asset acquisition ( if not constitute a business)
3. UltraTech completes acquisition of
Jaiprakash group cement business
• UltraTech Cement, an Aditya Birla Group Company, has acquired the
4.8-million tonne per annum (mtpa) Gujarat unit of Jaypee Cement
Corporation, for Rs 3,800 crore.
• As part of the deal, UltraTech will take over debt of Rs 3,650 crore. It
will issue equity worth Rs 150 crore,
• dated July 04, 2016 notifying about the approval of the Board of
Directors of the Company to the Scheme of Arrangement between
Jaiprakash Associates Limited (“JAL”), Jaypee Cement Corporation
Limited (“JCCL”) and the Company and their respective shareholders
and creditors for the acquisition of the identified cement plants of JAL
and JCCL, subject to requisite approvals.
4. ACQUISITION OF IDENTIFIED CEMENT UNITS
OF JAL AND JCCL (Ind AS 103)
• Pursuant to the Scheme of Arrangement between the Company, JAL, JCCL
and their respective shareholders and creditors (“the Scheme”), the
Company had acquired identified cement units of JAL and JCCL on June 29,
2017 at an enterprise valuation of ` 16,189.00 Crores having total cement
capacity of 21.2 MTPA including 4 MTPA under construction.
• The acquisition provides the Company a geographic market expansion with
entry into high growth markets where it needed greater reinforcement and
creating synergies in manufacturing, distribution and logistics which offers
many advantages. This will also create value for shareholders with the
ready to use assets reducing time to markets, availability of land, mining
leases, fly ash and railway infrastructure leading to overall operating costs
advantage.
8. Acquisition related costs
• During the previous year acquisition related costs of ` 5.57 Crores had
been recognised under Miscellaneous Expenses and Rates and Taxes
in the Statement of Profit and Loss.
• The stamp duty paid/payable on transfer of the assets amounting to `
226.28 Crores had been charged to the Statement of Profit and Loss
and had been shown as an exceptional item during the previous year.
9.
10. Objective
• To improve the relevance, reliability and comparability of the information
that a reporting entity provides in its FS about a business combination and
its effects.
Ind AS 103 provides principles and requirements for how the acquirer:
1. recognises and measures identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree;
2. recognises and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and
3. disclosure requirements
11. Ind AS 103, Business Combinations
A business combination is a transaction or other event in
which a reporting entity (the acquirer) obtains control of one
or more businesses (the acquiree).
Ind AS 103 “Business Combinations” deals with the
accounting for business combinations in standalone as well as
consolidated financial statements.
A set of assets acquired and liabilities assumed are typically
regarded as a business If they can together run independently
as a going concern
12. Definitions
1. Acquiree: The business or businesses that the acquirer obtains
control of in a business combination.
2. Acquirer: The entity that obtains control of the acquire.
3. Acquisition date: The date on which the acquirer obtains control of
the acquiree.
4. Consolidated Financial Statement (CFS).- CFS means financial
statement of a parent (i.e. holding co.) and its subsidiaries as a
single economic entity. CFS includes the following :
a) Balance Sheet
b) Profit and Loss Account
c) Notes to accounts
d) Cash Flow Statement
13. 5.Subsidiary : It is an enterprise that is controlled by another
enterprise (known as parent)
6.Parent : It is an enterprise that has one or more subsidiaries.
7.Group : A group is set of parent and all its subsidiaries.
8.Equity : It is the residual interest in the assets of the
enterprise after deducting all its liabilities
9. holding company -is any company which holds more than
half of the equity share capital of other companies or controls
the composition of the board of directors of other companies
Definitions
14.
15. business
• A business consists of inputs and processes applied to those inputs
that have the ability to create outputs
• Inputs (e.g. employees, non current assets)
• Processes (e.g. Strategic/operation management )
• Outputs ( e.g. Product.)
16. How Business combinations are accounted?
• Accounting of business combination depends on whether the BC is by
acquisitions/ mergers(A) or under common Control (B).
• The former is accounted by purchase method and the latter by pooling of
interest method
• acquisitions/ mergers- purchase method
under common Control- pooling of interest method
17. Initial Accounting of BC
• If initial accounting of BC could be done only on provisional
measurement at the end of the reporting period,
• adjustments to provisional measurement based on new information
as to facts and circumstances that existed at the acquisition date are
allowed within one year of the acquisition date
18. Mergers/Acquisitions
• Accounting of Business Combination under Ind. AS 103 is “Acquisition Method”
for all BCs other than under common control and that are accounted under
purchase method.
• Net assets taken over including intangible assets and contingent liabilities to be
recognised at fair value
• It should be noted that ‘the acquirer shall recognise as of the acquisition date
and a contingent liability assumed in a business combination if it is a present
obligation that arises from past events
• its fair value can be measured reliably’.
• BC transactions under common control are accounted under pooling of interest
method..
19. Acquisition cost
are accounted as expenses in the period they are in Acquisition related
costs are accounted as expenses in the period they are
Cannot be capitalised
a) Cost of maintaining an acquisitions department
b) Cost of internal staff who work on the deal
c) Cost of investigation
d) Issue costs for debt or equity
e) Direct costs related to acquisition like consultant fees, rating fee etc.
20. Control
• Ownership of more than half the voting right of another entity
• Power over more than half of the voting rights by agreement with
investors
• Power to govern the financial and operating policies of the other
entity under statute/ agreement
• Power to remove / appoint majority of directors
21. Acquisition method
The acquisition method is used for all business combinations.
Steps in applying the acquisition method are:
.
Who is
acquirer
Date of
acquisition
Considerati
on
Transferred
Measurement
principle
Goodwill/
Bargain
purchase
22. 1. Who is the Acquirer?
• For each business combination, one of the combining entities shall be
identified as the acquirer.
• The entity that obtains control of the acquiree is identified as acquirer
in all business
• The following factors are considered in making that determination :
1. Acquirer is usually the entity that transfers the cash or other assets or incurs
the liabilities.
2. Acquirer is usually the entity that issues its equity interests.
3. Acquirer normally has the largest portion of the voting rights in the combined
entity
4. Acquirer will have ability to elect or appoint or to remove a majority of the
members of the governing body of the combined entity.
23. 2. Date of acquisition:
Generally the date on which the acquirer:
• legally transfers the consideration,
• acquires the assets and assumes the liabilities of the acquiree will
normally be the closing date,
• However, the acquirer might obtain control on a date that is either
earlier or later than the closing date.
• the acquisition date precedes the closing date if a written agreement provides
that the acquirer obtains control of the acquiree on a date before the closing
date.
24. 3.Consideration transferred:
• The consideration transferred in a business combination shall be
measured at fair value,
• which shall be calculated as the sum of the acquisition-date
• fair values of the assets transferred by the acquirer, the liabilities
incurred by the acquirer to former owners of the acquiree and the
equity interests issued by the acquirer.
25. 4.Recognition and measurement principle:
• At the acquisition date, the acquirer shall recognize, separately
from goodwill:
• the identifiable assets acquired,
• the liabilities assumed; and
• any non controlling interest in the acquiree.
26. 5.Measurement of goodwill:
Goodwill is the difference between
A) the considerations transferred + the amount of any non-controlling
interest in the acquiree and + the acquisition-date fair value of any
previous equity interest in the acquire
B) -over the fair value of the identifiable net assets acquired.
Goodwill is recognised as an asset representing the future economic
benefits arising from other assets acquired in a business combination that
are not individually identified and separately recognised
• .
27. Bargain purchase
• A bargain purchase is one where the goodwill is negative.
• acquirer shall recognise the resulting gain in other comprehensive income on the
acquisition date and accumulate the same in equity as capital reserve
28. 1. Identifying an acquirer
For each business combination, one of the combining entities shall be
identified as the acquirer.
2. Acquisition date
The acquirer shall identify the acquisition date – the date on which it obtains
control of the acquiree.
3. Consideration Transfer & Acquired assets and liabilities
Ind AS 103 establishes the following principles in relation to the recognition
and measurement of items arising in a business combination:
4.Measurement principle: All assets acquired and liabilities assumed in a
business combination are measured at acquisition-date FV
5.Goodwill /Bargin Purchase- Identifiable assets acquired, liabilities
assumed, and NCI in the acquiree, are recognised separately from goodwill.
29. How to account the assets or group of assets that
are purchased with no business input or process
• If the assets or group of assets are purchased that has no business
input or process; they are mere purchase of assets and accordingly
accounted.
• Therefore, no goodwill or negative goodwill involved: and the assets
will be in the books at their acquisition value.
• These are also outside the purview of the Ind.AS 103
30. Contingent consideration:
• The consideration the acquirer transfers in exchange for the acquiree includes
any asset or liability resulting from a contingent consideration arrangement.
• The acquirer shall recognise the acquisition-date fair value of contingent
consideration as part of the consideration transferred in exchange for the
acquiree.
• and that is considered for computation of Goodwill /capital Reserve arising on BC.
• Subsequent accounting depends on whether contingent consideration is equity
or financial asset/ liability.
31. Contingent consideration:
Contingent consideration to be paid by the acquirer:
Initial treatment:
Recognition – Always recognise
Measurement – Fair value at acquisition date
Classification – As Financial Instrument in most cases liability /equity
as per IndAS 32 ( Financial Instruments-disclosure)
Subsequent treatment:
Equity – Not re-measured
Liability – Re-measured at fair value through P&L in accordance
with IndAS 109 (Financial Instruments-guidance)
No adjustment made to goodwill,
32. Non Controlling Interest
• It is the situation ,where the control of Parent entity is less than 100%
which arises a situation to have another interested party who has
rights in the Investee but it is not a controlling interest.
• It loosely call it as Minority Interest also where the holder/s of these
portion of voting rights do not have controlling interest in the
Investee.
33. • fair value-
The amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm’s length transaction.
• Equity interests
For the purposes of this Indian Accounting Indian Accounting Standards
26 Standard, equity interests is used broadly to mean ownership
interests of investor-owned entities and owner, member or participant
interests of mutual entities.
• Owners
For the purposes of this Indian Accounting Standard, owners is used
broadly to include holders of equity interests of investor-owned entities
and owners or members of, or participants in, mutual entities
34. SUBSEQUENT MEASUREMENT
• In general, after the date of a business combination an acquirer
measures and accounts for assets acquired and liabilities assumed or
incurred in accordance with other applicable IND AS
• However, IND AS 103 includes accounting requirements for
reacquired rights, contingent liabilities, contingent consideration and
indemnification assets
35. DISCLOSURE
• The acquirer is required to disclose information that enables users of
its FS to evaluate the nature and financial effect of a business
combination that occurs either during the current reporting period
but before the FS are authorised for issue.
• The acquirer should disclose information that enable users of its FS to
evaluate the financial effects of adjustments recognised in the current
reporting period that relate to business combination.
36. CASE STUDY 1 of consolidation Ind as 103
• Rahul ltd ,a public limited company which have business of garments
manufacturing have proposed to acquire another entity - mohan ltd ,which is
a public limited company also a garments manufacturer and for this purpose
The discussion is held between Board of directors of Rahal ltd, the Board
meeting of Rahul ltd held on 1 July 2019
• Rahul ltds Called AGM at 1 august 2019 ,board of directors present, this -
Resolution (proposal) – Of “Acquisition of Mohan ltd “ at AGM(annual general
meeting ) of company and BOD describes the benefits of acquisition, After the
discussion of this resolution company’s shareholders passed the SR(Special
resolution ) in the AGM.
• Than the meeting of executives of Rahul ltd and Mohan ltd held on than the
discussion about The Procedures of acquisition, consideration and other
necessary matters are discussed
• At 31-3-2020,- Deal will finalised and Rahul Ltd Acquire control of Mohan Ltd by
purchasing the 80% Shares of Mohan Ltd @ Rs. 18 Per Share
37. Questions are
• 1. Who is acquirer
• 2. Who is acquire
• 3. Which is acquisition date
• 4. what method is used in accounting
• 5. Non Controlling Interest
• 6. Consideration
• 7. Goodwill
• 8. Which is initial recognition
• 9. What are the subsequent measurement
• 10. Why it is not asset acquisition
40. Calculation of Consideration Paid by Rahul ltd to Mohan Ltd
• No of share acquired = 100000 x 80% =80,000 Share
• Consideration paid = 80000x18 = 14,40,000
• Calculation of Fair value of Share of Mohan Ltd
Price of = share capital + Reserve and surplus/No. of Shares
= 1000000+500000/100000 =Rs. 15 per share
41. • Calculation of Non Controlling Interest
= Rs 150 X 20000 = 300000
Calculation Fair Value of Net Assets
= Total Assets – Outside Liabilities
=2000000-300000-100000-100000=1500000
Calculation of goodwill
= considerations transferred + non-controlling interest -over the fair
value of the identifiable net assets acquired
= 14,40,000+3,00,000-15,00,000=2,40,000
46. Case study -2
John ltd is a famous for manufacturing bakery products a 30 year old
company with a market goodwill .they have business whole north india.
the company wants to increases its sales , profit . They decided a
expansion plan to purchase another business of same area so there is
the Meeting between board of directors is happen and they decided to
enter in south Indian market , which have good future for bakery items
John ltd gets a proposal of Ayer & sons , it is a sole proprietorship firm
,its business spread over Karnataka , they wants to sell their firm to
enter new business of gold Jewry . They gave offer to john ltd on 15
may 2018. and but the condition of payment must be in Check means
they requires cash consideration.
48. • On discussion the conclusion incurred that –
• Consideration paid 14,00,000 to Ayer & sons on 31 dec 2018 and get
control of ayer & sons
Questions are
• 1. Who is acquirer
• 2. Who is acquire
• 3. Which is acquisition date
• 4. what method is used in accounting
• 5. Goodwill / Bargain purchase
• 6. Why it is not asset acquisition
• 7. Which is initial recognition
• 8. What are the subsequent measurement
49.
50. 1. Ind AS 103 – related to
a. Earning per share
b. Business combination
c. Impairment loss
d. PPE
2. ……………………..is a transaction or other event in which a reporting
entity (the acquirer) obtains control of one or more businesses
a. Earning per share
b. Business combination
c. Impairment loss
d. PPE
51. 3. IND-AS 103 Not apply to:
a) Joint ventures.
b) Asset acquisition
c) None of the above
d) A and B
4. ……………… is The business or businesses that the acquirer obtains
control of in a business combination
a) Acquiree
b) Acquirer
c) Joint venture
d) Associate
52. 5. ……………… is The entity that obtains control of the acquire.
a) Acquiree
b) Acquirer
c) Joint venture
d) Associate
6.…………. The date on which the acquirer obtains control of the acquiree.
a) Purchase date
b) Acquisition date
c) Sale date
d) None of the above
53. 7………………… is consists of inputs and processes applied to those inputs
that have the ability to create outputs
a) Charity
b) Business
c) Activity
d) None of the above
8. Business is the process which not include
a) Inputs
b) Processes
c) Taxation
d) Outputs
54. 9. ……. is used for all business combinations
a) Impairment method
b) EPS Method
c) acquisition method
d) None of the above
10. Which is not Steps of the acquisition method is:
a) Identifying an acquirer
b) Acquisition date
c) Acquired assets and liabilities
d) Prepare reports
55. 11. ……………means financial statement of a parent (i.e. holding co.) and
its subsidiaries as a single economic entity
A- Consolidated financial statement
B -balance sheet
C- joint statement
D- None of these
12. Which is not part of Consolidated Financial statement(CFS)
a) Balance Sheet
b) Profit and Loss Account
c) Ratio analysis
d) Cash Flow Statement
56. 11. The consideration transferred in a business combination shall be
measured at acquisition date at …………
a) At Fair value
b) At market value
c) At book value
d) None of the above
12..Recognition and measurement principle includes:
a) At the acquisition date, the acquirer shall recognize, separately
from goodwill:
b) the identifiable assets acquired
c) the liabilities assumed
d) All of the above
57. 13. A bargain purchase is one where the goodwill is………………..
a) Positive
b) Negative
c) Zero
d) None of the above
14. Consideration+ NCI + Previously held equity interest- net asset
acquired is Provides
a) Purchase consideration
b) Goodwill
c) Merger
d) None of the above
58. 15. the assets or group of assets that are purchased By an entity is
comes under ind as 103
a. Yes
b. No
16. Acquirer should recognise bargain purchase is ………
a) revenue reserve
b) Profit and loss
c) Assets
d) Capital reserve
59. 17. For common control entities are accounted under………………………….
a) pooling of interest method
b) Acquisition Method
c) Both a and b
d) None of these
18. Business Combination under Ind. AS 103 are accounted
under……………….. Method
a) pooling of interest method
b) Acquisition Method
c) Both a and b
d) None of these
60. 19. Acquisition cost not including
a) Purchase consideration
b) Cost of internal staff who work on the deal
c) Cost of investigation
d) Issue costs for debt or equity
20. Which is the enterprise that is controlled by another enterprise
a) Subsidiary
b) Holding
c) Joint venture
d) None of the above
61. 21. ……………is an enterprise that has one or more subsidiaries
a) Subsidiary
b) Parent
c) Joint venture
d) None of the above
22. : A …………. is set of parent and all its subsidiaries
a) Subsidiary
b) Parent
c) Joint venture
d) Group
62. 23. : …………………….. the residual interest in the assets of the enterprise after
deducting all its liabilities
a) Subsidiary
b) Parent
c) Equity
d) Group
24. …………………….is any company which holds more than half of the equity share
capital or controls the composition of the board of directors of other
companies
a) Subsidiary
b) Holding
c) Equity
d) Group
63. 25. Strategic/operation management include in
a) Input
b) Process
c) Output
d) Non of the above
26.Which is not feature of acquirer
a) that transfers the cash or other assets or incurs the liabilities.
b) entity that issues its equity interests.
c) Acquirer normally has the No voting rights in the entity
d) ability to elect or appoint or to remove a majority of the members of the
governing body of the combined entity.
64. 27. Acquisition date is the date on which
a) legally transfers the consideration and assets and liabilities taken over
b) On which date written agreement provides that the acquirer obtains
control of the acquiree
c) Both A and B
d) None of the above
28. where the control of Parent entity is less than 100% which arises a
situation ,so remaining portion is called
a) Holding situation
b) Non controlling Interest
c) Joint venture
d) None of the above
65. 29.. Which is the correct sequence of acquisition method-
1) Measurement principle
2) Goodwill/ Bargain purchase
3) Date of acquisition
4) Consideration Transferred
5) Who is acquirer
a) 2-4-3-5-1
b) 5-3-4-1-2
c) 5-2-3-4-1
d) 5-3-1-4-2
66. 30. Which step not include in acquisition Method
a) Measurement principle
b) Goodwill/ Bargain purchase
c) Preparation of account
d) Consideration Transferred
e) Who is acquirer
32. Which is not the part of Recognition and measurement principle:
a) At the acquisition date, the acquirer shall recognize, separately
from goodwill:
b) the identifiable assets acquired,
c) Prepare comparative CFS
d) any non controlling interest in the acquiree.
67. 33. consideration the acquirer transfers in exchange for the acquiree
includes any asset or liability resulting from a contingent consideration
arrangement
68. 103,Acquirer, fair values, equity interests,
bargain purchase, consideration transferred
1. …….is usually the entity that transfers the cash or other assets or
incurs the liabilities
2. Ind AS ……….“Business Combinations” deals with the accounting for
business combinations
3.acquisition date ………..of the assets transferred by the acquirer.
4. A ……..is one where the goodwill is negative.
5. Acquirer is usually the entity that issues its…………….
6. The ……………in a business combination shall be measured at fair
value,
69. 1. businesses that the acquirer obtains
control
a. acquirer
2. entity that obtains control of the
acquiree
b. Recognition and measurement
principle:
3. The date on which the acquirer
obtains control
c. financial statement of a parent (i.e.
holding co.) and its subsidiaries as a
single economic entity
4. Consolidated Financial Statement
(CFS).- CFS means
d. Acquisition date:
5. identifiable assets acquired e. acquiree
70. MATCH THE FOLLOWING
A. IND AS 12 Business combination
B. IND AS 16 Impairment of assets
C. IND AS 33 Accounting for tax
D. IND AS 36 PPE
E. IND AS 103 EPS
71. 1. Subsidiary a. Non controlling interest
2. A bargain purchase b. controlled by another enterprise
3. fair value- c. Equity interest
4. NCI d. goodwill is negative
5. ownership interests of investor-
owned entities and owner
e. The amount for which an asset could
be exchanged
