Business Combinations, Consolidation and Separate Financial Statements (Ind AS 110, 111, 112, 27, 28, 103)
Ind AS 103, 110, 111, 112, 27 and 28 test acquisition accounting and the boundaries of the group.
Core rules
- Ind AS 103: identify the acquirer, acquisition date, fair value of consideration and identifiable net assets. Goodwill is consideration plus NCI plus previously held interest less net assets.
- NCI is measured at fair value or proportionate share of identifiable net assets.
- Acquisition-related costs are expensed; contingent consideration is remeasured for liability-classified items.
- Ind AS 110: control requires power over the investee, exposure to variable returns and ability to use power to affect returns. Intragroup balances, income and dividends are eliminated.
- Ind AS 111: joint control is contractually agreed sharing; classify as joint operation (rights to assets and obligations) or joint venture (rights to net assets, equity method).
- Ind AS 27: separate financial statements use cost or Ind AS 109 for subsidiaries; associates and joint ventures at cost or equity method.
- Ind AS 28: significant influence is presumed at 20%; equity method adjusts for post-acquisition profits, OCI and dividends.
Worked example
P buys 80% of S for ₹800 lakh. S's identifiable net assets are ₹900 lakh. NCI at proportionate share = 20% × 900 = ₹180 lakh. Goodwill = 800 + 180 − 900 = ₹80 lakh. If NCI is measured at fair value of ₹200 lakh, goodwill is ₹100 lakh.
Traps
- Expensing NCI in the goodwill arithmetic.
- Treating a joint operation as a joint venture.
- Eliminating only the parent's share of intragroup profit.
- Measuring contingent consideration at initial fair value only when it is an asset.