Financial Accounting and Reporting (Consolidation, Business Combinations, Ind AS/IFRS Application)
This domain tests control-based consolidation under Ind AS 110 and the acquisition method under Ind AS 103, including goodwill, non-controlling interest (NCI), step acquisitions, deferred tax on fair-value uplifts and intragroup eliminations. Questions usually combine a consolidation schedule with a disclosure or deferred-tax consequence.
Core rules
- Control exists when the investor has power over the investee, exposure to variable returns and the ability to use that power to affect returns. Potential voting rights count only if currently exercisable.
- Under Ind AS 103, identify the acquirer and acquisition date, recognise identifiable assets and liabilities at fair value, and measure NCI either at fair value or at its proportionate share of net identifiable assets, choosing separately for each transaction.
- Goodwill = consideration transferred + NCI + fair value of previously held interest − net identifiable assets acquired.
- Use uniform accounting policies, eliminate intragroup balances, income and unrealised profit, and recognise deferred tax on temporary differences arising from fair-value uplifts.
Worked example
P acquires 80% of S for ₹800 crore. S's identifiable net assets at acquisition have a fair value of ₹700 crore; a ₹100 crore uplift creates a 25% deferred tax liability. Net assets for consolidation = 700 − 25 = 675. NCI at proportionate share = 20% × 675 = 135. Goodwill = 800 + 135 − 675 = 260. Reasoning: the DTL forms part of the net assets acquired, so it increases goodwill. If NCI were measured at fair value of 150, goodwill would be 800 + 150 − 675 = 275.
Marks-losing traps
Ignoring the deferred tax effect of fair-value uplifts; measuring NCI at fair value but failing to value it at the acquisition date; capitalising acquisition-related costs or netting them against consideration instead of expensing them; treating a step acquisition as a fresh purchase of 100% and omitting remeasurement of the previously held stake.