Business Combinations, Consolidation and Group Reporting
Acquisition method
Ind AS 103 requires: identify the acquirer; determine the acquisition date; recognise and measure identifiable assets acquired and liabilities assumed at fair value; and recognise goodwill or a bargain purchase gain.
The arithmetic
Consideration transferred (including contingent consideration at fair value) + non-controlling interest + fair value of previously held interests − fair value of identifiable net assets = goodwill. NCI may be measured at fair value or at its proportionate share of net assets; the choice changes goodwill but not the net assets recognised.
Control and group reporting
Ind AS 110 defines control as power over the investee, exposure to variable returns, and the ability to use power to affect those returns. Ind AS 111 classifies joint arrangements as joint operations or joint ventures; Ind AS 28 applies the equity method to associates and joint ventures. Intragroup balances, income and unrealised profits are eliminated. Common-control combinations follow Appendix C of Ind AS 103 (pooling of interests), so no new goodwill arises.
Worked example
P acquires 80% of S for cash ₹900 lakh. Fair value of S's identifiable net assets is ₹1,000 lakh. NCI at proportionate share is ₹200 lakh, so goodwill = 900 + 200 − 1,000 = ₹100 lakh. If NCI is measured at fair value of ₹230 lakh, goodwill becomes ₹130 lakh - the increase is within goodwill, not a bargain purchase gain. Acquisition-related costs of ₹20 lakh are expensed, not added to consideration.
Traps
- Recognising an assembled workforce or a contingent liability that fails recognition criteria.
- Booking a bargain purchase gain without reassessing measurement.
- Manufacturing goodwill in a common-control combination.