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CA Final FR Business Combination and Corporate Restructuring Important Solved Questions

Business Combination and Corporate Restructuring, Important Questions with Solutions for CA Final Financial Reporting May & Nov 2021 Exams

Question 1 –

ABC Ltd. prepares consolidated financial statements upto 31st March each year. On 1st July 2017, ABC Ltd. acquired 75% of the equity shares of JKL Ltd. and gained control of JKL Ltd. the issued shares of JKL Ltd. is 1,20,00,000 equity shares. Details of the purchase consideration are as follows:

  • On 1st July, 2017, ABC Ltd. issued two shares for every three shares acquired in JKL Ltd. On 1st July, 2017, the market value of an equity share in ABC Ltd. was Rs.6.50 and the market value of an equity share in JKL Ltd. was Rs.6.
  • On 30th June, 2018, ABC Ltd. will make a cash payment of Rs.71,50,000 to the former shareholders of JKL Ltd. who sold their shares to ABC Ltd. on 1st July, 2017. On 1st July, 2017, ABC Ltd. would have to pay interest at an annual rate of 10% on borrowings.
  • On 30th June, 2019, ABC Ltd. may make a cash payment of Rs.3,00,00,000 to the former shareholders of JKL Ltd. who sold their shares to ABC Ltd. on 1st July, 2017. This payment is contingent upon the revenues of ABC Ltd. growing by 15% over the two-year period from 1st July, 2017 to 30th June, 2019. On 1st July, 2017, the fair value of this contingent consideration was Rs.2,50,00,000. On 31st March, 2018, the fair value of the contingent consideration was Rs.2,20,00,000.

On 1st July, 2017, the carrying values of the identifiable net assets of JKL Ltd. in the books of that company was Rs.6,00,00,000. On 1st July, 2017, the fair values of these net assets was Rs.7,00,00,000. The rate of deferred tax to apply to temporary differences is 20%.

During the nine months ended on 31st March, 2018, JKL Ltd. had a poorer than expected operating performance. Therefore, on 31st March, 2018 it was necessary for ABC Ltd. to recognise an impairment of the goodwill arising on acquisition of JKL Ltd., amounting to 10% of its total computed value.

Compute the impairment of goodwill in the consolidated financial statements of ABC Ltd. under both the methods permitted by Ind AS 103 for the initial computation of the non-controlling interest in JKL Ltd. at the acquisition date.

Solution –

Computation of goodwill impairment

NCI at fair value NCI at of net assets
Rs. in ‘000 Rs. in ‘000
Cost of investment
Share exchange (12,000 x 75% x 2/3 x Rs. 6.50) 39,000 39,000
Deferred consideration (7,150 / 1.10) 6,500 6,500
Contingent consideration 25,000 25,000
Non-controlling interest at date of acquisition:
Fair value – 3000 x Rs. 6 18,000
% of net assets – 68,000 (Refer W.N.) x 25% 17,000
Net assets on the acquisition date (Refer W.N.) (68,000) (68,000)
Goodwill on acquisition 20,500 19,500
Impairment @ 10% 2,050 1,950

Working Note:

Rs. ’000

Net assets on the acquisition date
Fair value at acquisition date 70,000
Deferred tax on fair value adjustments [20% x (70,000 – 60,000)] (2,000)
68,000

Question 2 –

On 1 April 20X1, Alpha Ltd. acquires 80 percent of the equity interest of Beta Pvt. Ltd.  in exchange for cash of Rs 300. Due to legal compulsion, Beta Pvt. Ltd. had to dispose of their investments by a specified date.  Therefore, they did not have sufficient time to market Beta Pvt. Ltd. to multiple potential buyers. The management of Alpha Ltd. initially measures the separately recognizable identifiable assets acquired and the liabilities assumed as of the acquisition date in accordance with the requirement of Ind AS 103. The identifiable assets are measured at Rs 500 and the liabilities assumed are measured at Rs 100.  Alpha Ltd. engages on independent consultant, who determined that the fair value of 20 per cent non-controlling interest in Beta Pvt. Ltd. is Rs 84.

Alpha Ltd. reviewed the procedures it used to identify and measure the assets acquired and liabilities assumed and to measure the fair value of both the non-controlling interest in Beta Pvt. Ltd. and the consideration transferred.  After the review, it decided that the procedures and resulting measures were appropriate.

Calculate the gain or loss on acquisition of Beta Pvt. Ltd. and also show the journal entries for accounting of its acquisition. Also calculate the value of the non-controlling interest in Beta Pvt. Ltd. on the basis of proportionate interest method, if alternatively applied?

Solution –

The amount of Beta Pvt. Ltd. identifiable net assets [Rs. 400, calculated as Rs. 500 – Rs. 100) exceeds the fair value of the consideration transferred plus the fair value of the non-controlling interest in Beta Pvt. Ltd. [Rs. 384 calculated as 300 + 84]. Alpha Ltd.  measures the gain on its purchase of the 80 per cent interest as follows:

Rs. in lakh
Amount of the identifiable net assets acquired (Rs. 500 – Rs. 100) 400
Less: Fair value of the consideration transferred for Alpha Ltd.

80 per cent interest in Beta Pvt. Ltd.

 

300

Add: Fair value of non-controlling interest in Beta Pvt. Ltd.   84 (384)
Gain on bargain purchase of 80 per cent interest     16

Journal Entry

Rs. in lakhs Rs. in lakhs
Identifiable assets acquired 500

To Cash

300

To Liabilities assumed

100

To OCI/Equity-Gain on the bargain purchase

16

To Equity-non controlling interest in Beta Pvt Ltd.

84

If the acquirer chose to measure the non controlling interest in  Beta Pvt. Ltd.  on the basis  of its proportionate interest in the identifiable net assets of the acquire, the recognized amount of the non controlling interest would be Rs. 80 (Rs. 400 x 0.20). The gain on  the  bargain purchase then would be Rs. 20 (Rs. 400- (Rs. 300 + Rs. 80)).


Question 3 –

Smart Technologies Inc. is a Company incorporated in India in 1998 having business in the field of development and installation of softwares, trading of computer peripherals and other IT related equipment and provision of cloud computing services along with another services incidental thereto. It is one of the leading brands in India.

After witnessing immense popularity and support in its niche market, Smart Technologies further grew by bringing its subsidiaries namely:

Company Name Principle Activity
Cloudustries India Private Limited Provision of cloud computing services.
MicroFly India Private Limited Trading of computer peripherals like mouse, keyboard, printer etc.

Smart Technologies  started  preparing  its  financial  statements  based  on  Ind  AS  from  1st April, 2015 on voluntary basis. The Microfly India Pvt. Ltd. is planning to merge the business of Cloudstries India Pvt. Ltd. with its own for which it presented before  the members in the meeting the below extract of latest audited Balance Sheet of Cloudustries (prepared on the basis of Ind AS) for the year ended 31st March, 2017:

Balance Sheet as  at March 31, 2017

(Rs. in Crores)

Assets
Non-current assets
Property, plant and Equipment 15.00
 

Current Assets

15.00
(a) Financial assets
Trade Receivables 10.00
Cash and cash equivalents 10.00
Other current assets 8.00
28.00
Total 43.00
Equity and Liabilities
Equity
Equity Share Capital 45.00
Other Equity
Reserves and Surplus (Accumulated Losses)* (24.80)
 

Liabilities

  20.20
Non-current Liabilities
Financial liabilities
Borrowings 2.80
Current Liabilities 20.00
22.80
Total 43.00

*The Tax Loss carried forward of the company is Rs. 27.20 crores

On September 5, 2017, the merger got approved by the Directors. The purchase consideration payable by MicroFly to Cloudustries was fixed at  Rs. 18.00 crores payable  in cash and that MicroFly take over all the assets and liabilities of Cloudustries.

Present the statement showing the calculation  of  assets/liabilities  taken  over  as  per Ind AS. Also mention the accounting of difference between consideration and assets/liabilities taken over.

Solution –

Before the merger, Cloudustries and MicroFly are the subsidiary of Smart Technologies Inc. As the control is not transitory, the proposed merger will fall under the category of Business combination of entities under common control, it will be accounted as per Appendix C of Ind AS 103 “Business Combination” and Pooling of Interest Method would be applied.

Statement showing the calculation of assets/liabilities taken over and treatment  of difference between consideration and assets/liabilities taken over:

(a) Net asset taken over:

(Rs. in crore)

Assets taken over:
Property, Plant and Equipment 15.00
Cash and cash equivalents 10.00
Other current assets 8.00
Trade Receivables 10.00
Total – A 43.00
Less: Liabilities taken over:
Borrowings 2.80
Current Liabilities 20.00
Total – B 22.80
Net Asset taken over (A-B) 20.20

(b) Treatment of difference between consideration and assets/liabilities taken over:

(Rs. in crore)

Net Asset taken over – A 20.20
Less: Purchase Consideration – B 18.00
Difference (A – B)   2.20

The difference between consideration and assets/liabilities taken over of Rs. 2.20 crore shall be transferred to capital reserve.


Question 4 –

Moon Ltd. acquires 75% of Star Limited on 1st April, 2017 for consideration transferred Rs. 60 lakh. Moon Limited intends to recognize the Non-Controlling Interest (NCI) at proportionate share of fair value of identifiable assets. With the assistance of a suitably qualified valuation professional, Moon Limited measures the identifiable net assets of Star Limited at Rs. 90 lakh. Moon Limited performs a review and determines that the business combination did not include any transactions that should be accounted for separately from the business combination.

State whether the procedures followed by Moon Limited and the resulting measurements are appropriate or not. Also calculate the bargain purchase gain in the process.

Solution –

The amount of Star Ltd.’s identifiable net assets exceeds the fair value of the consideration transferred plus the fair value of the NCI in Star Ltd.’s, resulting in an initial indication of a gain on a bargain purchase. Accordingly, Moon Ltd. reviews the procedures it used to identify and measure the identifiable net assets acquired, to measure the fair value of both the NCI and the consideration transferred, and to identify transactions that were not part of the business combination.

Following that review, Moon Ltd. can conclude that the procedures followed and the resulting measurements were appropriate.

Rs.
Identifiable net assets 90,00,000
Less:  Consideration transferred (60,00,000)
NCI (90,00,000 × 25%) (22,50,000)
Gain on bargain purchase   7,50,000

Question 5 –

How should contingent consideration payable in relation to a business combination be accounted for on initial recognition and at the subsequent measurement as per Ind AS in the following cases:

i) On 1 April 2016, A Ltd. acquires 100% interest in B Ltd. As per the terms of agreement the purchase consideration is payable in the following 2 tranches:

  • an immediate issuance of 10 lakhs shares of A Ltd. having face value of INR 10 per share;
  • a further issuance of 2 lakhs shares after one year if the profit before interest and tax of B Ltd. for the first year following acquisition exceeds INR 1 crore.

The fair value of the shares of A Ltd. on the date of acquisition is INR 20 per share. Further, the management has estimated that on the date of acquisition, the fair value of contingent consideration is Rs. 25 lakhs.

During the year ended 31 March 2017, the profit before interest and tax of B Ltd. exceeded Rs. 1 crore. As on 31 March 2017, the fair value of shares of A Ltd. is Rs. 25 per share.

ii) Continuing with the fact pattern in (a) above except for:

  • The number of shares to be issued after one year is not fixed.
  • Rather, A Ltd. agreed to issue variable number of shares having a fair value equal to Rs. 40 lakhs after one year, if the profit before interest and tax for the first year following acquisition exceeds Rs. 1 crore. A Ltd. issued shares with Rs. 40 lakhs after a year.

Solution –

Paragraph 37 of Ind AS 103, inter alia, provides that the consideration transferred in a business combination should be measured at fair value, which should be calculated as the sum of (a) the acquisition-date fair values of the assets transferred by the acquirer, (b) the liabilities incurred by the acquirer to former owners of the acquiree and (c) the equity interests issued by the acquirer.

Further, paragraph 39 of Ind AS 103 provides that 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.

With respect to contingent consideration, obligations of an acquirer under contingent consideration arrangements are classified as equity or a liability in accordance with Ind AS 32 or other applicable Ind AS, i.e., for the rare case of non-financial contingent consideration. Paragraph 40 provides that the acquirer shall classify an obligation to pay contingent consideration that meets the definition of a financial instrument as a financial liability or as equity on the basis of the definitions of an equity instrument and a financial liability in paragraph 11 of Ind AS 32, Financial Instruments: Presentation. The acquirer shall classify as an asset a right to the return of previously transferred consideration if specified conditions are met. Paragraph 58 of Ind AS 103 provides guidance on the subsequent accounting for contingent consideration.

i) In the given case the amount of purchase consideration to be recognised on initial recognition shall be as follows:

Fair value of shares issued (10,00,000 x Rs. 20) Rs. 2,00,00,000
Fair value of contingent consideration Rs. 25,00,000
Total purchase consideration Rs. 2,25,00,000

Subsequent measurement of contingent consideration payable for business combination

In general, an equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Ind AS 32 describes an equity instrument as one that meets both of the following conditions:

  • There is no contractual obligation to deliver cash or another financial asset to another party, or to exchange financial assets or financial liabilities with another party under potentially unfavourable conditions (for the issuer of the instrument).
  • If the instrument will or may be settled in the issuer’s own equity instruments, then it is:
    • a non-derivative that comprises an obligation for the issuer to deliver a fixed number of its own equity instruments; or
    • a derivative that will be settled only by the issuer exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

In the given case, given that the acquirer has an obligation to issue fixed number of shares on fulfilment of the contingency, the contingent consideration will be classified as equity as per the requirements of Ind AS 32.

As per paragraph 58 of Ind AS 103, contingent consideration classified as equity should not be re-measured and its subsequent settlement should be accounted for within equity.

Here, the obligation to pay contingent consideration amounting to Rs. 25,00,000 is recognised as a part of equity and therefore not re-measured subsequently or on issuance of shares.

ii) The amount of purchase consideration to be recognised on initial recognition is shall be as follows:

Fair value shares issued (10,00,000 x Rs. 20) Rs. 2,00,00,000
Fair value of contingent consideration Rs. 25,00,000
Total purchase consideration Rs. 2,25,00,000

Subsequent measurement of contingent consideration payable for business combination

The contingent consideration will be classified as liability as per Ind AS 32.

As per paragraph 58 of Ind AS 103, contingent consideration not classified as equity should be measured at fair value at each reporting date and changes in fair value should be recognised in profit or loss.

As at 31 March 2017, (being the date of settlement of contingent consideration), the liability would be measured at its fair value and the resulting loss of Rs. 15,00,000 (Rs. 40,00,000 – Rs. 25,00,000) should be recognised in the profit or loss for the period. A Ltd. would recognise issuance of 160,000 (Rs. 40,00,000/ 25) shares at a premium of Rs. 15 per share.


Question 7 –

Notorola Limited has two divisions A and B. Division A has been making constant profits while Divisio B has been invariably suffering losses.

On 31st March 2018, the division-wise draft extract of the Balance Sheet was as follows:

(Rs.in crore)

A B Total
Fixed Assets Cost 500 1000 1500
Depreciation (450) (800) (1250)
Net Fixed Assets (A)     50   200     250
Current Assets 400 1000 1400
Less: Current Liabilities   (50)  (800)   (850)
Net Current Assets (B)   350    200     550
Total (A) + (B)   400    400     800
Financed by :
Loan Funds 600 600
Capital : Equity Rs. 10 each 50 50
Surplus   350 (200)   150
Total   400    400   800

Division B along with its assets and liabilities was sold for  Rs. 50 crore to Senovo Limited   a new company, who allotted 2 crore equity shares of Rs. 10 each at a  premium of  Rs. 15 per share to the members of Notorola Limited in full settlement of the consideration, in proportion to their shareholding  in the  company. One  of the  members of  the Notorola Limited was holding 52% shares of the company.

Assuming that, there are no other transactions, you are required to:

(i) Pass journal entries in the books of Notorola Limited.

(ii) Prepare the Balance Sheet of Notorola Limited after the entries in (i).

(iii) Prepare the Balance Sheet of Senovo Limited.

Balance Sheet prepared for (ii) and (iii) above should comply with the relevant Ind AS and Schedule III of the Companies Act, 2013. Provide Notes to Accounts, for ‘Other Equity’ in case of (ii) and ‘Share Capital’ in case of (iii), only.

Solution –

(i) Journal of Notorola Ltd.

(Rs. in crore)

Dr. Cr.
Loan Funds Dr. 600
Current Liabilities Dr. 800
Provision for Depreciation Dr. 800

To Fixed Assets

1,000

To Current Assets

1,000

To Capital Reserve

200
(Being division B along with its assets and liabilities sold to Senovo Ltd. for Rs. 50 crore)

In the given scenario, this demerger will meet the definition of common control transaction. Accordingly, the transfer of assets and liabilities will be derecognized and recognized as per book value and the resultant loss or gain will be recorded as capital reserve in the books of demerged entity (Notorola Ltd).

(ii) Notorola Ltd.

Balance Sheet after demerger

(Rs.in crore)

ASSETS Note No. Amount
Non-current assets
Property, Plant and Equipment 50
Current assets         400
        450
EQUITY AND LIABILITIES
Equity
Equity share capital (of face value of Rs.10 each) 1 50
Other equity 2 350
Liabilities
Current liabilities           50
        450

Notes to Accounts

(Rs. in crore)
1. Equity Share Capital
5 crore equity shares of face value of Rs. 10 each 50

Consequent to transfer of Division B to newly incorporated company Senovo Ltd., the members of the company have been allotted  2  crore equity  shares  of  Rs. 10  each  at  a  premium of Rs.  15   per  share  of   Senovo  Ltd.,  in   full  settlement  of  the consideration in proportion to their shareholding in the company

2. Other Equity
Surplus (350 – 200) 150
Add: Capital Reserve on reconstruction 200
350

(iii) Balance Sheet of Senovo Ltd.

(Rs.in crore)

Note No. Amount
ASSETS
Non-current assets
Property, Plant and Equipment 200
Current assets   1,000
 

EQUITY AND LIABILITIES

  1,200
Equity
Equity share capital (of face value of INR 10 each) 1 20
Other equity 2 (220)
Liabilities
Non-current liabilities
Financial liabilities
Borrowings 600
Current liabilities
Current liabilities    800
 1,200

Notes to Accounts

(Rs. in crore)
1. Share Capital
Issued and Paid-up capital
2 crore Equity shares of Rs. 10 each fully paid up 20
(All the above shares have been  allotted to the  members of Notorola Ltd. on takeover of Division B from  Notorola Ltd. as fully paid-up pursuant to contract without payment being received in cash)
2. Other Equity
Securities Premium 30
Capital reserve [50 – (1,200 – 1,400)] (250)
(220)

Question 10 –

The Balance Sheet of David Ltd. and Parker Ltd. as of 31st March, 2019 is given below:

(Rs. in lakh)

Assets David Ltd. Parker Ltd.
Non-current assets:
Property, plant and equipment 400 600
Investment 300 200
Current assets:
Inventories 300 100
Financial assets
Trade receivables 400 200
Cash and cash equivalents 150 200
Others    300    300
Total 1,850 1,600
Equity and Liabilities
Equity
Share capital – Equity shares of Rs. 100 each for Parker Ltd. & Rs. 10 each for David Limited  

500

 

400

Other Equity 700 275
Non-current liabilities:
Long term borrowings 200 300
Long term provisions 100 80
Deferred tax 20 55
Current liabilities:
Short term borrowings 130 170
Trade payables   200    320
Total 1,850 1,600

Other Information :

i. David Ltd. acquired 70% shares of Parker Ltd. on 1st April, 2019·by issuing its own shares in the ratio of 1 share of David Ltd. for every 2 shares of Parker Ltd. The fair value of the shares of David Ltd. was Rs. 50 per share.

ii. The fair value exercise resulted in the following :

1) Fair value of property, plant and equipment (PPE) on 1st April, 2019 wasRs. 450 lakh.

2) David Ltd. agreed to pay an additional payment as consideration that is  higher of Rs. 30 lakh and 25% of any excess profits in the first year after acquisition, over its profits in the preceding 12 months made by Parker Ltd.  This  additional amount will be due after 3 years. Parker Ltd. has earned Rs. 20 lakh profit in the preceding year and expects to earn another Rs. 10 lakh.

3) In addition to above, David Ltd. also has agreed to pay one of the founder shareholder-Director a payment of Rs. 25 lakh provided he stays with the Company for two years after the acquisition.

4) Parker Ltd. had certain equity settled share-based payment award (original award) which got replaced by the new awards issued by David Ltd. As per the original term, the vesting period was 4 years and as of the acquisition date the employees of Parker Ltd. have already served 2 years of service. As per the replaced awards, the vesting period has been reduced to one year (one year  from the acquisition date). The fair  value of the award on the acquisition date  was as follows: Original award – Rs. 6 lakh Replacement award – Rs. 9 lakh.

5) Parker Ltd. had a lawsuit pending with a customer who had made a claim of Rs. 35 lakh. Management reliably estimated the fair value of the liability to be Rs. 10 lakh.

6) The applicable tax rate for both entities is 40%.

You are required to prepare opening consolidated balance sheet of David Ltd. as on  1st April, 2019 along with workings. Assume discount rate of 8%.

Solution

Consolidated Balance  Sheet  of  David Ltd as on 1st April, 2019

(Rs. in lakh)

Amount
Assets
Non-current assets:
Property, plant and equipment 850.00
Investment 500.00
Current assets:
Inventories 400.00
Financial assets:
Trade receivables 600.00
Cash and cash equivalents 350.00
Others    600.00
Total 3,300.00
Equity and Liabilities
Equity
Share capital – Equity shares of Rs. 100 each 514.00
Other Equity 1,067.49
Non Controlling Interest 173.70
Non-current liabilities:
Financial liabilities:
Long term borrowings 500.00
Long term provisions (100+80+23.81) 203.81
Deferred tax 11.00
Current liabilities:
Financial liabilities:
Short term borrowings 300.00
Trade payables 520.00
Provision for law suit damages     10.00
Total 3,300.00

Working Notes:

a) Fair value adjustment- As per Ind AS 103, the acquirer is required to record the assets and liabilities at their respective fair value. Accordingly, the PPE will be recorded at Rs. 450 lakh.

b) The value of replacement award is allocated between consideration transferred and post combination expense. The portion attributable to purchase consideration is determined based on the fair value of the replacement award for the service rendered till the date of the acquisition.  Accordingly, Rs. 3 lakh (6 x 2/4) is considered as a part  of purchase consideration and is credited to David Ltd equity as this will be settled in  its own equity. The balance of Rs. 3 lakh will be recorded as employee expense in the books of Parker Ltd over the remaining life, which is 1 year in this scenario.

c) There is a difference between  contingent consideration and  deferred consideration. In the given case, Rs. 30 lakh is the minimum payment to be paid after 3 years and accordingly will be considered as deferred consideration. The other element is if company meet certain target then they will get 25% of that or Rs. 30 lakh whichever is higher. In the given case, since the criteria is the minimum what is expected to be  paid, the fair value of the contingent consideration has been considered as zero. The impact of time value on deferred consideration has been given @ 8%.

d) The additional consideration of Rs. 25 lakh to be paid to the founder shareholder is contingent to him/her continuing in employment and hence this will be consid ered as employee compensation and will be recorded as post combination expenses in the income statement of Parker Ltd.

Working Notes:

1. Computation of Purchase Consideration

Rs. in lakh

Particulars Amount
Share capital of Parker Ltd. 400
Number of shares 4,00,000
Shares to be issued 2:1 2,00,000
Fair value per share  50
Purchase consideration (2,00,000×70%xRs. 50 per share) (A) 70.00
Deferred consideration after discounting Rs. 30 lakh for 3 years @ 8% (B)  

23.81

Replacement award – Market based measure of the acquiree award ie Fair value of original award (6) x ratio of the portion of the vesting period completed (2) / greater of the total vesting period (3) or the original vesting period (4) of the acquiree award  ie (6 x 2 /4) (C)   3.00
Purchase consideration (A+B+C) 96.81

 2. Allocation of Purchase consideration

Particulars Book value
(A)
Fair value
(B)
FV adjustment
(A-B)
Property, plant and equipment 600 450 (150)
Investment 200 200
Inventories 100 100
Financial assets:
Trade receivables 200 200
Cash and cash equivalents 200 200
Others 300 300
Less: Financial Liabilities
Long term borrowings (300) (300)
Long term provisions (80) (80)
Deferred tax (55) (55)
Financial Liabilities
Short term borrowings (170) (170)
Trade payables (320) (320)
Contingent liability       –     (10)    (10)
Net assets (X) 675 515 (160)
Deferred tax asset on fair value adjustment (160 x 40%) (Y)  

    64

 

160

Net assets (X+Y) 579
Non-controlling interest (NCI) (579 x 30%) rounded off  

173.70

Capital reserve

(Net assets – NCI – PC)

 

308.49

Purchase consideration (PC) 96.81

 3. Computation of Consolidated amounts of consolidated financial statements

  David Ltd. Parker Ltd. (pre- acquisition) PPA Allocation Total
Assets
Non-current assets:
Property, plant and equipment 400 600 (150) 850
Investment 300 200 500
Current assets:
Inventories 300 100 400
Financial assets:
Trade receivables 400 200 600
Cash and cash equivalents 150 200 350
Others    300 300        600
Total 1,850 1,600 (150) 3300
Equity and Liabilities
Equity
Share capital- Equity shares of Rs. 100 each

Shares allotted to Parker Ltd. (2,00,000 x 70% x Rs. 10 per share)

500   

14

 

514

Other Equity
Other Equity 700 700
Replacement award 3 3
Security premium (2,00,000 shares x 70% x Rs. 40)  

56

 

56

Capital reserve 308.49 308.49
Non-controlling interest 0 173.70 173.70
Non-current liabilities:
Financial Liabilities
Long term borrowings 200 300 500
Long term provisions 100 80 23.81 203.81
Deferred tax 20 55 (64) 11
Current liabilities:
Financial Liabilities
Short term borrowings 130 170 300
Trade payable 200 320 0 520
Liability for lawsuit damages                 10     10
Total 1,850 925  525 3,300

 

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