Ind AS 103, Business Combinations, Summary

Indian Accounting Standard (Ind AS) 103 Summary

Indian Accounting Standard (Ind AS) 103, Business Combinations provides guidance on accounting for business combinations under the acquisition method (acquisition accounting), with limited exceptions.

A business combination is a transaction or other event in which an acquirer obtains control of one or more business.

A ‘business’ is an integrated set of activities and assets that is capable of being conducted and managed to provide a return to investors by way of dividends, lower costs or other economic benefits.

The acquirer in a business combination is the combining entity that obtains control of the other combining business or businesses. The date of acquisition is the date on which the acquirer obtains control of the acquiree.

Consideration transferred by the acquirer, which is generally measured at fair value at the date of acquisition, may include assets transferred, liabilities incurred by the acquirer to the former owners of the acquiree and equity interests issued by the acquirer. Acquisition related costs are excluded from the consideration transferred and expensed when incurred.

The identifiable assets acquired and the liabilities assumed are recognised separately from goodwill at the date of acquisition if they meet the definition of assets and liabilities and are exchanged as part of the business combination. They are measured at the date of acquisition at their fair values, with limited exceptions.

The acquirer in a business combination can elect, on a transaction-by-transaction basis, to measure ‘ordinary’ Non-Controlling Interests (NCI) at fair value, or at their proportionate interest in the net assets of the acquiree, at the date of acquisition. All other components of NCI (such as equity components of convertible bonds and options under share-based payments arrangements) shall be measured at fair value or in accordance with other relevant Ind ASs.

Goodwill is recognised at the date of acquisition, measured as a residual. Goodwill previously recorded by the acquiree is not recorded as a separate asset by the acquirer. When the residual is a deficit (gain on a bargain purchase), it is recognised in other comprehensive income and accumulated in equity as capital reserve after reassessing the values used in the acquisition accounting.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. This is referred to as a measurement period.

Adjustments to acquisition accounting during the measurement period reflect additional information about facts and circumstances that existed at acquisition date. The measurement period cannot exceed one year. In general, items recognised in the acquisition accounting are measured and accounted for in accordance with the relevant Ind AS subsequent to the business combination.

This standard provides additional guidance on accounting for common control business combinations.

Transitional provisions are not provided in this standard since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards.

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