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(PDF) Quick Reference on Ind AS 103, Business Combinations

Download Quick Reference on Indian Accounting Standard (Ind AS) 103, Business Combinations


Ind AS 103: Business Combinations

Business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants.

Business combination is a transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as ‘true mergers’ or ‘mergers of equals’ are also business combinations as that term is used in this Ind AS.

Ind AS 103 must be applied when accounting for business combinations but does not apply to (1) formation of a joint venture; (2) The acquisition of an asset or group of assets that is not a business, although general guidance is provided on how such transactions should be accounted; and (3) acquisition by an investment entity, as defined in Ind AS 110, Consolidated Financial Statements, of an investment in a subsi diary that is required to be measured at fair value through profit or loss. Appendix C to Ind AS 110 deals with accounting for combination of entities or businesses under common control.

Determining whether a transaction is a business combination:

  • Business combinations can occur in various ways, such as by transferring cash, incurring liabilities, issuing equity instruments (or any combination thereof), or by not issuing consideration at all (i.e. by contract alone)
  • Business combinations can be structured in various ways to satisfy legal, taxation or other objectives, including one entity becoming a subsidiary of another, the transfer of net assets from one entity to another or to a new entity.
  • The business combination must involve the acquisition of a business, which generally has three elements:
    • Inputs – an economic resource (e.g. non-current assets, intellectual property) that creates outputs when one or more processes are applied to it
    • Process – a system, standard, protocol, convention or rule that when applied to an input or inputs, creates outputs (e.g. strategic management, operational processes, resource management)
    • Output – the result of inputs and processes applied to those inputs.

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