Sanjay Welkins Classes

Ind AS 103 : Business Combination

Additional Questions
25.1
Following are the extract from the Balance Sheets of two companies, BETA Ltd. and DELTA Ltd. as at 31st March,
2023.
Beta Ltd. Rs. Delta Ltd. Rs.
Assets
Non Current Assets
Property, Plant & Equipment 10,00,000 5,00,000
- 2,00,000
Financial Assets
20,000 Shares in BETA Ltd.
Current Assets
2,00,000 1,00,000
Inventory
Financial Assets

Trade Receivable 3,00,000 1,00,000

15,00,000 9,00,000
Equity and Liability
Equity Share Capital Rs. 10 10,00,000 6,00,000
Other Equity
Reserve 2,00,000 1,10,000
Current Liabilities
Trade Payables 3,00,000 1,90,000
15,00,000 9,00,000

BETA Ltd. was to absorb DELTA Ltd. on the basis of intrinsic value of the shares, the purchase consideration
was to be discharged in the form of fully paid shares. A sum of 40,000 is owed by BETA Ltd. to DELTA Ltd.
Also included in the stocks of BETA Ltd. 60,000 goods supplied by DELTA Ltd. at cost plus 20%. Absorption was
completed on 31.03.2023.
You are required to prepare the Consolidated Balance Sheet of BETA Ltd. after acquisition of DELTA Ltd.
(Workings relating to fair value of shares of the companies, purchase consideration and number of shares to be
issued by BETA Ltd. and amount of goodwill or gain on bargain purchase should form part of your answer).
14 Marks
Solution:
Beta Delta
Property, Plant & Equipment 10,00,000 5,00,000
- 2,40,000
Financial Assets
(20,000 x 12)
20,000 Shares in BETA Ltd.
Inventory 2,00,000 1,00,000
Trade Receivables 3,00,000 1,00,000

Less:
Trade Payables 3,00,000 1,90,000

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 Additional Questions on Ind AS 103

Net Assets 12,00,000 7,50,000

÷ ÷
No of Shares 1,00,000 60,000
IVS 12 7.5

Purchase consideration: 7,50,000

No of shares to be issued : 7,50,000/12 = 62,500
Less already held by Delta = 20,000
Shares to be issued = 42,500
Consideration = 42,500 x 12 = 5,10,000

Calculation of Goodwill / GOBP

Net Assets on the date of Acquisition 7,50,000
Less Consideration 5,10,000
GOBP 2,40,000

Consolidated balance sheet

Beta Delta Consolidated
Amount
Property, Plant & Equipment 10,00,000 5,00,000 15,00,000
- 2,40,000
Financial Assets
(20,000 x 12)
20,000 Shares in BETA Ltd.
Inventory 2,00,000 1,00,000 - URP 10,000 2,90,000
Trade Receivables 3,00,000 1,00,000 - ICT 40,000 3,60,000
21,50,000
Less:
Equity share Capital 10,00,000 - 14,25,000
+42,500 x 10
Security Premium 42,500 x 2 85,000
PL Cancellation of (2,40,000)
Investments
Reserves 2,00,000 - 1,90,000
10,000
GOBP 2,40,000
Trade Payables 3,00,000 1,90,000 - ICT 40,000 4,50,000
23,90,000

25.2 - Adapted
The balance sheet of Professional Ltd. and Dynamic Ltd. as of 31 March 2024 is given below:
(all nos. in Lakh)
Assets Professional Ltd Dynamic Ltd
Non-Current Assets:
Property plant and equipment 300 500
Investments 400 100
Current assets:
Inventories 250 150

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Sanjay Welkins Classes

Financial assets
Trade receivable 450 300
Cash and cash equivalents 200 100
Others 400 230
Total 2,000 1,380
Equity and Liabilities
Equity
Share capital- Equity shares of Rs.10 each 500 -
Equity shares of Rs. 100 each - 400
Reserve and surplus 810 225
Non-Current liabilities:
Long term borrowings 250 200
Long term provisions 50 70
Deferred tax 40 35
Current Liabilities:
Short term borrowings 100 150
Trade payable 250 300
Total 2,000 1,380
Other information
(a) Professional Ltd. acquired 70% of Dynamic Ltd on 1 April 2024 by issuing its own shares in the ratio
of 1 share of Professional Ltd for every 2 shares of Dynamic Ltd. The fair value of the share of
Professional Ltd was Rs.40 per share.
(b) The fair value exercise resulted in the following:
(a) PPE fair value on 1 April 2024 was Rs.350 lakhs.
(b) Professional Ltd also agreed to pay an additional payment that is higher of 35 lakh and 25% of
any excess of Dynamic Ltd in the first year after acquisition over its profits in the preceding 12
months. This additional amount will be due after 2 years. Dynamic Ltd has earned Rs.10 lakh
profit in the preceding year and expects to earn another Rs.20 Lakh.
(c) In addition to above, Professional Ltd also had agreed to pay one of the founder shareholder a
payment of Rs.20 lakh provided he stays with the Company for two year after the acquisition.
(d) Dynamic Ltd had certain equity settled share based payment award (original award) which got
replaced by the new awards issued by Professional Ltd. As per the original term the vesting
period was 4 years and as of the acquisition date the employees of Dynamic 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:
(i) Original award- Rs.5 lakh
(ii) Replacement award-Rs.8 lakh.
(e) Dynamic Ltd had a lawsuit pending with a customer who had made a claim ofRs.50 lakh
Management reliably estimated the fair value of the liability to be Rs.5 lakh.
(f) The applicable tax rate for both entities is 30%.
You are required to prepare opening consolidated balance sheet of Professional Ltd as on 1 April 2024.
Assume 10% discount rate.

1. Purchase consideration Rs. in lakhs

Particulars Amount

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 Additional Questions on Ind AS 103

Share capital of Dynamic Ltd 400

Number of shares 4,00,000
Shares to be issued 2:1 2,00,000
Fair value per share 40
PC in lakhs (2,00,000 x 70% x Rs.40 per share) (A) 56
Deferred consideration after discounting Rs. 35 lakhs for 2 years @ 10%(B) 28.93
Market based measure of the acquiree award (5) x ratio of the portion of the 2.5
vesting period completed (2) / greater of the total vesting period (3) or the
original vesting period (4) of the acquiree award
Replacement award (5 x 2 / 4) (C)

PC in lakhs (A+B+C) 87.43

2. Purchase price allocation workings

Particulars Book value (A) Fair value FV adjustment
(B) (A-B)
Property plant and equipment 500 350 (150)
Investments 100 100 -
Inventories 150 150 -
Financial assets: -
Trade receivable 300 300 -
Cash and cash equivalents 100 100 -
Others 230 230
Long term borrowings (200) (200) -
Long term provisions (70) (70) -
Deferred tax (35) (35) -
Short term borrowings (150) (150) -
Trade payable (300) (300) -
Contingent liability - (5) (5)
Net assets (X) 625 470 (155)
Deferred tax Asset on FV adjustment (155 x30%) (Y) 46.50 155
Net assets (X+Y) 516.5
Non-controlling interest (516.50 x 30%) rounded off 154.95
GOBP 274.12
NIFA 516.50
Less NCI 154.95
Acquirer's share 361.55
Less :Consideration 87.43
- GOBP 274.12
Purchase consideration (PC) 87.43

3. Consolidated Balance sheet of Professional Ltd as on 1 April 2024 (Rs. in Lakhs)

Amount
Assets

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Sanjay Welkins Classes

Non-Current Assets:
Property plant and equipment 300 + 500 -150 650
Investments 400 +100 500
Current assets:
Inventories 250 + 150 400
Financial assets:
Trade receivable 450 + 300 750
Cash and cash equivalents 200 + 100 300
Others 400 + 230 630
Total 3,230
Equity and Liabilities
Equity
Share capital- Equity shares of Rs.100 each 500 +14 514
Other Equity 810 + Replacement award 2.5 + Security Premium 1,40,000 x 30 + GOBP 942.63
274.12
NCI 154.95
Non-Current liabilities:
Long term borrowings 250 +200 450
Long term provisions (50+70+28.93) 148.93
Deferred tax 40 + 35 - 46.50 28.50
Current Liabilities:
Short term borrowings 100 + 150 250
Trade payable 250 + 300 550
Provision for Lawsuit Damages 5
Total 3230

Key Points
1. In the given case 35 is the minimum payment to be paid after 2 years and accordingly will be considered as
deferred consideration. The impact of time value on deferred consideration has been given @ 10%.
2. The additional consideration of Rs.20 lakhs to be paid to the founder shareholder is contingent to him/her
continuing in employment and hence this will be considered as employee compensation and will be recorded
as post combination expenses in the income statement of Dynamic Ltd.

25.3 - Adapted
Company A and Company B is in power business. Company A holds 25% of equity shares of Company B. On
1.11.24 Company A obtains control of Company B when it acquires a further 65% of Company B's shares,
thereby resulting in a total holding of 90%. The acquisition had the following features:
 Consideration: Company A transfers cash of Rs.59,00,000 and issues 1,00,000 shares on 1.11.24.
The market price of Company A's shares on the date of issue is Rs.10 per share. The equity shares
issued as per this transaction will comprise 5% of the post-acquisition equity capital of Company A.
 Contingent consideration: Company A agrees to pay additional consideration of Rs.7,00,000 if the
cumulative profits of Company B exceed Rs.70,00,000 over the next two years. At the acquisition
date, it is not considered probable that the extra consideration will be paid. The fair value of the
contingent consideration is determined to be Rs.3,00,000 at the acquisition date.
 Transaction costs: Company A pays acquisition-related costs of Rs.1,00,000.
 Non-controlling interests (NCI): The fair value of the NCI is determined to be Rs.7,50,000 at the
acquisition date based on market prices. Company A elects to measure non-controlling interest at fair
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 Additional Questions on Ind AS 103

value for this transaction.

 Previously held non-controlling equity interest: Company A has owned 25% of the shares in
Company B for several years. At 1.11.24, the investment is included in Company A's consolidated
statement of financial position at Rs.6,00,000, accounted for using the equity method; the fair value is
Rs.20,00,000.
The fair value of Company B's net identifiable assets at 1.11.24 is Rs.60,00,000, determined in accordance
with Ind AS 103.
Required
Determine the accounting under acquisition method for the business combination by Company A.
Response.
Purchase Consideration
The purchase consideration in this case will comprise the following:
Cash consideration Rs.59,00,000
Equity shares issued (1,00,000 x 10 i.e., at fair value) Rs.10,00,000
Contingent consideration (at fair value) Rs.3,00,000
Consideration for additional stakes 72,00,000
Acquisition cost incurred by and on behalf of the Company A for acquisition of Company B should be
recognised in the Statement of profit and loss. As such, an amount of Rs.1,00,000 should be recognised in
Statement of profit and loss.
Re-measure previously held interests in case business combination is achieved in stages
Amount of Rs.14,00,000 (i.e., 20,00,000 less 6,00,000) will be recognised in Statement of profit and loss.

Goodwill should be calculated as follows: (Rs.)

NIFA on the date of Acquisition 60,00,000
Recognised amount of any non-controlling interest 7,50,000
Balance : Acquirer's share 52,50,000
Less : Previously held Investments (FV on the DOA) 20,00,000
Balance : Acquirer's share on account of additional Investments 32,50,000
Less: Consideration for additional stakes 72,00,000
Goodwill 39,50,000