TMI BlogBusiness CombinationsX X X X Extracts X X X X X X X X Extracts X X X X ..... business combination. Scope 2 This Ind AS applies to a transaction or other event that meets the definition of a business combination. This Ind AS does not apply to: (a) the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. (b) the acquisition of an asset or a group of assets that does not constitute a business. In such cases the acquirer shall identify and recognise the individual identifiable assets acquired (including those assets that meet the definition of, and recognition criteria for, intangible assets in Ind AS 38, Intangible Assets) and liabilities assumed. The cost of the group shall be allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Such a transaction or event does not give rise to goodwill. (c) [Refer Appendix 1] 2A The requirements of this Standard do not apply to the acquisition by an investment entity, as defined in Ind AS 110, Consolidated Financial Statements, of an investment in a subsidiary that is required to be measured at fair value through profit or loss. 2B Appendix C deals with accounting f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired, the liabilities assumed and any non-controlling interest in the acquiree Recognition principle 10 As of the acquisition date, the acquirer shall recognise, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. Recognition of identifiable assets acquired and liabilities assumed is subject to the conditions specified in paragraphs 11 and 12. Recognition conditions 30 [ 11 To qualify for recognition as part of applying the acquisition method, the identifiable assets acquired and liabilities assumed must meet the definitions of assets and liabilities in the Conceptual Framework for Financial Reporting under Indian Accounting Standards (Conceptual Framework) issued by the Institute of Chartered Accountants of India at the acquisition date. For example, costs the acquirer expects but is not obliged to incur in the future to effect its plan to exit an activity of an acquiree or to terminate the employment of or relocate an acquiree s employees are not liabilities at the acquisition date. Therefore, the acquirer does not recognise those costs as part of applying the acquisition metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to: (a) classification of particular financial assets and liabilities as measured at fair value through profit or loss or at amortised cost, or as a financial asset measured at fair value through other comprehensive income in accordance with Ind AS 109, Financial Instruments; (b) designation of a derivative instrument as a hedging instrument in accordance with Ind AS 109; and (c) assessment of whether an embedded derivative should be separated from a host contract in accordance with Ind AS 109 (which is a matter of classification as this Ind AS uses that term). 17 This Ind AS provides two exceptions to the principle in paragraph 15: 6 [ (a) classification of a lease contract in which acquiree is the lessor as either an operating lease or a finance lease in accordance with Ind AS 116, Leases; and ] (b) classification of a contract as an insurance contract in accordance with Ind AS 104, Insurance Contracts. The acquirer shall classify those contracts on the basis of the contractual terms and other factors at the inception of the contract (or, if the terms of the contract have been modified in a manner that would change its classification, at the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be within the scope of Ind AS 37, the acquirer shall apply paragraphs 15 22 of Ind AS 37 to determine whether at the acquisition date a present obligation exists as a result of past events. For a levy that would be within the scope of Appendix C of Ind AS 37, the acquirer shall apply Appendix C of Ind AS 37 to determine whether the obligating event that gives rise to a liability to pay the levy has occurred by the acquisition date. 21C A present obligation identified in accordance with paragraph 21B might meet the definition of a contingent liability set out in paragraph 22(b). If so, paragraph 23 applies to that contingent liability. ] 33 [Contingent liabilities and contingent assets] 34 [ 22 Ind AS 37 defines a contingent liability as: ] (a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or (b) a present obligation that arises from past events but is not recognised because: (i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same time that it recognises the indemnified item measured on the same basis as the indemnified item, subject to the need for a valuation allowance for uncollectible amounts. Therefore, if the indemnification relates to an asset or a liability that is recognised at the acquisition date and measured at its acquisition-date fair value, the acquirer shall recognise the indemnification asset at the acquisition date measured at its acquisition-date fair value. For an indemnification asset measured at fair value, the effects of uncertainty about future cash flows because of collectibility considerations are included in the fair value measure and a separate valuation allowance is not necessary (paragraph B41 provides related application guidance). 28 In some circumstances, the indemnification may relate to an asset or a liability that is an exception to the recognition or measurement principles. For example, an indemnification may relate to a contingent liability that is not recognised at the acquisition date because its fair value is not reliably measurable at that date. Alternatively, an indemnification may relate to an asset or a liability, for example, one that results from an empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-current asset (or disposal group) that is classified as held for sale at the acquisition date in accordance with Ind AS 105, Noncurrent Assets Held for Sale and Discontinued Operations, at fair value less costs to sell in accordance with paragraphs 15 18 of that Ind AS. Recognising and measuring goodwill or a gain from a bargain purchase 32 The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below: (a) the aggregate of: (i) the consideration transferred measured in accordance with this Ind AS, which generally requires acquisition-date fair value (see paragraph 37); (ii) the amount of any non-controlling interest in the acquiree measured in accordance with this Ind AS; and (iii) in a business combination achieved in stages (see paragraphs 41 and 42), the acquisition-date fair value of the acquirer s previously held equity interest in the acquiree. (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this Ind AS. 33 In a business combination in which the acquirer and the acquiree (or its former owners) exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombination achieved in stages, the acquirer s previously held equity interest in the acquiree; and (d) the consideration transferred. The objective of the review is to ensure that the measurements appropriately reflect consideration of all available information as of the acquisition date. 36A If there does not exist clear evidence of the underlying reasons for classifying the business combination as a bargain purchase, the acquirer shall apply the requirements of reassessment and review described in paragraph 36. The excess, if any, as determined in accordance with paragraph 32 after applying the said requirements of paragraph 36, shall be recognised directly in equity as capital reserve. Consideration transferred 37 The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity interests issued by the acquirer. (However, any portion of the acquirer s share-based payment awards exchanged for awards held by the acquiree s employees that is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... combinations A business combination achieved in stages 41 An acquirer sometimes obtains control of an acquiree in which it held an equity interest immediately before the acquisition date. For example, on 31 December 20X1, Entity A holds a 35 per cent non-controlling equity interest in Entity B. On that date, Entity A purchases an additional 40 per cent interest in Entity B, which gives it control of Entity B. This Ind AS refers to such a transaction as a business combination achieved in stages, sometimes also referred to as a step acquisition. 42 In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss or other comprehensive income, as appropriate. In prior reporting periods, the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the acquirer shall retrospectively adjust the provisional amounts recognised at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognised as of that date. During the measurement period, the acquirer shall also recognise additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. However, the measurement period shall not exceed one year from the acquisition date. 46 The measurement period is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognised for a business combination. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rresponding adjustment to goodwill resulting from a change to the provisional amount recognised for the claim receivable from the insurer. If the adjustment results in reduction of goodwill and if the amount of adjustment exceeds the amount previously recognized as goodwill that excess shall be accounted for in accordance with paragraph 34 or paragraph 36A as applicable. 49 During the measurement period, the acquirer shall recognise adjustments to the provisional amounts as if the accounting for the business combination had been completed at the acquisition date. Thus, the acquirer shall revise comparative information for prior periods presented in financial statements as needed, including making any change in depreciation, amortisation or other income effects recognised in completing the initial accounting. 50 After the measurement period ends, the acquirer shall revise the accounting for a business combination only to correct an error in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors. Determining what is part of the business combination transaction 51 The acquirer and the acquiree may have a pre-existing relationship or ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... combination in accordance with other applicable Ind ASs for those items, depending on their nature. However, this Ind AS provides guidance on subsequently measuring and accounting for the following assets acquired, liabilities assumed or incurred and equity instruments issued in a business combination: (a) reacquired rights; (b) contingent liabilities recognised as of the acquisition date; (c) indemnification assets; and (d) contingent consideration. Paragraph B63 provides related application guidance. Reacquired rights 55 A reacquired right recognised as an intangible asset shall be amortised over the remaining contractual period of the contract in which the right was granted. An acquirer that subsequently sells a reacquired right to a third party shall include the carrying amount of the intangible asset in determining the gain or loss on the sale. Contingent liabilities 2 [ 56 After initial recognition and until the liability is settled, cancelled or expires, the acquirer shall measure a contingent liability recognised in a business combination at the higher of : (a) the amount that would be recognised in accordance with Ind AS 37; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) during the current reporting period; or (b) after the end of the reporting period but before the financial statements are approved for issue. 60 To meet the objective in paragraph 59, the acquirer shall disclose the information specified in paragraphs B64-B66. 61 The acquirer shall disclose information that enables users of its financial statements to evaluate the financial effects of adjustments recognised in the current reporting period that relate to business combinations that occurred in the period or previous reporting periods. 62 To meet the objective in paragraph 61, the acquirer shall disclose the information specified in paragraph B67. 63 If the specific disclosures required by this and other Ind ASs do not meet the objectives set out in paragraphs 59 and 61, the acquirer shall disclose whatever additional information is necessary to meet those objectives. 3 [ *Effective Date 64 * 64A * 64B * 64C * 64D * 64E * 64F * 64G * 64H * 64I * 64J * (*Refer Appendix 1) 64K As a consequence of issuance of Ind AS 115, paragraph 56 has been amended. An entity shall follow th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities. ] business combination 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. contingent consideration Usually, an obligation of the acquirer to transfer additional assets or equity interests to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met. However, contingent consideration also may give the acquirer the right to the return of previously transferred consideration if specified conditions are met. equity interests For the purposes of this Ind AS, equity interests is used broadly to mean ownership interests of investor-owned entities and owner, member or participant interests of mutual entities . fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that constitute a business); (b) by incurring liabilities; (c) by issuing equity interests; (d) by providing more than one type of consideration; or (e) without transferring consideration, including by contract alone (see paragraph 43). B6 A business combination may be structured in a variety of ways for legal, taxation or other reasons, which include but are not limited to: (a) one or more businesses become subsidiaries of an acquirer or the net assets of one or more businesses are legally merged into the acquirer; (b) one combining entity transfers its net assets, or its owners transfer their equity interests, to another combining entity or its owners; (c) all of the combining entities transfer their net assets, or the owners of those entities transfer their equity interests, to a newly formed entity (sometimes referred to as a roll-up or put-together transaction); or (d) a group of former owners of one of the combining entities obtains control of the combined entity. Definition of a business (application of paragraph 3) 19 [ B7 A business consists of inputs and processes applied to those inputs that have the ability to contribute to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the concentration test: (a) gross assets acquired shall exclude cash and cash equivalents, deferred tax assets, and goodwill resulting from the effects of deferred tax liabilities; (b) the fair value of the gross assets acquired shall include any consideration transferred (plus the fair value of any non-controlling interest and the fair value of any previously held interest) in excess of the fair value of net identifiable assets acquired. The fair value of the gross assets acquired may normally be determined as the total obtained by adding the fair value of the consideration transferred (plus the fair value of any non-controlling interest and the fair value of any previously held interest) to the fair value of the liabilities assumed (other than deferred tax liabilities), and then excluding the items identified in sub-paragraph (a). However, if the fair value of the gross assets acquired is more than that total, a more precise calculation may sometimes be needed; (c) a single identifiable asset shall include any asset or group of assets that would be recognised and measured as a single identifiable asset in a business combination; (d) if a tangible asset is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to create output. Paragraphs B12-B12D specify how to assess whether a process is substantive. ] 22 [ B8A If an acquired set of activities and assets has outputs, continuation of revenue does not on its own indicate that both an input and a substantive process have been acquired. ] 23 [ B9 The nature of the elements of a business varies by industry and by the structure of an entity s operations (activities), including the entity s stage of development. Established businesses often have many different types of inputs, processes and outputs, whereas new businesses often have few inputs and processes and sometimes only a single output (product). Nearly all businesses also have liabilities, but a business need not have liabilities. Furthermore, an acquired set of activities and assets that is not a business might have liabilities. ] 24 [ B10 [Refer Appendix 1] ] 25 [ B11 Determining whether a particular set of activities and assets is a business shall be based on whether the integrated set is capable of being conducted and managed as a business by a market participant. Thus, in evaluating whether a particular set is a business, it is not relevant wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucing outputs and- (i) is considered unique or scarce; or (ii) cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs. B12D The following additional discussion supports both paragraphs B12B and B12C: (a) an acquired contract is an input and not a substantive process. Nevertheless, an acquired contract, for example, a contract for outsourced property management or outsourced asset management, may give access to an organised workforce. An entity shall assess whether an organised workforce accessed through such a contract performs a substantive process that the entity controls, and thus has acquired. Factors to be considered in making that assessment include the duration of the contract and its renewal terms; (b) difficulties in replacing an acquired organised workforce may indicate that the acquired organised workforce performs a process that is critical to the ability to create outputs; (c) a process (or group of processes) is not critical if, for example, it is ancillary or minor within the context of all the processes required to create outputs. ] Identifying the acquirer (application of paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exchange of equity interests-The acquirer is usually the combining entity that pays a premium over the pre-combination fair value of the equity interests of the other combining entity or entities. B16 The acquirer is usually the combining entity whose relative size (measured in, for example, assets, revenues or profit) is significantly greater than that of the other combining entity or entities. B17 In a business combination involving more than two entities, determining the acquirer shall include a consideration of, among other things, which of the combining entities initiated the combination, as well as the relative size of the combining entities. B18 A new entity formed to effect a business combination is not necessarily the acquirer. If a new entity is formed to issue equity interests to effect a business combination, one of the combining entities that existed before the business combination shall be identified as the acquirer by applying the guidance in paragraphs B13 B17. In contrast, a new entity that transfers cash or other assets or incurs liabilities as consideration may be the acquirer. Reverse acquisitions B19 A reverse acquisition occurs when the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut described in the notes as a continuation of the financial statements of the legal subsidiary (accounting acquirer), with one adjustment, which is to adjust retroactively the accounting acquirer s legal capital to reflect the legal capital of the accounting acquiree. That adjustment is required to reflect the capital of the legal parent (the accounting acquiree). Comparative information presented in those consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent (accounting acquiree). B22 Because the consolidated financial statements represent the continuation of the financial statements of the legal subsidiary except for its capital structure, the consolidated financial statements reflect: (a) the assets and liabilities of the legal subsidiary (the accounting acquirer) recognised and measured at their pre-combination carrying amounts. (b) the assets and liabilities of the legal parent (the accounting acquiree) recognised and measured in accordance with this Ind AS. (c) the retained earnings and other equity balances of the legal subsidiary (accounting acquirer) before the business combination. (d) the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r share B25 As noted in paragraph B22(d), the equity structure in the consolidated financial statements following a reverse acquisition reflects the equity structure of the legal acquirer (the accounting acquiree), including the equity interests issued by the legal acquirer to effect the business combination. B26 In calculating the weighted average number of ordinary shares2 outstanding (the denominator of the earnings per share calculation) during the period in which the reverse acquisition occurs: (a) the number of ordinary shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted average number of ordinary shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement; and (b) the number of ordinary shares outstanding from the acquisition date to the end of that period shall be the actual number of ordinary shares of the legal acquirer (the accounting acquiree) outstanding during that period. B27 The basic earnings per share for each comparative period before the acquisition date presented in the consolidated fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquirer does not intend to sell, license or otherwise exchange it. An acquired intangible asset meets the separability criterion if there is evidence of exchange transactions for that type of asset or an asset of a similar type, even if those transactions are infrequent and regardless of whether the acquirer is involved in them. For example, customer and subscriber lists are frequently licensed and thus meet the separability criterion. Even if an acquiree believes its customer lists have characteristics different from other customer lists, the fact that customer lists are frequently licensed generally means that the acquired customer list meets the separability criterion. However, a customer list acquired in a business combination would not meet the separability criterion if the terms of confidentiality or other agreements prohibit an entity from selling, leasing or otherwise exchanging information about its customers. B34 An intangible asset that is not individually separable from the acquiree or combined entity meets the separability criterion if it is separable in combination with a related contract, identifiable asset or liability. For example: (a) market participants e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not an identifiable asset to be recognised separately from goodwill, any value attributed to it is subsumed into goodwill. B38 The acquirer also subsumes into goodwill any value attributed to items that do not qualify as assets at the acquisition date. For example, the acquirer might attribute value to potential contracts the acquiree is negotiating with prospective new customers at the acquisition date. Because those potential contracts are not themselves assets at the acquisition date, the acquirer does not recognise them separately from goodwill. The acquirer should not subsequently reclassify the value of those contracts from goodwill for events that occur after the acquisition date. However, the acquirer should assess the facts and circumstances surrounding events occurring shortly after the acquisition to determine whether a separately recognisable intangible asset existed at the acquisition date. B39 After initial recognition, an acquirer accounts for intangible assets acquired in a business combination in accordance with the provisions of Ind AS 38, Intangible Assets. However, as described in paragraph 3 of Ind AS 38, the accounting for some acquired intangible as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intends not to use or to use in a way that is different from the way other market participants would use them B43 To protect its competitive position, or for other reasons, the acquirer may intend not to use an acquired non-financial asset actively, or it may not intend to use the asset according to its highest and best use. For example, that might be the case for an acquired research and development intangible asset that the acquirer plans to use defensively by preventing others from using it. Nevertheless, the acquirer shall measure the fair value of the non-financial asset assuming its highest and best use by market participants in accordance with the appropriate valuation premise, both initially and when measuring fair value less costs of disposal for subsequent impairment testing . Non-controlling interest in an acquiree B44 This Ind AS allows the acquirer to measure a non-controlling interest in the acquiree at its fair value at the acquisition date. Sometimes an acquirer will be able to measure the acquisition-date fair value of a non-controlling interest on the basis of a quoted price in an active market for the equity shares (ie those not held by the acquirer). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acteristics that arise primarily because their members are both customers and owners. Members of mutual entities generally expect to receive benefits for their membership, often in the form of reduced fees charged for goods and services or patronage dividends. The portion of patronage dividends allocated to each member is often based on the amount of business the member did with the mutual entity during the year. B49 A fair value measurement of a mutual entity should include the assumptions that market participants would make about future member benefits as well as any other relevant assumptions market participants would make about the mutual entity. For example, a present value technique may be used to measure the fair value of a mutual entity. The cash flows used as inputs to the model should be based on the expected cash flows of the mutual entity, which are likely to reflect reductions for member benefits, such as reduced fees charged for goods and services. Determining what is part of the business combination transaction (application of paragraphs 51 and 52) B50 The acquirer should consider the following factors, which are neither mutually exclusive nor individually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a business combination (application of paragraph 52(a)) B51 The acquirer and acquiree may have a relationship that existed before they contemplated the business combination, referred to here as a pre-existing relationship . A pre-existing relationship between the acquirer and acquiree may be contractual (for example, vendor and customer or licensor and licensee) or non-contractual (for example, plaintiff and defendant). B52 If the business combination in effect settles a pre-existing relationship, the acquirer recognises a gain or loss, measured as follows: (a) for a pre-existing non-contractual relationship (such as a lawsuit), fair value. (b) for a pre-existing contractual relationship, the lesser of (i) and (ii): (i) the amount by which the contract is favourable or unfavourable from the perspective of the acquirer when compared with terms for current market transactions for the same or similar items. (An unfavourable contract is a contract that is unfavourable in terms of current market terms. It is not necessarily an onerous contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional consideration rather than remuneration. (b) Duration of continuing employment-If the period of required employment coincides with or is longer than the contingent payment period, that fact may indicate that the contingent payments are, in substance, remuneration. (c) Level of remuneration-Situations in which employee remuneration other than the contingent payments is at a reasonable level in comparison with that of other key employees in the combined entity may indicate that the contingent payments are additional consideration rather than remuneration. (d) Incremental payments to employees-If selling shareholders who do not become employees receive lower contingent payments on a per-share basis than the selling shareholders who become employees of the combined entity, that fact may indicate that the incremental amount of contingent payments to the selling shareholders who become employees is remuneration. (e) Number of shares owned-The relative number of shares owned by the selling shareholders who remain as key employees may be an indicator of the substance of the contingent consideration arrangement. For example, if the selling shareholders who owned substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease contract are significantly below market, some or all of the contingent payments to the lessor (the selling shareholder) required by a separate arrangement for contingent payments might be, in substance, payments for the use of the leased property that the acquirer should recognise separately in its post-combination financial statements. In contrast, if the lease contract specifies lease payments that are consistent with market terms for the leased property, the arrangement for contingent payments to the selling shareholder may be contingent consideration in the business combination. Acquirer share-based payment awards exchanged for awards held by the acquiree s employees (application of paragraph 52(b)) B56 An acquirer may exchange its share-based payment awards 3 (replacement awards) for awards held by employees of the acquiree. Exchanges of share options or other sharebased payment awards in conjunction with a business combination are accounted for as modifications of share-based payment awards in accordance with Ind AS 102, Sharebased Payment. If the acquirer replaces the acquiree awards, either all or a portion of the market-based measure of the acquirer s repla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributed to pre-combination service. Therefore, the acquirer attributes any excess of the market-based measure of the replacement award over the market-based measure of the acquiree award to post-combination service and recognises that excess as remuneration cost in the post-combination financial statements. The acquirer shall attribute a portion of a replacement award to post-combination service if it requires post combination service, regardless of whether employees had rendered all of the service required for their acquiree awards to vest before the acquisition date. B60 The portion of a non-vested replacement award attributable to pre-combination service, as well as the portion attributable to post-combination service, shall reflect the best available estimate of the number of replacement awards expected to vest. For example, if the market-based measure of the portion of a replacement award attributed to precombination service is ₹ 100 and the acquirer expects that only 95 per cent of the award will vest, the amount included in consideration transferred in the business combination is ₹ 95. Changes in the estimated number of replacement awards expected to vest a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting for identifiable intangible assets acquired in a business combination. The acquirer measures goodwill at the amount recognised at the acquisition date less any accumulated impairment losses. Ind AS 36, Impairment of Assets, prescribes the accounting for impairment losses. (b) Ind AS 104, Insurance Contracts, provides guidance on the subsequent accounting for an insurance contract acquired in a business combination. (c) Ind AS 12 prescribes the subsequent accounting for deferred tax assets (including unrecognised deferred tax assets) and liabilities acquired in a business combination. (d) Ind AS 102 provides guidance on subsequent measurement and accounting for the portion of replacement share-based payment awards issued by an acquirer that is attributable to employees future services. (e) Ind AS110 provides guidance on accounting for changes in a parent s ownership interest in a subsidiary after control is obtained. Disclosures (application of paragraphs 59 and 61) B64 To meet the objective in paragraph 59, the acquirer shall disclose the following information for each business combination that occurs during the reporting period: (a) the name and a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ind AS 37; and (ii) the reasons why the liability cannot be measured reliably. (k) the total amount of goodwill that is expected to be deductible for tax purposes. (l) for transactions that are recognised separately from the acquisition of assets and assumption of liabilities in the business combination in accordance with paragraph 51: (i) a description of each transaction; (ii) how the acquirer accounted for each transaction; (iii) the amounts recognised for each transaction and the line item in the financial statements in which each amount is recognised; and (iv) if the transaction is the effective settlement of a pre-existing relationship, the method used to determine the settlement amount. (m) the disclosure of separately recognised transactions required by (l) shall include the amount of acquisition-related costs and, separately, the amount of those costs recognised as an expense and the line item or items in the statement of profit and loss in which those expenses are recognised. The amount of any issue costs not recognised as an expense and how they were recognised shall also be disclosed. (n) in a bargain purchase (see paragraphs 34 36A): (i) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue, the acquirer shall disclose the information required by paragraph B64 unless the initial accounting for the business combination is incomplete at the time the financial statements are approved for issue. In that situation, the acquirer shall describe which disclosures could not be made and the reasons why they cannot be made. B67 To meet the objective in paragraph 61, the acquirer shall disclose the following information for each material business combination or in the aggregate for individually immaterial business combinations that are material collectively: (a) if the initial accounting for a business combination is incomplete (see paragraph 45) for particular assets, liabilities, non-controlling interests or items of consideration and the amounts recognised in the financial statements for the business combination thus have been determined only provisionally: (i) the reasons why the initial accounting for the business combination is incomplete; (ii) the assets, liabilities, equity interests or items of consideration for which the initial accounting is incomplete; and (iii) the nature and amount of any measurement period adjustments recognised during the report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le assets acquired or liabilities assumed in a business combination that was effected in the current or previous reporting period; and (ii) is of such a size, nature or incidence that disclosure is relevant to understanding the combined entity s financial statements. Appendix C This appendix is an integral part of the Ind AS. Business combinations of entities under common control Scope 1 This appendix deals with accounting for business combinations of entities or businesses under common control. Definitions 2 The following terms are used in this Appendix with the meaning specified: Transferor means an entity or business which is combined into another entity as a result of a business combination. Transferee means an entity in which the transferor entity is combined. Reserve means the portion of earnings, receipts or other surplus of an entity (whether capital or revenue) appropriated by the management for a general or a specific purpose other than provision for depreciation. Common control business combination means a business combination involving entities or businesses in which all the combining entities or businesses are ultimatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod in the financial statements, irrespective of the actual date of the combination. However, if business combination had occurred after that date, the prior period information shall be restated only from that date. 10 The consideration for the business combination may consist of securities, cash or other assets. Securities shall be recorded at nominal value. In determining the value of the consideration, assets other than cash shall be considered at their fair values. 11 The balance of the retained earnings appearing in the financial statements of the transferor is aggregated with the corresponding balance appearing in the financial statements of the transferee. Alternatively, it is transferred to General Reserve, if any. 12 The identity of the reserves shall be preserved and shall appear in the financial statements of the transferee in the same form in which they appeared in the financial statements of the transferor. Thus, for example, the General Reserve of the transferor entity becomes the General Reserve of the transferee, the Capital Reserve of the transferor becomes the Capital Reserve of the transferee and the Revaluation Reserve of the transferor becomes the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Accounting Standard (Ind AS) 103 and the corresponding International Financial Reporting Standard (IFRS) 3, Business Combinations, issued by the International Accounting Standards Board. Comparison with IFRS 3, Business Combinations 1 IFRS 3 excludes from its scope business combinations of entities under common control. Ind AS 103 (Appendix C) gives the guidance in this regard. Consequently, paragraph 2 has been modified and paragraph 2B has been added in Ind AS 103. Further, paragraphs B1-B4 of IFRS 3 have been deleted in Ind AS 103. In order to maintain consistency with paragraph numbers of IFRS 3, the paragraph numbers are retained in Ind AS 103. 2 The transitional provisions given in IFRS 3 have not been given in Ind AS 103, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards, will deal with the same. 3 IFRS 3 requires bargain purchase gain arising on business combination to be recoganised in profit or loss. Ind AS 103 requires the same to be recogn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2016 before it was read as, 56 After initial recognition and until the liability is settled, cancelled or expires, the acquirer shall measure a contingent liability recognised in a business combination at the higher of: (a) the amount that would be recognised in accordance with Ind AS 37; and (b) the amount initially recognised less, if appropriate, the cumulative amount of income recognised in accordance with the principles of Ind AS 115, Revenue from Contracts with Customers. This requirement does not apply to contracts accounted for in accordance with Ind AS 109. 2. Substituted vide F. No. 01/01/2009-CL-V(Part VI) Dated 28-03-2018 , w.e.f. 1st day of April, 2018, before it was read as, 1 [56 After initial recognition and until the liability is settled, cancelled or expires, the acquirer shall measure a contingent liability recognised in a business combination at the higher of: (a) the amount that would be recognised in accordance with Ind AS 37; and (b) the amount initially recognised less, if appropriate, cumulative amortisation recognised in accordance with Ind AS 18, Revenue. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is at market terms. For example, a lease of gates at an airport or of retail space in a prime shopping area might provide entry into a market or other future economic benefits that qualify as identifiable intangible assets, for example, as a customer relationship. In that situation, the acquirer shall recognise the associated identifiable intangible asset(s) in accordance with paragraph B31. 10. Omitted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as (a) an acquiree leases a manufacturing facility under an operating lease that has terms that are favourable relative to market terms. The lease terms explicitly prohibit transfer of the lease (through either sale or sublease). The amount by which the lease terms are favourable compared with the terms of current market transactions for the same or similar items is an intangible asset that meets the contractual-legal criterion for recognition separately from goodwill, even though the acquirer cannot sell or otherwise transfer the lease contract. 11. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TIFICATION NO. G.S.R. 463(E) dated 24-07-2020 before it was read as business 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. 19. Substituted vide NOTIFICATION NO. G.S.R. 463(E) dated 24-07-2020 before it was read as B7 A business consists of inputs and processes applied to those inputs that have the ability to create outputs. Although businesses usually have outputs, outputs are not required for an integrated set to qualify as a business. The three elements of a business are defined as follows: (a) Input: Any economic resource that creates, or has the ability to create, outputs when one or more processes are applied to it. Examples include non-current assets (including intangible assets or rights to use non-current assets), intellectual property, the ability to obtain access to necessary materials or rights and employees. (b) Process: Any system, standard, protocol, convention or rule that when ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine whether the set is a business. Those factors include, but are not limited to, whether the set: (a) has begun planned principal activities; (b) has employees, intellectual property and other inputs and processes that could be applied to those inputs; (c) is pursuing a plan to produce outputs; and (d) will be able to obtain access to customers that will purchase the outputs. Not all of those factors need to be present for a particular integrated set of activities and assets in the development stage to qualify as a business. 25. Substituted vide NOTIFICATION NO. G.S.R. 463(E) dated 24-07-2020 before it was read as B11 Determining whether a particular set of assets and activities is a business should be based on whether the integrated set is capable of being conducted and managed as a business by a market participant. Thus, in evaluating whether a particular set is a business, it is not relevant whether a seller operated the set as a business or whether the acquirer intends to operate the set as a business. 26. Substituted vide NOTIFICATION NO. G.S.R. 463(E) dated 24-07-2020 before it was read as B12 In the absence of evidence to the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod. Instead, the acquirer recognises those costs in its post-combination financial statements in accordance with other Ind AS. ] 31. Substituted vide Notification No. G.S.R 255(E) dated 23-03-2022 w.e.f. 01-04-2022 before it was read as, 5 [ 14. Paragraphs B31 B40 provide guidance on recognising intangible assets. Paragraphs 22 28B specify the types of identifiable assets and liabilities that include items for which this Ind AS provides limited exceptions to the recognition principle and conditions ] 32. Substituted vide Notification No. G.S.R 255(E) dated 23-03-2022 w.e.f. 01-04-2022 before it was read as, 21 This Ind AS provides limited exceptions to its recognition and measurement principles. Paragraphs 22 31 specify both the particular items for which exceptions are provided and the nature of those exceptions. The acquirer shall account for those items by applying the requirements in paragraphs 22 31, which will result in some items being: (a) recognised either by applying recognition conditions in addition to those in paragraphs 11 and 12 or by applying the requirements of other Ind ASs, with results that differ from applying the recognition pri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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