Ind as 103 business combinations

IND AS 103 BUSINESS COMBINATIONS

1. IND AS 103
BUSINESSCOMBINATIONS
Presented By:
CA. NIRMAL GHORAWAT
B. Com (Hons), ACA

2. OBJECTIVE
Specify theFinancial Reportingby an Entity when it undertakes a
Business
Combination.
2
3 May 2013CA. Nirmal Ghorawat

3. COREPRINCIPLE
All Business
Combinations should
be accounted by
applying the
ACQUISITION
(PURCHASE) METHOD.
3
3 May 2013CA. Nirmal Ghorawat

4. SCOPE
AccountingforBusinessCombinations Exclusions
:
O
FormationofJointVentures–
O
Acquisition of Assets & Liabilities not
formingaBusiness.
Inclusions
:
O
Entities under Common Control –
AppendixC
4
3 May 2013CA. Nirmal Ghorawat

5. DEFINITION-BUSINESS
Integrated Set of
Activities
and
Assets
conducted & managed
forthepurposeofproviding:
O
a
ReturntoInvestors
;or
O
Lower costs or other Economic
benefits directly and
proportionately to
PolicyholdersorParticipants.
If
GOODWILL
is present –
PresumptionastoBusiness.
Input
Process
Output
5
3 May 2013CA. Nirmal Ghorawat

6. RECOGNITION–ACQUIRER’SPERSPECTIVE
The Acquirer Recognises the
Acquiree’sIdentifiable
Assets
Liabilities (including
ContingentLiabilities)
At FairValue
At AcquisitionDate.
6
3 May 2013CA. Nirmal Ghorawat
Goodwill on Acquisition is recognised and 
Subsequently tested for Impairment at reporting date 
annually rather than amortised.

7. IFRS 3 : APPLICATIONSUMMARY
1
• Identify the Acquirer
2
• Determine the Acquisition Date
3
• Measure the Cost of Business 
Combination
4
• Allocate the Cost to Assets, 
Liabilities on Acquisition Date
5
• Determine Goodwill or Bargain 
Purchase
7
3 May 2013CA. Nirmal Ghorawat

8. IDENTIFYTHEACQUIRER B
Use IND AS 27 – Consolidated &
Separate Financial Statements
B
Acquirer obtains CONTROL of the
Acquiree.
B
CONTROL – POWER to govern the
FINANCIAL and OPERATING
POLICIES of an Entity or Business
– to obtain benefits from its
activities.
B
Presumption that Acquirer can be
identified in a Business
Combination.
8
3 May 2013CA. Nirmal Ghorawat

9. HOWTOIDENTIFYTHEACQUIRER?
BusinessCombinationeffectedprimarilyby:
[A]Transferring cash or other assets or incurring
liabilities, then
Acquirer is the party which transfers cash or other
assetsorincursliabilities.
[B]ExchangeofEquityInterest,then
Acquirer is the party which issues its Equity
Interests.
Exception: ReverseAcquisition
9
3 May 2013CA. Nirmal Ghorawat
APPENDIX B

10. HOWTOIDENTIFYTHEACQUIRER? [B]ExchangeofEquityInterest,then
TheEntity
1.
Acquiresmorethanhalf oftheother entity’svoting
rights
2.
Acquires less than half of the other entity’s voting
rightsbutExercises–
A.
Power over half of the other Entity’s voting rights by
virtue of
i.
anAgreement with other Investors; or
ii.
a Statue or anAgreement
B.
Power to appoint or remove Board of Directors
C.
Power to cast majority votes at meetings of Board of
Directors.
10
3 May 2013CA. Nirmal Ghorawat
APPENDIX B

11. HOWTOIDENTIFYTHEACQUIRER? Indicators–TheEntity J
whoseFairValueisHigher
J
makingpaymentofCashorOtherAssets
J
whose Management Dominates in the Combined
Entity
J
initiatedtheprocessofBusinessCombination
Note: New Entity is formed – Identify one of the
existing entities as the Acquirer on the
previouslymentionedcriteria.
11
3 May 2013CA. Nirmal Ghorawat

12. MEASURE THECOST OFBUSINESS
COMBINATION
The Cost of Business Combination is
++  Fair Value of Assets (includes Cash) given
++ Fair Value of Liabilities assumed
++ Fair Value of Equity instruments issued by the  Acquirer
++ Directly Attributable Costs of Business  Combination
++ Present Value of Deferred Consideration
++ FV of Contingent Consideration – if Adjustment  is 
Probable and can be measured Reliably.
N.B.  Fair Value (FV) is measured at Date of Exchang e.
12
3 May 2013CA. Nirmal Ghorawat

13. DEFINITIONS–COST OFBUS. COM. Acquisition
Date
Date on which Acquirer Effectively obtains
‘Control’of theAcquiree.
Directly
Attributable
Costs
Includes – Professional fees paid to
Accountants, Legal Advisors, Valuers and other
Consultants to effect Business Combination.
Excludes – General Administration Costs, etc.
not specifically linked to a Business
Combination
Fair Value The amount for which an asset could be
exchanged, or a liability settled, between
knowledgeable, willing parties in an arm
length’s transaction.
13
3 May 2013CA. Nirmal Ghorawat

14. ALLOCATE THECOST TOASSETS, LIABILITIES
ONACQUISITIONDATE
Recognises theAcquiree’s Identifiable E
Assets
E
Liabilities
(includingContingent Liabilities)
At Fair Value
At AcquisitionDate.
14
3 May 2013CA. Nirmal Ghorawat
Exception: Non-current Assets (or Disposal Groups) that are
classified as Held for Sale as per IFRS 5 shall be
recognisedAt Fair Value Less Costs to Sell.

15. ALLOCATE THECOST TOASSETS, LIABILITIES
ONACQUISITIONDATE
RECOGNITIONCRITERIA
Assets other than 
Intangible Assets
Probable flow 
of F.E.B. to 
Acquirer
Fair Value can 
be measured 
Reliably
Liability
Probable 
outflow of 
F.E.B. to settle 
the obligation
Fair Value can 
be measured 
Reliably
Contingent 
Liability and 
Intangible Assets
Fair Value 
can be 
measured 
reliably.
15
3 May 2013CA. Nirmal Ghorawat

16. RECOGNITIONOFINCOMEOFACQUIREE
Profits / Losses of Acquiree shall be Incorporated 
after the Date of Acquisition.
Profits / Losses shall be Based on the Cost of 
Business Combination to the Acquirer.
16
3 May 2013CA. Nirmal Ghorawat

17. RECOGNITIONOFGOODWILL J
Cost of Business Combination > Fair Value of Assets,
Liabilities& Contingent Liabilitiesacquired J
Recognise Difference as GOODWILLasAsset
J
Initial MeasurementAt Cost.
J
Subsequent Measurement – Cost less Accumulated
Impairment loss (if any) J
Goodwill – payment for F.E.B. from assets not capable
of being individually identified and separately
recognised.
J
No Amortisation – Test for impairment annually or more
frequently – if events indicateImpairment (IAS 36)
17
3 May 2013CA. Nirmal Ghorawat

18. BARGAINPURCHASE J
Cost of Business Combination < Fair Value of
Assets,Liabilities &ContingentLiabilitiesacquired.
J
Reassess the identification & measurement of
Acquiree’s identifiable Assets, Liabilities, and
Contingent Liabilities and the measurement of Cost
ofBusinessCombination.
J
Recognise in P & L – any excess remaining after
thatreassessment.
18
3 May 2013CA. Nirmal Ghorawat

19. DISCLOSURE–BYACQUIRER
Information that enable the users of Financial
Statementsevaluate:-
J
The Nature and Financial Effect of Business
Combinationeffected
J
during the period; and
J
after the Balance sheet date but before the Financial
Statements are authorised for issue.
J
The Financial Effect of Gains, Losses, Error
Corrections and other adjustments recognised in
current period that relate to Business Combination
effectedinCurrentorPriorperiods.
19
3 May 2013CA. Nirmal Ghorawat

20. SIGNIFICANT DIFFERENCES 
WITH 
INDIAN GAAP
20
3 May 2013CA. Nirmal Ghorawat

21. SIGNIFICANT DIFFERENCES
IFRS IND AS AS
Literature IFRS 3 –
Business
Combinations
IND AS 103 –
Business
Combinations
AS 14 –
Accounting for
Amalgamations
Scope Wide - Covers
all forms of
Business
Combination
irrespective of
legal form.
Wide – Covers
all forms of
Business
Combination
irrespective of
legal form.
Limited –
Covers only
Mergers &
Amalgamation.
Scope – Entities
under Common
Control
Excludes Includes
Guidance under
Appendix C
Includes
21
3 May 2013CA. Nirmal Ghorawat

22. SIGNIFICANT DIFFERENCES
IFRS 3  IND AS 103 AS 14
Method of
Accounting
Only
PURCHASE
Method
Only
ACQUISITION(
PURCHASE
)Method
Pooling of
Interest for
Mergers
Purchase
Method for
Amalgamation
Recognition of
Assets and
Liabilities of
Acquiree
at Fair Value of
identifiable
assets and
liabilities
(including
Contingent
Liabilities)
at Fair Value of
identifiable
assets and
liabilities
(including
Contingent
Liabilities)
Amalgamation –
Choice of Book
Value or Fair
Value
Merger – at
Book Value
including
Reserves
22
3 May 2013CA. Nirmal Ghorawat

23. SIGNIFICANT DIFFERENCES
IFRS 3  IND AS 103 AS 14
Treatment of
Negative
Goodwill /
Bargain
Purchase
OReassessment
ORecognise in
P & L.
Recognise in
OCI and
accumulate in
Equity as
Capital
Reserve.
Recognise as
Capital
Reserve.
Treatment of
Goodwill
No
AMORTISATIO
N.
Tested for
Impairment at
least annually.
No
AMORTISATIO
N.
Tested for
Impairment at
least annually
Amalgamation-
Amortised over
a period of not
more than 5
years.
M & A – Tested
for Impairment
as per AS 29
23
3 May 2013CA. Nirmal Ghorawat

24. 24
3 May 2013CA. Nirmal Ghorawat