Ind ­AS 103.pptx

IND AS 103

1. Ind ­AS 103 Business Combinations

2. Ind ­ AS 103 - Business Combinations applies to a  transaction  or other event that meets the definition of a  business combination. Not apply to: Joint ventures. Asset acquisition ( if not constitute a business)

3. UltraTech completes acquisition of Jaiprakash group cement business UltraTech Cement , an  Aditya Birla Group  Company, has acquired the 4.8-million tonne per annum ( mtpa ) Gujarat unit of  Jaypee Cement Corporation , for Rs 3,800 crore. As part of the deal,   UltraTech   will take over debt of Rs 3,650 crore. It will issue equity worth Rs 150 crore , dated July 04, 2016 notifying about the approval of the Board of Directors of the Company to the Scheme of Arrangement between Jaiprakash Associates Limited (“JAL”), Jaypee Cement Corporation Limited (“JCCL”) and the Company and their respective shareholders and creditors for the acquisition of the identified cement plants of JAL and JCCL, subject to requisite approvals.

4. ACQUISITION OF IDENTIFIED CEMENT UNITS OF JAL AND JCCL ( Ind AS 103) Pursuant to the Scheme of Arrangement between the Company, JAL, JCCL and their respective shareholders and creditors (“the Scheme”), the Company had acquired identified cement units of JAL and JCCL on June 29, 2017 at an enterprise valuation of ` 16,189.00 Crores having total cement capacity of 21.2 MTPA including 4 MTPA under construction . The acquisition provides the Company a geographic market expansion with entry into high growth markets where it needed greater reinforcement and creating synergies in manufacturing, distribution and logistics which offers many advantages. This will also create value for shareholders with the ready to use assets reducing time to markets, availability of land, mining leases, fly ash and railway infrastructure leading to overall operating costs advantage.

5. Fair Value of the Consideration transferred:

6. The Fair Value of identifiable assets acquired and liabilities assumed as on the acquisition date:

7. Amount recognised directly in other equity (Capital Reserve):

8. Acquisition related costs During the previous year acquisition related costs of ` 5.57 Crores had been recognised under Miscellaneous Expenses and Rates and Taxes in the Statement of Profit and Loss. The stamp duty paid/payable on transfer of the assets amounting to ` 226.28 Crores had been charged to the Statement of Profit and Loss and had been shown as an exceptional item during the previous year.

9. Objective To improve the relevance, reliability and comparability of the information that a reporting entity provides in its FS about a business combination and its effects . Ind AS 103 provides principles and requirements for how the acquirer: recognises and measures identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree ; recognises and measures the goodwill acquired in the business combination or a gain from a bargain purchase ; and disclosure requirements

10. Ind AS 103,  Business Combinations A business combination is a transaction or other event in which a reporting entity (the acquirer) obtains control of one or more businesses   (the acquiree ). Ind AS 103 “Business Combinations”  deals with the accounting for business combinations in standalone as well as consolidated financial statements . A set of assets acquired and liabilities assumed are typically regarded as a business If they can together run independently as a going concern 

11. Definitions Acquiree : The business or businesses that the acquirer obtains control of in a business combination. Acquirer: The entity that obtains control of the acquire. Acquisition date: The date on which the acquirer obtains control of the acquiree . Consolidated Financial Statement (CFS ).- CFS means financial statement of a parent (i.e. holding co.) and its subsidiaries as a single economic entity. CFS includes the following : a) Balance Sheet b ) Profit and Loss Account c ) Notes to accounts d ) Cash Flow Statement

12. 5.Subsidiary : It is an enterprise that is controlled by another enterprise (known as parent) 6.Parent : It is an enterprise that has one or more subsidiaries . 7.Group : A group is set of parent and all its subsidiaries . 8.Equity : It is the residual interest in the assets of the enterprise after deducting all its liabilities 9. holding company -is any company which holds more than half of the equity share capital of other companies or controls the composition of the board of directors of other companies Definitions

13. business A business consists of inputs and processes applied to those inputs that have the ability to create outputs Inputs (e.g.  employees , non current assets ) Processes (e.g.  Strategic/operation management  ) Outputs ( e.g. Product .)

14. How Business combinations are accounted? Accounting of business combination depends on whether the BC is by acquisitions/ mergers(A) or under common Control (B). The former is accounted by purchase method and the latter by pooling of interest method acquisitions / mergers- purchase method under common Control- pooling of interest method

15. Initial Accounting of BC If initial accounting of BC could be done only on provisional measurement at the end of the reporting period, adjustments to provisional measurement based on new information as to facts and circumstances that existed at the acquisition date are allowed within one year of the acquisition date

16. Mergers/Acquisitions Accounting of Business Combination under Ind. AS 103 is “Acquisition Method” for all BCs other than under common control and that are accounted under purchase method. Net assets taken over including intangible assets and contingent liabilities to be recognised at fair value It should be noted that ‘the acquirer shall recognise as of the acquisition date and a contingent liability assumed in a business combination if it is a present obligation that arises from past events its fair value can be measured reliably ’. BC transactions under common control are accounted under pooling of interest method..

17. Acquisition cost are accounted as expenses in the period they are in Acquisition related costs are accounted as expenses in the period they are Cannot be capitalised a ) Cost of maintaining an acquisitions department b ) Cost of internal staff who work on the deal c ) Cost of investigation d ) Issue costs for debt or equity e ) Direct costs related to acquisition like consultant fees, rating fee etc .

18. Control Ownership of more than half the voting right of another entity Power over more than half of the voting rights by agreement with investors Power to govern the financial and operating policies of the other entity under statute/ agreement Power to remove / appoint majority of directors

19. Acquisition method The acquisition method is used for all business combinations. Steps in applying the acquisition method are: .

20. 1. Who is the Acquirer ? For each business combination, one of the combining entities shall be identified as the acquirer. The entity that obtains control of the acquiree is identified as acquirer in all business The following factors are considered in making that determination : Acquirer is usually the entity that transfers the cash or other assets or incurs the liabilities. Acquirer is usually the entity that issues its equity interests. Acquirer normally has the largest portion of the voting rights in the combined entity Acquirer will have ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity.

21. 2. Date of acquisition : Generally the date on which the acquirer: legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree   will normally be the closing date, However, the acquirer might obtain control on a date that is either earlier or later than the closing date. the acquisition date precedes the closing date if a written agreement provides that the acquirer obtains control of the acquiree on a date before the closing date.

22. 3.Consideration transferred : 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.

23. 4.Recognition and measurement principle: At the acquisition date, the acquirer shall recognize, separately from goodwill: the identifiable assets acquired, the liabilities assumed; and any non ­controlling interest in the acquiree .

24. 5 . Measurement of goodwill : Goodwill is the difference between the considerations transferred + the amount of any non-controlling interest in the acquiree and + the acquisition-date fair value of any previous equity interest in the acquire - over the fair value of the identifiable net assets acquired. Goodwill is recognised as an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised .

25. Bargain purchase A bargain purchase is one where the goodwill is negative . acquirer shall recognise the resulting gain in other comprehensive income on the acquisition date and accumulate the same in equity as capital reserve

26. 1. Identifying an acquirer For each business combination, one of the combining entities shall be identified as the acquirer. 2. Acquisition date The acquirer shall identify the acquisition date – the date on which it obtains control of the acquiree . 3. Consideration Transfer & Acquired assets and liabilities Ind AS 103 establishes the following principles in relation to the recognition and measurement of items arising in a business combination: 4.Measurement principle : All assets acquired and liabilities assumed in a business combination are measured at acquisition-date FV 5.Goodwill / Bargin Purchase-  Identifiable assets acquired, liabilities assumed, and NCI in the acquiree , are recognised separately from goodwill.

27. How to account the assets or group of assets that are purchased with no business input or process If the assets or group of assets are purchased that has no business input or process; they are mere purchase of assets and accordingly accounted. Therefore , no goodwill or negative goodwill involved: and the assets will be in the books at their acquisition value. These are also outside the purview of the Ind.AS 103

28. Contingent consideration: The consideration the acquirer transfers in exchange for the acquiree includes any asset or liability resulting from a contingent consideration arrangement. The acquirer shall recognise the acquisition-date fair value of contingent consideration as part of the consideration transferred in exchange for the acquiree . and that is considered for computation of Goodwill /capital Reserve arising on BC. Subsequent accounting depends on whether contingent consideration is equity or financial asset/ liability.

29. Contingent consideration: Contingent consideration to be paid by the acquirer: Initial treatment:                                                Recognition             –  Always recognise Measurement         –   Fair value at acquisition date Classification          –   As Financial Instrument in most cases ­ liability /equity as per Ind­AS 32 (  Financial Instruments-disclosure) Subsequent treatment: Equity                         –   Not re-­measured Liability                      –  Re-­measured at fair value through P&L in accordance with Ind­AS 109 (Financial Instruments-guidance) No adjustment made to goodwill,  

30. Non Controlling Interest It is the situation ,where the control of Parent entity is less than 100% which arises a situation to have another interested party who has rights in the Investee but it is not a controlling interest. It loosely call it as  Minority Interest  also where the holder/s of these portion of voting rights do not have controlling interest in the Investee.

31. fair value- The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction . Equity interests For the purposes of this Indian Accounting Indian Accounting Standards 26 Standard, equity interests is used broadly to mean ownership interests of investor-owned entities and owner, member or participant interests of mutual entities . Owners For the purposes of this Indian Accounting Standard, owners is used broadly to include holders of equity interests of investor-owned entities and owners or members of, or participants in, mutual entities

32. SUBSEQUENT MEASUREMENT In general, after the date of a business combination an acquirer measures and accounts for assets acquired and liabilities assumed or incurred in accordance with other applicable IND AS However, IND AS 103 includes accounting requirements for reacquired rights, contingent liabilities, contingent consideration and indemnification assets

33. DISCLOSURE The acquirer is required to disclose information that enables users of its FS to evaluate the nature and financial effect of a business combination that occurs either during the current reporting period but before the FS are authorised for issue . The acquirer should disclose information that enable users of its FS to evaluate the financial effects of adjustments recognised in the current reporting period that relate to business combination.

34. CASE STUDY 1 of consolidation Ind as 103 Rahul ltd ,a public limited company which have business of garments manufacturing have proposed to acquire another entity - mohan ltd ,which is a public limited company also a garments manufacturer and for this purpose The discussion is held between Board of directors of Rahal ltd, the Board meeting of Rahul ltd held on 1 July 2019 Rahul ltds Called AGM at 1 august 2019 ,board of directors present, this - Resolution (proposal) – Of “Acquisition of Mohan ltd “ at AGM(annual general meeting ) of company and BOD describes the benefits of acquisition, After the discussion of this resolution company’s shareholders passed the SR(Special resolution ) in the AGM. Than the meeting of executives of Rahul ltd and Mohan ltd held on than the discussion about The Procedures of acquisition, consideration and other necessary matters are discussed At 31-3-2020,- Deal will finalised and Rahul Ltd Acquire control of Mohan Ltd by purchasing the 80% Shares of Mohan Ltd @ Rs. 18 Per Share

35. Questions are 1. Who is acquirer 2. Who is acquire 3. Which is acquisition date 4. what method is used in accounting 5. Non Controlling Interest 6. Consideration 7. Goodwill 8 . Which is initial recognition 9 . What are the subsequent measurement 10. Why it is not asset acquisition

36. Balance sheet of Mohan Ltd

37. Calculation of Consideration Paid by Rahul ltd to Mohan Ltd No of share acquired = 100000 x 80% =80,000 Share Consideration paid = 80000x18 = 14,40,000 Calculation of Fair value of Share of Mohan Ltd Price of = share capital + Reserve and surplus/No. of Shares = 1000000+500000/100000 =Rs. 15 per share

38. Calculation of Non Controlling Interest = Rs 150 X 20000 = 300000 Calculation Fair Value of Net Assets = Total Assets – Outside Liabilities =2000000-300000-100000-100000=1500000 Calculation of goodwill = considerations transferred + non-controlling interest - over the fair value of the identifiable net assets acquired = 14,40,000+3,00,000-15,00,000=2,40,000

39. Balance sheet of Rahul ltd

40. Consolidated Balance Sheet of Rahul Ltd as per ind as 110

41. Case study -2 John ltd is a famous for manufacturing bakery products a 30 year old company with a market goodwill .they have business whole north india . the company wants to increases its sales , profit . They decided a expansion plan to purchase another business of same area so there is the Meeting between board of directors is happen and they decided to enter in south Indian market , which have good future for bakery items John ltd gets a proposal of Ayer & sons , it is a sole proprietorship firm ,its business spread over Karnataka , they wants to sell their firm to enter new business of gold Jewry . They gave offer to john ltd on 15 may 2018. and but the condition of payment must be in Check means they requires cash consideration.

42. Balance sheet of A yer & sons

43. On discussion the conclusion incurred that – Consideration paid 14,00,000 to Ayer & sons on 31 dec 2018 and get control of ayer & sons Questions are 1. Who is acquirer 2. Who is acquire 3. Which is acquisition date 4. what method is used in accounting 5. Goodwill / Bargain purchase 6. Why it is not asset acquisition 7. Which is initial recognition 8. What are the subsequent measurement

44. Ind ­ AS 103 – related to Earning per share Business combination I mpairment loss PPE 2. ……………………..is a transaction or other event in which a reporting entity (the acquirer) obtains control of one or more businesses Earning per share Business combination Impairment loss PPE

45. 3. IND-AS 103 Not apply to: Joint ventures. Asset acquisition None of the above A and B 4. ……………… is  The business or businesses that the acquirer obtains control of in a business combination Acquiree   Acquirer Joint venture Associate

46. 5. ……………… is  The entity that obtains control of the acquire . Acquiree   Acquirer Joint venture Associate 6.………….  The date on which the acquirer obtains control of the acquiree . Purchase date Acquisition date Sale date None of the above

47. 7………………… is consists of inputs and processes applied to those inputs that have the ability to create outputs Charity Business Activity None of the above 8. Business is the process which not include Inputs Processes Taxation Outputs

48. 9. ……. is used for all business combinations Impairment method EPS Method acquisition method None of the above 10. Which is not Steps of the acquisition method is: Identifying an acquirer Acquisition date Acquired assets and liabilities Prepare reports

49. 11. ……………means financial statement of a parent (i.e. holding co.) and its subsidiaries as a single economic entity A- Consolidated financial statement B -balance sheet C- joint statement D- None of these 12. Which is not part of Consolidated Financial statement(CFS) a) Balance Sheet b) Profit and Loss Account c) Ratio analysis d) Cash Flow Statement

50. 11. The consideration transferred in a business combination shall be measured at acquisition date at ………… At Fair value At market value At book value None of the above 12..Recognition and measurement principle includes: At the acquisition date, the acquirer shall recognize, separately from goodwill: the identifiable assets acquired the liabilities assumed All of the above

51. 13. A bargain purchase is one where the goodwill is……………….. Positive Negative Zero None of the above 14. Consideration+ NCI + Previously held equity interest- net asset acquired is Provides Purchase consideration Goodwill Merger None of the above

52. 15. the assets or group of assets that are purchased By an entity is comes under ind as 103 Yes No 16. Acquirer should recognise bargain purchase is ……… revenue reserve Profit and loss Assets Capital reserve

53. 17. For common control entities are accounted under…………………………. pooling of interest method Acquisition Method Both a and b None of these 18. Business Combination under Ind. AS 103 are accounted under……………….. Method pooling of interest method Acquisition Method Both a and b None of these

54. 19. Acquisition cost not including Purchase consideration Cost of internal staff who work on the deal Cost of investigation Issue costs for debt or equity 20. Which is the enterprise that is controlled by another enterprise Subsidiary Holding Joint venture None of the above

55. 21. ……………is an enterprise that has one or more subsidiaries Subsidiary Parent Joint venture None of the above 22. : A …………. is set of parent a nd all its subsidiaries Subsidiary Parent Joint venture Group

56. 23. : …………………….. the residual interest in the assets of the enterprise after deducting all its liabilities Subsidiary Parent Equity Group …………………….is any company which holds more than half of the equity share capital or controls the composition of the board of directors of other companies Subsidiary Holding Equity Group

57. 25. Strategic/operation management include in Input Process Output Non of the above 26.Which is not feature of acquirer that transfers the cash or other assets or incurs the liabilities. entity that issues its equity interests. Acquirer normally has the N o voting rights in the entity ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity.

58. 27. Acquisition date is the date on which legally transfers the consideration and assets and liabilities taken over On which date written agreement provides that the acquirer obtains control of the acquiree Both A and B None of the above 28. where the control of Parent entity is less than 100% which arises a situation ,so remaining portion is called Holding situation Non controlling Interest Joint venture None of the above

59. 29.. Which is the correct sequence of acquisition method- Measurement principle Goodwill/ Bargain purchase Date of acquisition Consideration Transferred Who is acquirer 2-4-3-5-1 5-3-4-1-2 5-2-3-4-1 5-3-1-4-2

60. 30. Which step not include in acquisition Method Measurement principle Goodwill/ Bargain purchase Preparation of account Consideration Transferred Who is acquirer 32. Which is not the part of Recognition and measurement principle: At the acquisition date, the acquirer shall recognize, separately from goodwill: the identifiable assets acquired , Prepare comparative CFS any non ­controlling interest in the acquiree .

61. 33. consideration the acquirer transfers in exchange for the acquiree includes any asset or liability resulting from a contingent consideration arrangement

62. 103,Acquirer, fair values, equity interests, bargain purchase, consideration transferred …….is usually the entity that transfers the cash or other assets or incurs the liabilities Ind AS ……….“Business Combinations” deals with the accounting for business combinations 3.acquisition ­date ………..of the assets transferred by the acquirer. 4. A ……..is one where the goodwill is negative. 5. Acquirer is usually the entity that issues its ……………. 6. The ……………in a business combination shall be measured at fair value,

63. 1. businesses that the acquirer obtains control a. acquirer 2. entity that obtains control of the acquiree b. Recognition and measurement principle: 3.  The date on which the acquirer obtains control c. financial statement of a parent (i.e. holding co.) and its subsidiaries as a single economic entity 4. Consolidated Financial Statement (CFS).- CFS means d. Acquisition date: 5. identifiable assets acquired e. acquiree

64. MATCH THE FOLLOWING A. IND AS 12 Business combination B. IND AS 16 Impairment of assets C. IND AS 33 Accounting for tax D. IND AS 36 PPE E. IND AS 103 EPS

65. 1. Subsidiary a. Non controlling interest 2. A bargain purchase b. controlled by another enterprise 3. fair value- c. Equity interest 4. NCI d. goodwill is negative 5. ownership interests of investor-owned entities and owner e. The amount for which an asset could be exchanged