On 1st April 20X1, J Ltd. acquired a new subsidiary, B Ltd., purchasing all 150 million shares of B Ltd. The terms of the sale agreement included…

Calculation of purchase consideration: Particulars ₹ in million Market value of shares issued (150 million x 4/3 x 10) 2,000 Initial estimate of market value of shares to be issued (150 million x 1/5 x 10) 300 Total consideration 2,300 Contingent consideration is recognized in full if payment is probable. As per para 53 of Ind AS 103, acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder's fees; advisory, legal, accounting, valuation and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognised in accordance with Ind AS 32 and Ind AS 109. Statement of fair value of identifiable net assets at the date of acquisition Particulars ₹ in million As per B Ltd.'s Balance Sheet 1,200 Fair value of customer relationships 100 Fair value of research and development project 50 Total net assets acquired 1,350 As per Ind AS 38 ‘Intangible assets', intangible assets can be recognized separately from goodwill provided they are identifiable, are under the control of the acquiring entity, and their fair value can be measured reliably. Customer relationships that are similar in nature to those previously traded, pass these tests but employee expertise fail the 'control' test. Both the research and development phases of in process project can be capitalised provided their fair value can be measured reliably. Statement of computation of goodwill Particulars ₹ in million Fair value of consideration given 2,300 Fair value of net assets acquired (1,350) Goodwill on acquisition 950 Paragraph 58 of Ind AS 103 provides guidance on the subsequent accounting for contingent consideration. In general, an equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Ind AS 32 describes an equity instrument as one that meets both of the following conditions: There is no contractual obligation to deliver cash or another financial asset to another party, or to exchange financial assets or financial liabilities with another party under potentially unfavourable conditions (for the issuer of the instrument).If the instrument will or may be settled in the issuer's own equity instruments, then it is:a non-derivative that comprises an obligation for the issuer to deliver a fixed number of its own equity instruments; ora derivative that will be settled only by the issuer exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. In the given case, given that the acquirer has an obligation to issue fixed number of shares on fulfillment of the contingency, the contingent consideration will be classified as equity as per the requirements of Ind AS 32. As per paragraph 58 of Ind AS 103, contingent consideration classified as equity should not be re-measured and its subsequent settlement should be accounted for within equity.