B Ltd. prepares consolidated financial statements upto 31 st March each year. On 1 st July 20X1, B Ltd. acquired 75% of the equity shares of K Ltd.…

CA Final · Financial Reporting · MTP · May 2024
B Ltd. prepares consolidated financial statements upto 31 st March each year. On 1 st July 20X1, B Ltd. acquired 75% of the equity shares of K Ltd. and gained control of K Ltd. the issued shares of K Ltd. is 60,00,000 equity shares. Details of the purchase consideration are as follows: On 1 st July, 20X1, B Ltd. issued two shares for every three shares acquired in K Ltd. On 1 st July, 20X1, the market value of an equity share in B Ltd. was - 6.50 and the market value of an equity share in K Ltd. was - 6.On 30 th June, 20X2, B Ltd. will make a cash payment of 35,75,000 to the former shareholders of K Ltd. who sold their shares to B Ltd. on 1 st July, 20X1. On 1 st July, 20X1, B Ltd. would have to pay interest at an annual rate of 10% on borrowings.On 30 th June, 20X3, B Ltd. may make a cash payment of 1,50,00,000 to the former shareholders of K Ltd. who sold their shares to B Ltd. on 1 st July, 20X1. This payment is contingent upon the revenues of B Ltd. growing by 15% over the two-year period from 1 st July, 20X1 to 30 th June, 20X3. On 1 st July, 20X1, the fair value of this contingent consideration was - 1,25,00,000. On 31 st March, 20X2, the fair value of the contingent consideration was - 1,10,00,000. On 1 st July, 20X1, the carrying values of the identifiable net assets of K Ltd. in the books of that company was - 3,00,00,000. On 1 st July, 20X1, the fair values of these net assets was - 3,50,00,000. The rate of deferred tax to apply to temporary differences is 20%. During the nine months ended on 31 st March, 20X2, K Ltd. had a poorer than expected operating performance. Therefore, on 31 st March, 20X2 it was necessary for B Ltd. to recognise an impairment of the goodwill arising on acquisition of K Ltd., amounting to 10% of its total computed value. Compute the impairment of goodwill in the consolidated financial statements of B Ltd. under both the methods permitted by Ind AS 103 for the initial computation of the non-controlling interest in K Ltd. at the acquisition date.

Suggested Answer and Working Notes:

Computation of goodwill impairment NCI at fair value in '000 NCI at of net assets in '000 Cost of investment Share exchange (6,000 x 75% x 2/3 x 6.50) 19,500 19,500 Deferred consideration (3,575 / 1.10) 3,250 3,250 Contingent consideration 12,500 12,500 Non-controlling interest at date of acquisition: Fair value - 1,500 x 6 9,000 % of net assets – 34,000 (Refer W.N.) x 25% 8,500 Net assets on the acquisition date (Refer W.N.) (34,000) (34,000) Goodwill on acquisition 10,250 9,750 Impairment @ 10% 1,025 975 Working Note: Net assets on the acquisition date ₹ '000 Fair value at acquisition date 35,000 Deferred tax on fair value adjustments [20% x (35,000 – 30,000)] (1,000) 34,000

Topics: Ind AS 103

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