On 1st April 20X1, Pride Limited acquired 30% of the ordinary shares of Famous Limited for 4,000 crores. Pride Limited accounts for its investment…

(i) Acquisition date for accounting of business combination is The date on which the acquirer obtains control of the acquiree is generally the date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree. In the given case, the acquisition date is 1st April, 20X2 i.e. when Pride Ltd. acquired 100% holding of Famous Ltd. (ii) Computation of gain on previously held interest An entity shall discontinue the use of the equity method from the date when its investment ceases to be an associate or a joint venture. If the investment in an associate becomes a investment in a subsidiary, the entity shall account for its investment in accordance with Ind AS 103 and Ind AS 110. Ind AS 103 provides that in a business combination achieved in stages, the acquirer is required to remeasure the previously held equity interest at its acquisition date fair value and recognise any gain or loss 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 the 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. The gain on previously held equity interest in Famous Ltd. is calculated as follows: Fair value of 30% interest as on 1st April, 20X2 4,500 crore Carrying value of 30% investment as on 31st March, 20X2 (₹ 4,425 crore) Gain on previously held interest 75 crore Unrealised gain previously recognised in OCI 50 crore Total gain recognised in Profit and loss 125 crore (iii) Computation of goodwill For 70% share 12,500 crore For 30% share 4,500 crore Total amount of purchase consideration - 17,000 crore Less: Fair value of net identifiable assets (₹ 15,000 crore) Goodwill - 2,000 crore (iv) Journal Entry on 1st April, 20X2 ₹ in crore Net Identifiable Assets Dr. 15,000 Goodwill (W.N.1) Dr. 2,000 Foreign currency translation reserve Dr. 50 PPE revaluation reserve Dr. 25 To Cash 12,500 To Investment in Associate – Famous Ltd. 4,425 To Retained Earnings (W.N.) 25 To Gain on previously held interest recognised in profit and loss (Refer point (ii) above) 125 Working Note: The credit to retained earnings represents the reversal of the unrealised gain of 25crore in OCI related to the revaluation of PPE. In accordance with Ind AS 16, this amount is not reclassified to profit or loss.