ABC Ltd. acquired 5% equity shares of XYZ Ltd. for 10 crores in the year 20X1-20X2. The company is in process of preparing the financial statements…

CA Final · Financial Reporting · MTP · May 2025
ABC Ltd. acquired 5% equity shares of XYZ Ltd. for 10 crores in the year 20X1-20X2. The company is in process of preparing the financial statements for the year 20X2-20X3 and is assessing the fair value at subsequent measurement of the investment made in XYZ Ltd. Based on the observable input, ABC Ltd. identified a similar nature of transaction in which PQR Ltd. acquired 20% equity shares in XYZ Ltd. for 60 crores. The price of such transaction was determined on the basis of Comparable Companies Method (CCM)- Enterprise Value (EV) / EBITDA which was 8. For the current year, the EBITDA of XYZ Ltd. is 40 crores. At the time of acquisition, the valuation was determined after considering 5% of liquidity discount and 5% of non-controlling stake discount. What will be the fair value of ABC Ltd.'s investment in XYZ Ltd. as on the balance sheet date?

Suggested Answer and Working Notes:

Determination of Enterprise Value of XYZ Ltd. Particulars in crore EBITDA as on the measurement date 40 EV/EBITDA multiple as on the date of valuation 8 Enterprise value of XYZ Ltd. 320 Determination of subsequent measurement of XYZ Ltd. Particulars in crore Enterprise Value of XYZ Ltd. 320 ABC Ltd.'s share based on percentage of holding (5% of 320) 16 Less: Liquidity discount & Non-controlling stake discount (5%+5%=10%) (1.6) Fair value of ABC Ltd.'s investment in XYZ Ltd. 14.4

Topics: Ind AS 113

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