The balance sheet of Professional Ltd. and Dynamic Ltd. as of 31st March, 20X2 is given below: Assets in lakhs Professional Ltd. Dynamic Ltd.…

Consolidated Balance Sheet of Professional Ltd as on 1st April, 20X2 Amount Assets Non-Current Assets: Property, plant and equipment 650 Investment 500 Current assets: Inventories 400 Financial assets: Trade receivables 750 Cash and cash equivalents 300 Others 630 Total 3,230 Equity and Liabilities Equity Share capital- Equity shares of 10each 514 Other Equity 1,128.62 NCI 154.95 Non-Current liabilities: Long term borrowings 450 Long term provisions (50+70+28.93) 148.93 Deferred tax 28.5 Current Liabilities: Short term borrowings 250 Trade payables 550 Provision for Lawsuit Damages 5 Total 3,230 Notes: a. As per Ind AS 103, the acquirer is required to record the assets and liabilities acquired at their respective fair value. Accordingly, the PPE of Dynamic Ltd. will be recorded at 350 lakhs. b. The value of replacement award is allocated between consideration transferred and post combination expense. The portion attributable to purchase consideration is determined based on the fair value of the replacement award for the service rendered till the date of the acquisition. Accordingly,2.5 lakhs (5 x 2/4) is considered as a part of purchase consideration and is credited to Professional Ltd equity as this will be settled in its own equity. Since the fair value of the award on the acquisition date is 8lakhs, the balance of 5.5 lakhs (8 – 2.5) will be recorded as employee expense in the books of Dynamic Ltd over the remaining life, which is 1 year in this scenario. (Para B59 of Ind AS 103) c. There is a difference between contingent consideration and deferred consideration. In the given case,35 lakhs is the minimum payment to be paid after 2 years and accordingly will be considered as deferred consideration. The other element is if a company meet certain target then they will get 25% of that or 35lakhs whichever is higher. In the given case, the minimum what is expected to be paid has been considered and the fair value of the contingent consideration has been considered as zero. The impact of time value on deferred consideration has been given @10%. d. The additional consideration of 20lakhs to be paid to the founder shareholder is contingent to him/her continuing in employment and hence this will be considered as employee compensation and will be recorded as post combination expenses in the income statement of Dynamic Ltd. Working Notes: 1. Computation for Purchase consideration Particulars Amount Share capital of Dynamic Ltd 4,00,00,000 Number of shares 4,00,000 Shares to be issued 2:1 2,00,000 Fair value ₹per share 40 PC (2,00,000 x 70% x 40 per share) (A) ₹in lakhs 56.00 Deferred consideration after discounting 35lakhs for 2 years @10% (B) 28.93 Replacement award Market based measure of the acquiree award (5) x ratio of the portion of the vesting period completed (2) / greater of the total vesting period (3) or the original vesting period (4) of the acquiree award i.e. (5 x 2/4) (C) 2.50 PC in lakhs (A+B+C) 87.43 2. Allocation of Purchase price Particulars Book value (A) Fair value (B) FV adjustment (A-B) Property, plant and equipment 500 350 (150) Investment 100 100 - Inventories 150 150 - Financial assets: Trade receivables 300 300 - Cash and cash equivalents 100 100 - Others 230 230 - Less: Long term borrowings (200) (200) - Long term provisions (70) (70) - Deferred tax (35) (35) - Short term borrowings (150) (150) - Trade payables (300) (300) - Contingent liability - (5) (5) Net assets (X) 625 470 (155) Deferred Tax Asset on FV adjustment (155 x 30%) (Y) 46.50 155 Net assets (X+Y) 516.5 Non-controlling interest (516.50 x 30%) rounded off 154.95 Purchase consideration (PC) 87.43 Capital Reserve (Net assets – NCI – PC) 274.12 3. Computation of consolidated amounts of Consolidated financial statements Professional Ltd. Dynamic Ltd. (pre-acquisition) PPA Allocation Total Assets Non-Current Assets: Property, plant and equipment 300 500 (150) 650 Investment 400 100 500 Current assets: Inventories 250 150 400 Financial assets: Trade receivables 450 300 750 Cash and cash equivalents 200 100 300 Others 400 230 630 Total 2,000 1,380 (150) 3230 Equity and Liabilities Equity Share capital- Equity shares of 10each 500 Shares allotted to Dynamic Ltd. (2,00,000 x 70% x 10 per share) 14 514 Other Equity 810 Replacement award (W.N.1) 2.5 2.5 Security Premium (2,00,000 shares x 70% x 30) (W.N.1) 42 42 Capital Reserve (W.N.2) 274.12 274.12 Non-controlling interest (W.N.2) 0 154.95 154.95 Non-Current liabilities: Financial liabilities Long term borrowings 250 200 450 Long term provisions (W.N.1) 50 70 28.93 148.93 Deferred tax (W.N.2) 40 35 (46.5) 28.5 Current Liabilities: Financial liabilities Short term borrowings 100 150 250 Trade payable 250 300 0 550 Liability for lawsuit damages 5 5 Total 2,000 755 475 3230