Ind AS 103 "Business Combinations" On 1st April, 20X1, PQR Ltd. acquired 30% of the shares of XYZ Ltd. for 8,000 crores. At 31st March, 20X2, PQR…

Paragraph 42 of Ind AS 103 provides that in a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, 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 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. Applying the above, PQR Ltd. records the following entry in its consolidated financial statements: Dr. Cr. Identifiable net assets of XYZ Ltd. Dr. 30,000 Goodwill (W.N.1) Dr. 4,000 Foreign currency translation reserve Dr. 100 PPE revaluation reserve Dr. 50 To Cash 25,000 To Investment in associate- XYZ Ltd. (W.N.3) 8,850 To Retained earnings (W.N.2) 50 To Gain on previously held interest in XYZ recognized in Profit or loss (W.N.4) 250 (To recognize acquisition of XYZ Ltd.) Working Notes : 1. Goodwill calculated as follows: (₹ in crores) Cash consideration 25,000 Fair value of previously held equity interest in XYZ 9,000 Total consideration 34,000 Fair value of identifiable net assets acquired (30,000) Goodwill 4,000 2. The credit to retained earnings represents the reversal of the unrealized gain of 50crores in Other Comprehensive Income related to the revaluation of property, plant and equipment. In accordance with Ind AS 16, this amount is not reclassified to profit or loss. 3. The carrying amount of the investment in the associate on 31st March, 20X2 would be as follows: (₹ in crores) Investment in Associate 8,000 Share of profit or loss 700 Share of exchange difference in OCI 100 Share of revaluation reserve of PPE in OCI 50 8,850 4. The gain on the previously held equity interest in XYZ Ltd. is calculated as follows: (₹ in crores) Fair Value of 30% interest in XYZ Ltd. at 1st April, 20X2 9,000 Carrying amount of interest in XYZ Ltd. at 1st April, 20X2 (W.N.3) (8,850) 150 Unrealised gain previously recognized in OCI 100 Gain on previously held interest in XYZ Ltd. recognized in profit or loss 250