On 1st April 20X1, A Ltd. acquired 12 Cr shares (representing 80% stake) in B Ltd. by means of a cash payment of 25Cr. It is the group policy to…

CA Final · Financial Reporting · MTP · January 2026
On 1st April 20X1, A Ltd. acquired 12 Cr shares (representing 80% stake) in B Ltd. by means of a cash payment of 25Cr. It is the group policy to value the non-controlling interest in subsidiaries at the date of acquisition at fair value. The market value of an equity share in B Ltd. at 1st April 20X1 can be used for this purpose. On 1st April 20X1, the market value of a B Ltd. share was - 2.00. On 1st April 20X1, the individual financial statements of B Ltd. showed the net assets at 23 Cr. The directors of A Ltd. carried out a fair value exercise to measure the identifiable assets and liabilities of B Ltd. at 1st April 20X1. The following matters emerged: Property having a carrying value of 15Cr at 1st April 20X1 had an estimated market value of 18Cr at that date.Plant and equipment having a carrying value of 11Cr at 1st April 20X1 had an estimated market value of 13Cr at that date.Inventory in the books of B Ltd. is shown at a cost of 2.50 Cr. The fair value of the inventory on the acquisition date is 3Cr. The fair value adjustments have not been reflected in the individual financial statements of B Ltd. In the consolidated financial statements, the fair value adjustments will be regarded as temporary differences for the purposes of computing deferred tax. The rate of deferred tax to apply to temporary differences is 20%. Assume that the current book value (prior to fair valuation exercise under Ind AS 103) equals the tax base. Calculate the deferred tax impact on above and calculate the goodwill arising on acquisition of B Ltd.

Suggested Answer and Working Notes:

Computation of Net Assets of B Ltd. As per books 23.00 Cr Add: Fair value differences not recognized in books of B Ltd.: Property (18 Cr – 15 Cr) 3.00 Cr Plant and Equipment (13 Cr – 11 Cr) 2.00 Cr Inventory (3 Cr – 2.5 Cr) 0.50 Cr 28.5 Cr Less: Deferred tax liability on fair value difference @ 20% [(3 Cr + 2 Cr + 0.50 Cr) x 20%] (₹ 1.10 Cr) Total Net Assets at Fair Value 27.40 Cr Computation of Goodwill: Purchase Consideration 25.00 Cr Add: Non-Controlling Interest [{(12 Cr x (20% / 80%)} x 2 per share] 6.00 Cr 31.00 Cr Less: Net Assets at Fair Value (₹ 27.40 Cr) Goodwill on acquisition date 3.60 Cr

Topics: Ind AS 103

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