Panama Pharma Ltd. is a leading company engaged in the manufacturing of generic medicines. The company decided to acquire Bio Gen Research Ltd., a…
CA Final · Financial Reporting · PYQS · May 2026
Panama Pharma Ltd. is a leading company engaged in the manufacturing of generic medicines. The company decided to acquire Bio Gen Research Ltd., a biotech firm specializing in viral vector technology to diversify its portfolio and enter the high-growth vaccine segment. To achieve this, Panama Pharma Ltd. initially acquired a 30% stake in Bio Gen Research Ltd. for 15,00,000 on 1 st July, 2025. Subsequently, to gain control, Panama Pharma Ltd. acquired a further 40% stake on 1 st January, 2026 for 24,00,000. On the date of acquiring control (1 st January, 2026), the fair value of the previously held 30% equity interest was determined to be - 17,50,000. The summarized Balance Sheets of both the companies as at 1 st January, 2026 were as follows: Note No. Bio Gen Research Ltd. ₹ Panama Pharma Ltd. ₹ ASSETS: Non-current Assets Property, Plant and Equipment (Labs) 18,00,000 60,00,000 Financial Assets Investments in Bio Gen Research Limited - 39,00,000 Investments in bonds 10,00,000 - Current Assets Inventories 5,00,000 15,00,000 Financial Assets Trade Receivables 4,00,000 8,50,000 Cash and cash equivalent 2,00,000 12,50,000 Total 39,00,000 1,35,00,000 EQUITY AND LIABILITIES: Equity 5,000 Equity share capital (of face value of 100 each) 5,00,000 50,00,000 Other Equity Other reserves 24,00,000 60,00,000 Non-current Liabilities Financial Liabilities Long term Borrowings - 15,00,000 Current Liabilities Financial Liabilities Trade payables 10,00,000 10,00,000 Total 39,00,000 1,35,00,000 Additional Information: (i) Bio Gen Research Ltd. has developed a proprietary vaccine formula known as 'Vax-Shield'. This is a self-generated intangible asset and has not been recognized in the books of Bio Gen Research Ltd. The fair value of 'Vax-Shield' as at 1 st January, 2026, is assessed at - 8,50,000, (ii) The Trade Receivables of Panama Pharma Ltd. include - 1,00,000 due from Bio Gen Research Ltd. for consultancy services provided in December 2025. Bio Gen Research Ltd. has recorded this amount in its Trade Payables. (iii) During the year, Panama Pharma Ltd. sold goods to Bio Gen Research Ltd. for 2,00,000. The cost of these goods to Panama Pharma Ltd. was - 1,50,000. As on 1 st January, 2026, 40% of these goods remain in the Inventory of Bio Gen Research Ltd. (iv) The fair value of the assets of Bio Gen Research Ltd. as on 1 st January, 2026 was as follows: Assets Fair Value (₹ ) Property, Plant and Equipment (Labs) 26,00,000 Investment in Bonds 11,50,000 (v) The NCI is to be measured at Fair Value. The Fair Value of NCI on the acquisition date - 1 st January, 2026 is 16,00,000. You are required to: (i) Pass necessary journal entries in the books of Panama Pharma Ltd. to account for the business combination in accordance with Ind AS 103 as at 1 st January, 2026, (ii) Prepare the Consolidated Balance Sheet of Panama Pharma Ltd. and its subsidiary as at 1 st January, 2026, incorporating all necessary adjustments for inter-company balances and unrealized profits. Also provide necessary working notes. Ignore tax implications.
Suggested Answer and Working Notes:
(i) Journal entry as on 1 st January 2026 Particulars Dr. (₹ ) Cr. (₹ ) Property, Plant and Equipment Dr. 26,00,000 Intangible Assets Dr. 8,50,000 Investments in bonds Dr. 11,50,000 Inventories Dr. 5,00,000 Trade Receivables Dr. 4,00,000 Cash and Cash Equivalents Dr. 2,00,000 Goodwill (Balancing Figure) Dr. 10,50,000 To Trade Payables 10,00,000 To Purchase consideration 41,50,000 To Non-controlling Interest 16,00,000 (Being assets and liabilities acquired at fair value and goodwill computed on acquisition of assets and liabilities) Trade Payables A/c Dr. 1,00,000 To Trade Receivables 1,00,000 (Being mutual transaction adjusted) Investment in subsidiary Bio Gen Research Ltd Dr. 2,50,000 To Retained Earnings (Fair value gain on 30% stake of Bio Gen Research Ltd.) 2,50,000 (Being gain on fair value adjustment recognised) Other Equity (Retained Earnings) Dr. 20,000 To Inventories 20,000 (Being elimination of unrealised profit on inventories acquired) (ii) Consolidated Balance Sheet of Panama Pharma Ltd. and its subsidiary, Bio Gen Research Ltd. as at 1 st January 2026 Particulars Note No. ₹ I. Assets (1) Non-Current Assets (i) Property Plant & Equipment 1 86,00,000 (ii) Goodwill (W.N.3) 10,50,000 (iii) Intangible Asset (Vax-Shield) 1 8,50,000 (iv) Financial Asset (a) Investment in Bonds 1 11,50,000 (2) Current Assets (i) Inventories 1 19,80,000 (ii) Financial Assets (a) Trade Receivables 1 11,50,000 (b) Cash & Cash Equivalents 1 14,50,000 Total Assets 1,62,30,000 II. Equity and Liabilities (1) Equity (i) Equity Share Capital 50,00,000 (ii) Other Equity (W.N.4) 62,30,000 (2) Non-Controlling Interest 16,00,000 (3) Non-Current Liabilities (i) Financial Liabilities (a) Borrowings 1 15,00,000 (4) Current Liabilities (i) Financial Liabilities (a) Trade Payables 1 19,00,000 Total Equity & Liabilities 1,62,30,000 Notes to Accounts 1. Assets and Liabilities Particulars Panama Pharma Ltd. Bio Gen Research Ltd. Adjustment Total ₹ Property, Plant and Equipment 60,00,000 18,00,000 8,00,000 86,00,000 Intangible Assets (Vax-Shield) - - 8,50,000 8,50,000 Investments in Bonds - 10,00,000 1,50,000 11,50,000 Inventories 15,00,000 5,00,000 (20,000) 19,80,000 Trade Receivables 8,50,000 4,00,000 (1,00,000) 11,50,000 Cash and Cash Equivalents 12,50,000 2,00,000 - 14,50,000 Borrowings 15,00,000 - - 15,00,000 Trade Payables 10,00,000 10,00,000 (1,00,000) 19,00,000 Working Notes: 1. Calculation of purchase consideration at the acquisition date i.e. 1 st January 2026 ₹ Fair value of 40% stake acquired in Bio Gen Research Ltd. 24,00,000 Fair value of 30% stake acquired in Bio Gen Research Ltd. 17,50,000 41,50,000 2. Calculation of fair value of net identifiable assets at the acquisition date i.e. 1 st January 2026 ₹ Property, Plant and Equipment 26,00,000 Intangible Assets 8,50,000 Investments in Bonds 11,50,000 Inventories 5,00,000 Trade Receivables 4,00,000 Cash and Cash Equivalents 2,00,000 Fair value of Total Assets 57,00,000 Less: Trade Payables (10,00,000) Fair value of Net Identifiable Assets 47,00,000 3. Calculation of Goodwill at the acquisition date - 1 st January, 2026 ₹ Purchase consideration (W.N.1) 41,50,000 Non-controlling Interest at fair value 16,00,000 57,50,000 Less: Fair value of Net Identifiable Assets (W.N.2) (47,00,000) Goodwill 10,50,000 4. Consolidated Retained Earnings as on 1 st January 2026 ₹ Panama Pharma Ltd. 60,00,000 Add: Gain on fair valuation of previously held 30% stake (17,50,000 – 15,00,000) 2,50,000 Less: Unrealised gain on sale of inventory [(1,50,000-1,00,000) x 40%] (20,000) Retained Earnings as on 1 st January, 2026 62,30,000
Topics: Ind AS 103
Related Questions in this Topic
- Makers Ltd. acquired 65% of shares on 1 June, 20X3 in D Limited which is engaged in production of components of machiner...
- On 1st April, 20X1, Johansen Ltd. acquired a new subsidiary, Bosman Ltd., purchasing all 150 million shares of Bosman Lt...
- A Ltd. is preparing its financial statements for the year ended 31 March 20X5. During the year, the following transactio...
- ABC Ltd. is a globally diversified business conglomerate with operations spanning across various business sectors worldw...
- Zest Ltd.is engaged in the manufacturing of Automobiles with its registered office in Pune and is listed on BSE Limited....