03 - Indian Accounting Standard (Ind AS) 103 - Business Combinations

[IND-AS]

Measurement principle of Indian Accounting Standard (Ind AS) 103

Business Combinations

Measurement principle

18. The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values.

19. For each business combination, the acquirer shall measure at the acquisition date components of non-controlling interest in the acquiree that are present ownership interests and entitles their holders to a proportionate share of the entity’s net assets in the event of liquidation at either:
(a) fair value; or
(b) The present ownership instruments’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets

All other components of non-controlling interests shall be measured at their acquisition - date fair values, unless another measurement basis is required by Indian Accounting Standards.

20. Paragraphs B41–B45 provide guidance on measuring the fair value of particular identifiable assets and a non-controlling interest in an acquiree. Paragraphs 24– 31 specify the types of identifiable assets and liabilities that include items for which this Indian Accounting Standard provides limited exceptions to the measurement principle.

[IND-AS]

Exceptions to the recognition or measurement principles of Indian Accounting Standard (Ind AS) 103

Business Combinations

Exceptions to the recognition or measurement principles

21. This Indian Accounting Standard provides limited exceptions to its recognition and measurement principles. Paragraphs 22–31 specify both the particular items for which exceptions are provided and the nature of those exceptions. The acquirer shall account for those items by applying the requirements in paragraphs 22–31, which will result in some items being:

(a) recognised either by applying recognition conditions in addition to those in paragraphs 11 and 12 or by applying the requirements of other Indian Accounting Standards, with results that differ from applying the recognition principle and conditions.

(b) measured at an amount other than their acquisition-date fair values.

[IND-AS]

Exception to the recognition principle - Contingent liabilities of Indian Accounting Standard (Ind AS) 103

Business Combinations

Exception to the recognition principle

Contingent liabilities

22. Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets defines a contingent liability as:

(a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non -occurrence of one or more uncertain future events not wholly within the control of the entity; or
(b) a present obligation that arises from past events but is not recognised because:

(i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or
(ii) the amount of the obligation cannot be measured with sufficient reliability.

23. The requirements in Ind AS 37 do not apply in determining which contingent liabilities to recognise as of the acquisition date. Instead, the acquirer shall recognise as of the acquisition date a contingent liability assumed in a business combination if it is a present obligation that arises from past events and its fair value can be measured reliably. Therefore, contrary to Ind AS 37, the acquirer recognises a contingent liability assumed in a business combination at the acquisition date even if it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Paragraph 56 provides guidance on the subsequent accounting for contingent liabilities.

[IND-AS]

Exceptions to both the recognition and measurement principles - Income taxes of Indian Accounting Standard (Ind AS) 103

Business Combinations

Exceptions to both the recognition and measurement principles

Income taxes

24. The acquirer shall recognise and measure a deferred tax asset or liability arising from the assets acquired and liabilities assumed in a business combination in accordance with Ind AS 12 Income Taxes.

25. The acquirer shall account for the potential tax effects of temporary differences and carryforwards of an acquiree that exist at the acquisition date or arise as a result of the acquisition in accordance with Ind AS 12.

[IND-AS]

Employee benefits of Indian Accounting Standard (Ind AS) 103

Business Combinations

Employee benefits

26. The acquirer shall recognise and measure a liability (or asset, if any) related to the acquiree’s employee benefit arrangements in accordance with Ind AS 19 Employee Benefits.

[IND-AS]

Indemnification assets of Indian Accounting Standard (Ind AS) 103

Business Combinations

Indemnification assets

27. The seller in a business combination may contractually indemnify the acquirer for the outcome of a contingency or uncertainty related to all or part of a specific asset or liability. For example, the seller may indemnify the acquirer against losses above a specified amount on a liability arising from a particular contingency; in other words, the seller will guarantee that the acquirer’s liability will not exceed a specified amount. As a result, the acquirer obtains an indemnification asset. The acquirer shall recognise an indemnification asset at the same time that it recognises the indemnified item measured on the same basis as the indemnified item, subject to the need for a valuation allowance for uncollectible amounts. Therefore, if the indemnification relates to an asset or a liability that is recognised at the acquisition date and measured at its acquisitiondate fair value, the acquirer shall recognise the indemnification asset at the acquisition date measured at its acquisition -date fair value. For an indemnification asset measured at fair value, the effects of uncertainty about future cash flows because of collectibility considerations are included in the fair value measure and a separate valuation allowance is not necessary (paragraph B41 provides related application guidance).

28. In some circumstances, the indemnification may relate to an asset or a liability that is an exception to the recognition or measurement principles. For example, an indemnification may relate to a contingent liability that is not recognised at the acquisition date because its fair value is not reliably measurable at that date. Alternatively, an indemnification may relate to an asset or a liability, for example, one that results from an employee benefit, that is measured on a basis other than acquisition-date fair value. In those circumstances, the indemnification asset shall be recognised and measured using a ssumptions consistent with those used to measure the indemnified item, subject to management’s assessment of the collectibility of the indemnification asset and any contractual limitations on the indemnified amount. Paragraph 57 provides guidance on the subsequent accounting for an indemnification asset.

[IND-AS]

Exceptions to the measurement principle - Reacquired rights of Indian Accounting Standard (Ind AS) 103

Business Combinations

Exceptions to the measurement principle

Reacquired rights

29. The acquirer shall measure the value of a reacquired right recognised as an intangible asset on the basis of the remaining contractual term of the related contract regardless of whether market participants would consider potential contractual renewals in determining its fair value. Paragraphs B35 and B36 provide related application guidance.

[IND-AS]

Share-based payment transactions of Indian Accounting Standard (Ind AS) 103

Business Combinations

Share-based payment transactions

30. The acquirer shall measure a liability or an equity instrument related to share based payment transactions of the acquiree or the replacement of an acquiree’s share-based payment transactions with share-based payment transactions of the acquirer in accordance with the method i n Ind AS 102 Share-based Payment at the acquisition date. (This Indian Accounting Standard refers to the result of that method as the ‘market-based measure’ of the share-based payment transaction.)

[IND-AS]

Assets held for sale of Indian Accounting Standard (Ind AS) 103

Business Combinations

Assets held for sale

31. The acquirer shall measure an acquired non-current asset (or disposal group) that is classified as held for sale at the acquisition date in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations at fair value less costs to sell in accordance with paragraphs 15 –18 of that Indian Accounting Standard.

[IND-AS]

Recognising and measuring goodwill or a gain from a bargain purchase of Indian Accounting Standard (Ind AS) 103

Business Combinations

Recognising and measuring goodwill or a gain from a bargain purchase

32. The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below:

(a) the aggregate of:

(i) the consideration transferred measured in accordance with this Indian Accounting Standard, which generally requires acquisition-date fair value (see paragraph 37);
(ii) the amount of any non-controlling interest in the acquiree measured in accordance with this Indian Accounting Standard; and

(iii) in a business combination achieved in stages (see paragraphs 41 and 42), the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree.

(b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this Indian Accounting Standard.

33. In a business combination in which the acquirer and the acquiree (or its former owners) exchange only equity interests, the acquisition-date fair value of the acquiree’s equity interests may be more reliably measurable than the acquisitiondate fair value of the acquirer’s equity interests. If so, the acquirer shall determine the amount of goodwill by using the acquisition-date fair value of the acquiree’s equity interests instead of the acquisition -date fair value of the equity interests transferred. To determine the amount of goodwill in a business combination in which no consideration is transferred, the acquirer shall use the acquisition-date fair value of the acquirer’s interest in the acquiree determined using a valuation technique in place of the acquisition -date fair value of the consideration transferred (paragraph 32(a)(i)). Paragraphs B46 –B49 provide related application guidance.