Advent of IND-AS 103 and Its impact on Mergers and Acquisitions: A Case Analysis

Advent of IND-AS 103 and Its impact on Mergers and Acquisitions: A Case Analysis

Deepak Tandon (International Management Institute, Delhi, India), Naliniprava Tripathy (Indian Institute of Management, Shillong, India) and Neelam Tandon (Jagannath International Management School, India)
DOI: 10.4018/978-1-7998-2372-8.ch012


In the business growth models in the corporate scenario, mergers and acquisitions is the key buzzword. Entrepreneurs with a paucity of cash balance and various motives for their poor performance are key targets of mergers. Consolidation of the market share at times leading to competitive advantage with inorganic opportunities to growth seems to be the pace of the era. When it comes to financial consolidation, balance sheet analysis plays a complicated role. In order to improve reliability, relevance in business combinations, IND-AS103 plays a vital role. IND-AS is applicable to the companies with a net worth of Rs 250 Crs, otherwise companies GAAP is applicable. An attempt has been made by the authors through the Idea and Vodafone merger explaining the recognition of identifiable assets, liabilities assumed, and the NCI (non-controlling interest) as per the guidelines of IND-AS103. Through a case, the authors have emphasized the recognition of goodwill acquired in the entrepreneurial enterprise derived from the bargain price.
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With intense wakeup in new firm formation, entrepreneurs are putting in capital to take weak firms amidst competition in business environment. Mergers of two or more businesses can make the business more valuable in terms of cash, credit and vcapital infused by entrepnreneurs, add to business products in new markets . In this scenario, various companies are listed under the pooling of interest method or the purchase price method . In the future, IND-AS 103 will alter or change the way business combinations (i.e., mergers and acquisitions, demergers etc) are accounted for. IND-AS 103 is a single comprehensive standard which provides detailed guidance on accounting for mergers and acquisitions, irrespective of the nature, structure or legal form of the transaction. Unlike Indian GAAP, IND-AS requires mandatory use of pooling of interest method as against the purchase/ fair value method of accounting for business combination between group entities/ related parties (i.e., entities which are under common control). IND-AS 103 devolves upon recognition of assets and liabilities, Non -controlling interests as well as goodwill recognition.

Figure 1.

Accounting the assets/ groups that are purchased with no business input or process


IND - AS 103 involves around:

  • Identification of Entrepreneurial Business. Business will have integrated set of assets and liabilities giving returns to investors by dividends, lowering the costs and other economic benefits . But the outputs will not qualify the business and the development stage entity will not qualify in business.

  • Investment property in enterprise acquitted having input and process will be business in the coming business combinations. However property managed and controlled will not be a business. Combining Entities i.e. acquirer, acquisition date through regulatory approval (courts etc), contingent consideration for transfer and accounting of the contingent consideration are to be considered as key parameters

INDAS Applicability

IND -AS 103 extends to a transaction or other event that meets the definition of a business combination.

IND -AS 103 is not applicable on the following in joint agreements:

  • 1.

    Where the combined agreements are there in the financial statements

  • 2.

    Acquiring assets or else the group of assets which do not qualify a business

  • 3.

    It is also does not apply to the consolidated Financial Statements where in the case of acquisition by an investment entity of an investment in a subsidiary that has to be measured at fair value through profit or loss account.(AS110)

Key Terms in this Chapter

Acquisition Date: For each business combination, one of the combining entities would be identified as the acquirer. The acquisition date is the date on which the acquirer obtains control of the acquiree. In addition, Ind AS 103 clarifies that the date on which the acquirer obtains control of the acquiree is generally the date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree – the closing date.

Contingent Consideration: The standard defines contingent consideration as, an obligation of the acquirer to transfer additional assets or equity interests to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met.

Consideration: The consideration for the combination includes cash and cash equivalents and the fair value of any non-cash consideration given. Consideration includes only those amounts paid to the seller in exchange for control of the entity. Consideration excludes amounts paid to settle pre-existing relationships, payments that are contingent on future employee services and acquisition related costs.

Business Combinations: A business combination is a transaction or event in which an entity–(‘acquirer’) obtains control of one or more businesses (‘acquiree(s)’). It has the Input- Processes and Output as key processes .

IFRS 3: IFRS 3 excludes from its scope business combinations of entities under common control. Ind AS 103 gives the guidance in this regard. IFRS 3 requires bargain purchase gain arising on business combination to be recognised in profit or loss. Ind AS 103 requires the same to be recognised in other comprehensive income and accumulated in equity as capital reserve, unless there is no clear evidence for the underlying reason for classification of the business combination as a bargain purchase, in which case, it shall be recognised directly in equity as capital reserve.

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