Ind AS: 103 BUSINESS COMBINATION

PART 1

A LTD TAKES OVER B LTD. AND B LTD WILL BE CLOSED DOWN ONLY A LTD WILL CONTINUE ITS BUSINESS —- ABSORPTION

A LTD. + B LTD. => AB LTD. [A LTD. & B LTD. WILL BE CLOSED DOWN AND ONLY AB LTD. WILL CONTINUE ITS BUSINESS] —-

AMALGAMATION

PART 2 ——- NEW THING ADDED IN IND AS 103

A LTD. —– TAKE OVER 60% SHARES OF —— B LTD.

HERE, A LTD. ACQUIRED CONTROL OF B LTD. SO EVEN THIS TRANSACTION WILL BE CONVERED IN IND AS 103.

PART 1 WHERE PURCHASING COMPANY WILL TAKE OVER ONE OR MORE SELLING COMPANIES.

  • NET ASSETS [NA]
  • PURCHASE CONSIDERATION [PC]
  • DIFFERENCE = NA – PC [GOODWILL OR BARGAIN PURCHASE]
  • ENTRIES IN SELLING CO.
  • ENTRIES IN PURCHASING CO.
  • BALANCE SHEET OF PURCHASING CO. AFTER AMALGAMATION.

NET ASSETS [NA] —- FROM THE POINT OF VIEW OF PURCHASING CO.

Rs.
FAIR VALUES OF ASSETS TAKEN OVER
ALL ASSETS EXCLUDING MISC EXP AT FAIR VALUE INCL BS GOODWILL & INVESTMENT & CASH & BANK TAKEN OVER.
LESS: FAIR VALUES OF LIABILITIES TAKEN OVER
ALL LIAB EXCLUDING ES, PS & ALL RESERVE AT FAIR VALUE
DEB 150
NA

NOTE:

  • AS PER AS 14: REVISED VALUES OF ASSETS MEANS AGREED VALUES OF ASSETS BETWEEN PURCHASING CO. & SELLING CO.
  • AS PER IND AS 103: REVISED VALUE MEANS FAIR OF ASSETS BETWEEN TO INDEPENDENT PARTIES OF WHOM NO ONE IS BUYER OR SELLER.
  • IF FAIR VALUE IS NOT GIVEN, ASSUME BOOK VALUE [BALANCE SHEET VALUE] AS FAIR VALUE.
  • IF MP IS GIVEN, SAME CAN BE CONSIDERED AS FAIR VALUE.
  • IN ABSENCE OF INFORMATION ALL ASSETS EXCLUSING MISC EXP WILL BE TAKEN OVER AT FAIR VALUE. IN ABSENCE OF FAIR VALUE, ALL ASSETS WILL BE TAKEN OVER AT BOOK VALUE. EVEN BALANCE SHEET GOODWILL & NON TRADE INVESTMENT WILL BE TAKEN OVER. EVEN CASH & BANK WILL BE TAKEN OVER.
  • AS PRE AS 14: REVISED VALUES OF LIABILITES MEANS ULTIMATE PAYABLE VALUES OF LIABILITES.
  • AS PER IND AS 103: LIAB WILL BE TAKEN OVER AT FAIR VALUES. INDIRECTLY THAT IS ULTIMATE PAYABLE VALUE ONLY.
  • IF FAIR VALUE IS NOT GIVEN, LIAB WILL BE TAKEN OVER AT BOOK VALUE.
  • IF ANY LIABIILTY IS GOING TO BE PAID BY PURCHASING CO —— INCLUDE SUCH LIABILITY IN NA AT ULTIMATE PAYABLE VALUE. SUCH LIABILITY WILL BE TRF TO PURCHASING CO. BOOKS AND IN PURCHASING CO. IT WILL BE PAID OFF. NO EFFECT OF PAYMENT IS TO BE GIVEN IN THE BOOKS OF SELLING CO
PURCHASE CONSIDERATION [PC]

PC MEANS PAYMENT IN ANY FORM TO SHAREHOLDERS [EQUITY & PREF.] OF SELLING COMPANY.

PURCHASING CO. WILL ISSUE

  • ES TO ESH —- PC
  • ES TO PSH —- PC
  • ES TO DEB HOLDERS —- NA
  • DEB TO ESH ——- PC
  • PS TO ESH ——- PC
  • CASH TO PSH ——– PC
  • DB TO PSH —— PC
  • CASH TO ESH —— PC
  • ES TO CREDITORS —— NA
TYPES OF PC
1. FULL PC IS GIVEN

Eg. 1

Rs. Rs.
EQUITY SHARES OF RS. 10 10,00,000
EACH 10% PS OF RS. 100 EACH 5,00,000

ADJUSTMENT:

  •   A LTD. WILL ISSUE 3 EQUITY SHARES FOR EVERY 2 ES OF B LTD. A LTD. WILL ISSUE SHARES OF RS. 10 EACH AT RS. 15.
  • A LTD. WILL DISCHARGE 10% PS OF B LTD. AT A PREMIUM OF 10% BY ISSUE OF 15% PREF.

SHARE OF A LTD. AT PAR. SOLUTION:

WORKING PC
1. PC TO ESH
IN EQUITY SHARES
FOR 2 SHARE HELD —————- 3 ES
FOR 1,00,000 ES ——————- ? 1,50,000 ES
(x) ISSUE PRICE RS. 15
TOTAL PC : 1,50,000 * 15 22,50,000
2. PC TO PSH
FACE OF 10% PS 5,00,000
ADD: PREMIUM ON REDEMPTION @ 10% 50,000
TOTAL AMT PAYABLE —- PC TO PSH 5,50,000 5,50,000
ISSUE PRICE OF NEW 15% PS OF A LTD. 100
NO. OF 15% PS TO BE ISSUED 5500 PS
550000/100
TOTAL PC 2250000+550000 28,00,000

2. Full PC is not given:
Eg.

Rs. Rs.
EQUITY SHARES OF RS. 10 EACH 10,00,000
10% PS OF RS. 100 EACH 5,00,000

ADJUSTMENT:

  •  A LTD. WILL ISSUE 3 EQUITY SHARES FOR EVERY 2 ES OF B LTD. A LTD. WILL ISSUE SHARES OF RS. 10 EACH AT RS. 15 & BALANCE IN CASH.
  • A LTD. WILL DISCHARGE 10% PS OF B LTD. AT A PREMIUM OF 10% BY ISSUE OF 15% PREF. SHARE OF A LTD. AT PAR.

NOTE: ASSUME THAT NA = 32,00,000.

SOLUTION:

SINCE AMOUNT OF CASH TO BE PAID IS NOT GIVEN, TOTAL NA = TOTAL PC = 32,00,000

WORKING PC
TOTAL NA = TOTAL PC 32,00,000
LESS:
1. PC TO PSH
FACE OF 10% PS 5,00,000
ADD: PREMIUM ON REDEMPTION @ 10% 50,000
TOTAL AMT PAYABLE —- PC TO PSH 5,50,000 5,50,000
ISSUE PRICE OF NEW 15% PS OF A LTD. 100
TOTAL AMT PAYABLE —- PC TO PSH 5,50,000 5,50,000
ISSUE PRICE OF NEW 15% PS OF A LTD. 100
NO. OF 15% PS TO BE ISSUED 5500 PS
550000/100
2. PC TO ESH = TOTAL PC – PC TO PSH 32,00,000 – 5,50,000 26,50,000
(i) IN EQUITY SHARES
FOR 2 SHARE HELD —————- 3 ES
FOR 1,00,000 ES ——————- ? 1,50,000 ES
(x) ISSUE PRICE RS. 15
TOTAL PC IN EQUITY SHARES : 1,50,000 * 15 22,50,000
(ii) IN CASH 26,50,0000 – 22,50,0000 = 4,00,000

EG.2 FULL PC IS NOT GIVEN

ADJUSTMENT:

  • PURCHASING COMPANY WILL ISSUE REQUISITE NO. OF EQUITY SHARES OF RS. 10 EACH AT RS. 15 TO DISCHARGE PC TO SELLING
  • CO. [ASSUME NA = 3000000]
  • NA = PC = 3000000
  • NO. OF SHARES TO BE ISSUED = 3000000/15 = 200000 EQUITY SHARES OF RS. 15 EACH

3. INTRINSIC VALUE METHOD:

STEP: 1 FIND IV FOR BOTH THE COMPANIES, PURCHASING & SELLING

STEP: 2 FIND PC USING FOLLOWING FORMULA

NO. OF SHARES TO BE ISSUED =

(x)IV OF PURCHASING CO. [ALWAYS ISSUE PRICE = IV OF PURCHASING COMPANY]

(=) TOTAL PC

3. DIFF = NA – PC —— FOR PURCHASING COMPANY

CASE 1 CASE 2 CASE3
NA 100 100 100
PC 100 90 120
0 10 20
IGNORE CAPITAL RESERVE [BARGAIN GAIN] GOODWILL

NOTE: CARVE OUT IN IND AS 103: AS PER IFRS, ABOVE DIFFERENCE IS TO BE ADJUSTED IN P&L OR GEN RESERVE. HOWEVER, IND AS 103 PREFERRED TO ADJUST IN GOODWILL & CAPITAL RESERVE ONLY.

4. ENTRIES IN SELLING COMPANY
STEPS:

    • TRANSFER BALANCE SHEET AT BOOK VALUE [BALANCE SHEET VALUE]
    • RECORD PC & RECEIVE PC
      •  (i) SALE OF ASSETS NOT TAKEN OVER
      • (ii) PAYMENT OF LIABILITIES NOT TAKEN OVER
      • (iii) PAYMENT OF REALISATION EXPENSES
    • PAYMENT TO PREFERENCE SHAREHOLDERS & DIFFERENCE IN PSH A/C IS TRANSFER TO REALISATION A/C
    • REALISATION PROFIT OR LOSS TRANSFER TO EQUITY SHAREHOLDERS A/C.
    • PAYMENT TO EQUITY SHAREHOLDERS.
  • REALISATION A/C —— NOMINAL A/C
  • EQUITY SHAREHOLDERS A/C
  • PREF. SHAREHOLDERS A/C
  • CASH/BANK A/C (IF ANY)
  • PURCHASING COMPANY A/C
  • EQUITY SHARES IN PURCHASING COMPANY A/C
  • PREF. SHARES IN PURCHASING COMPANY A/C

BALANCE SHEET OF SELLING COMPANY

ES ESH GOODWILL REALISATION A/C
PS PSH FA REALISATION A/C
RES ESH INVT REALISATION A/C
LTB REALISATION A/C CA REALISATION A/C
CL REALISATION A/C MISC EXP ESH A/C
PROVISIONS REALISATION A/C
STEP: 1 TRANSFER BALANCE SHEET AT BOOK VALUE
1 TRANSFER ALL ASSETS, EXCLUDING MISCELLANEOUS EXPENDITURE & CASH [IF NOT TAKEN OVER] TO REALISATION A/C AT BOOK VALUES, WHETHER ASSETS IS TAKEN OVER OR NOT REALISATION A/C DR.
TO SUNDRY ASSETS A/C
2 TRANSFER MISC. EXP TO EQUITY SHAREHOLDERS
A/C EQUITY SHAREHOLDERS A/C DR.
TO MISC. EXP. A/C
3 TRANSFER ALL EXTERNAL LIABILITIES I.E. LIABILITIES EXCLUDING EQUITY SHARES, PREF. SHARES & ALL RESERVES TO REALISATION A/C AT BOOK VALUE
SUNDRY LIABILITIES A/C
DR. TO REALISATION A/C
4 TRANSFER EQUITY SHARES & RESERVES TO EQUITY
SHAREHOLDERS A/C EQUITY SHARE CAPITAL A/C DR.
RESERVES A/C DR.
TO EQUITY SHAREHOLDERS A/C
5 TRANSFER STATUTORY RESERVE TO REALISATION A/C STATUTORY RESERVE A/C DR.
TO REALISATION A/C
6 TRANSFER PREF. SHARE CAPITAL TO
PSH A/C PREF. SHARE CAPITAL A/C DR.
TO PSH A/C
STEP: 2 RECORD PC & RECEIVE PC
1 RECORD PC (PC RECEIVABLE)
PURCHASING CO. A/C DR. (AMOUNT OF PC) TO REALISATION A/C
2 RECEIVE PC
EQUITY SHARES IN PURCHASING CO. A/C DR.
PREF. SHARES IN PURCHASING CO. A/C DR.
BANK A/C DR. (IF ANY)
TO PURCHASING CO. A/C —– PURCHASING CO. A/C IS NOW CLOSED
STEP 3:
1 SALE OF ASSETS NOT TAKEN OVER
BANK A/C DR. (AMOUNT OF SELLING PRICE)
TO REALISATION A/C
NOTE: IGNORE PROFIT OR LOSS ON SALE
2 PAYMENT OF LIABILITIES NOT TAKEN OVER REALISATION A/C DR.
TO BANK A/C (AMOUNT OF ACTUAL PAYMENT)
NOTE: IGNORE PROFIT OR LOSS ON PAYMENT
3 PAYMENT OF REALISATION EXPENSES
REALISATION A/C DR.
TO BANK A/C (AMOUNT OF ACTUAL PAYMENT BY SELLING CO.)
NOTE: NO ENTRY IF PAYMENT MADE OR REIMBURSED BY PURCHASING COMPANY)
EXP = 100 —-PURCHASING CO. WILL PAY RS. 80 —- SELLING WILL PASS ENTRY ONLY FOR 20
STEP: 4 PAYMENT TO PSH & DIFF. TRF TO REALISATION A/C
1 PAYMENT TO PSH
PSH A/C DR. —— RECEIVER
TO PS IN PURCHASING CO. A/C —- GOES OUT
TO BANK A/C (IF ANY) —- GOES OUT
2 BALANCE IN PSH A/C TRF TO REALISATION A/C
PSH A/C DR.
TO REALISATION A/C
OR
REALISATION A/C DR.
TO PSH A/C
STEP: 5 REALISATION P/L TRF TO ESH A/C
IF PROFIT (IF CREDIT > DEBIT)
REALISATION A/C DR.
TO ESH A/C OR
IF LOSS (IF DEBIT > CREDIT)
ESH A/C DR.
TO REALISATION A/C
STEP: 6 PAYMENT TO ESH
ESH A/C DR. —- RECEIVER
TO EQUITY SHARES IN PURCHASING CO. A/C —- GOES OUT
TO BANK A/C (IF ANY) —– GOES OUT
(NOTE: AFTER THIS ENTRY, ESH A/C SHOULD TALLY)

STATUTORY RESERVE:
RESERVES CREATED UNDER VARIOUS REVENUE ACTS E.G. INCOME TAX ACT, 1961. SUCH RESERVES ARE REQUIRED TO BE CONTINUED IN THE BALANCE SHEET FOR CERTAIN NO. OF YEARS. IF RESERVE IS WITHDRAWN BEFORE STIPULATED TIME, ALL TAX BENEFITS WILL BE WITHDRAWN AND TAX WILL BE REQUIRED TO BE PAID IN THE YEAR OF WITHDRAWAL OF RESERVE. EG OF STATUTORY RESERVE WHICH WILL BE GIVEN IN THE SUM:

EXPORT PROFIT RESERVE
INVESTMENT ALLOWANCE RESERVE
FOREIGN PROJECT RESERVE ETC.
HINT WILL BE GIVEN IN ADJUSTMENT: EXPORT PROFIT RESERVE IS TO BE MAINTAINEDFOR FURTHER 3 YEARS.
EFFECT OF STATUTORY RESERVE:
IN THE BOOKS OF SELLING COMPANY:
STATUTORY RESERVE A/C DR.
TO REALISATION A/C
IN THE BOOKS OF PURCHASING COMPANY
AMALGAMATION ADJUSTMENT A/C DR.
TO STATUTORY RESERVE A/C
IN RESERVES & SURPLUS:
STATUTORY RESERVE
LESS: AMALGAMATION ADJUSTMENT A/C

PSH A/C

TO PS IN PURCH CO. A/C 120000 BY PS CAPITAL 100000
TO BANK A/C 0 BY REALISATION A/C 20000
TO REALISATION A/C BAL FIG.

5. ENTRIES IN PURCHASING COMPANY

1 FOR TAKE OVER OF BUSINESS
SUNDRY ASSETS A/C DR. NA
GOODWILL A/C DR. DIFF
TO CAPITAL RESERVE A/C DIFF 10
TO SUNDRY LIABILITIES A/C NA
TO EQUITY SHARE CAPITAL A/C PC
TO PREF. SHARE CAPITAL A/C PC
TO SECURITIES PREMIUM A/C PC
TO BANK A/C (IF ANY) PC
2 CONVERSION OF DEBENTURE OF SELLING CO. TO DEBENTURE OF PURCHASING CO. OLD DEBENTURE A/C DR. (FROM NA)
DISCOUNT ON ISSUE OF DEBENTURE A/C (OF NEW DEBENTURE)
TO NEW DEBENTURE A/C (FACE VALUE OF DEBENTURE)
TO SECURITITES PREMIUM A/C (OF NEW DEBENTURE)
3 PAYMENT OF REALISATION EXP OF SELLING CO. BY PURCHASING CO.
GOODWILL (2) OR CAPTIAL RESERVE A/C (10) DR. (DEPENDS ON DIFF.)
TO BANK A/C
12
4 CANCELLATION OF INTER COMPANY BALANCES
a BILLS RECEIVABLE & BILLS
PAYABLE BILLS PAYABLE A/C DR.
TO BILLS RECEIVABLE A/C
b DEBTOR & CREDITORS
CREDITORS A/C DR.
TO DEBTORS A/C
c LOAN GIVEN & LOAN TAKEN
LOAN TAKEN A/C DR.
TO LOAN GIVEN A/C
d STOCK RESERVE
GOODWILL OR CAPITAL RESERVE A/C DR.
TO STOCK RESERVE A/C
(NOTE: STOCK RESERVE WILL BE REDUCED FROM STOCK IN BALANCE SHEET)

BALANCE SHEET OF SELLING CO.

10% DEBENTURE 1,20,000

ADJUSTMENT: PURCHASING CO. WILL DISCHARGE 10% DEB OF SELLING CO AT 15% DISCOUNT BY ISSUE OF 15% DEB OF PURCHASING CO. ISSUED AT 20% PREMIUM.

SOLUTION:

FACE VALUE OF 10% DEBENTURE 1,20,000
LESS: DISCOUNT ON DISCHARGE @ 15% OF RS. 120000 18,000
AMOUNT PAYABLE TO DBH 1,02,000
NO. OF NEW 15% DEBENTURE TO BE ISSUED
ISSUE PRICE OF NEW 15% DEBENTURE [100+20%] 120
NO. OF DEBENTURES = 102000/120 850
EFFECT:

    • IN NA: 10% DEB WILL BE RECORDED AT RS. 1,02,000 (FAIR VALUE)
    • PC: NO EFFECT
    • DIFF: NO CHANGE
    • ENTRIES IN SELLING CO.
    • IN STEP 1 TRANSFER 10% DEBENTURE TO REALISATION A/C AT BOOK VALUE I.E. 12000010% DEBENTURE A/C DR. 120000 TO REALISATION A/C 120000 NO OTHER EFFECT IN SELLING CO.
    • ENTRIES IN PURCHASING CO.
    • STEP 1 FOR TAKE OVER:
      ASSETS A/C DR. 
      TO 10% DEBENTURE A/C 102000
    • STEP 2 CONVERSION OF 10% DEB TO 15% DEBENTURE
      10% DEBENTURE A/C DR. 102000
      TO 15% DEBENTURE A/C (FACE VALUE) [850*100] 85000
      TO SECURITIES PREMIUM A/C [PREMIUM] [850*20] 17000
INTER COMPANY BALANCES

      • A LTD. SOLD GOODS TO B LTD. FOR RS. 1,20,000 AT COST PLUS 20%

ENTRY IN A LTD.:

      • B LTD. A/C DR. —– DEBTOR
      • TO SALES A/C

ENTRY IN B LTD.:

      • PURCHASE A/C DR.
      • TO A LTD. A/C ——— CREDITOR
      • SUPPOSE A LTD. AMALGAMATES WITH B LTD.
      • AFTER AMALGMATION A LTD & B LTD ARE ONE AND SOME COMPANY.
      • WE NEED TO CANCEL DEBTORS (B LTD.) & CREDITORS (A LTD.) SINCE BOTH COMPANIES ARE NOW MERGED AND HAVE BECOME A SINGLE COMPANY.
      • COMMON ENTRY TO CANCEL INTER CO. BALANCES
      • LIAB A/C DR.
      • TO ASSET A/C
STOCK RESERVE
A LTD. SOLD GOODS TO B LTD. FOR RS. 1,20,000 AT COST PLUS 20%

IN THE BALANCE SHEET OF B LTD.

STOCK (COST TO B LTD IS PURCHASE PRICE) 1,20,000

NOW A LTD TAKE OVER B LTD.

ALL ASSETS OF B LTD WILL BE TRANFERRED TO A LTD. AT FAIR VALUE. IN ABSENCE OF FAIR VALUE AT BOOK VALUE. THEREFORE THIS STOCK WILL BE TRF AT 120000 TO A LTD.
STOCK SOLD BY A LTD IS RECEIVED BACK TO A LTD.

AS PER AS 2 VALUATION OF INVENTORY, STOCK IS TO BE RECORDED AT COST OR NRV WHICH EVER IS LESS COST OF ABOVE:

COST 100 ? 100000
PROFIT 20 ? 20000
SELLING PRICE 120 120000

STOCK SHOULD BE VALUED AT COST (100000) OR NRV (120000) WHICHEVER IS LESS. THEREFORE STOCK TO BE VALUED AT 100000.
IN THE BOOKS OF SELLING CO.: NO EFFECT
IN THE BOOKS OF PURCHASING CO.:
ENTRY:
GOODWILL OR CAPITAL RESERVE A/C DR. 20000
TO STOCK RESERVE A/C 20000
IN BALANCE SHEET OF A LTD.
STOCK 120000
LESS: STOCK RESERVE 20000
NET STOCK = 100000

BALANCE SHEET OF PURCHASING COMPANY AFTER AMALGAMATION
SCHEDULE III DIVISION 2 PART 1 [FOR IND AS]

Particulars Note No. As at 31 March 2020 As at 31 March 2019
1 ASSETS
NON-CURRENT ASSETS
(a) Property, Plant and Equipment 1 *** ***
(b) Right of use assets 2 *** ***
(c) Capital Work-in-Progress
(d) Investment Properties
(e) Goodwill
(f) Other Intangible Assets 3 *** ***
(g) Intangible Assets Under Development
(h) Biological Assets Other Than Bearer Plants
(i) Financial Assets
(i) Investments 4 *** ***
(ii) Trade receivables 5 *** ***
(iii) Loans 6 *** ***
(iv) Other Financial Assets 7 *** ***
(j) Deferred Tax Assets (Net) 8 *** ***
(k) Other Non-current Assets 9 *** ***
SUB-TOTAL *** ***
CURRENT ASSETS
(a) Inventories 10 *** ***
(b) Financial Assets
(i) Investments 4 *** ***
(ii) Trade Receivables 5 *** ***
(iii) Cash and Cash Equivalents 11 *** ***
(iv) Bank Balances other than (iii) above 11 *** ***
(v) Loans 6 *** ***
(vi) Other Financial Assets 7 *** ***
(c) Current Tax Assets (Net) *** ***
(d) Other Current Assets 9 *** ***
SUB-TOTAL
Non-Current Assets Classified as Held for Sale 12 *** ***
TOTAL ASSETS *** ***
EQUITY AND LIABILITIES Note No. As at 31 March 2020 As at 31 March 2019
EQUITY
(a) Equity share capital 13 *** ***
(b) Other equity 14 *** ***
LIABILITIES
NON-CURRENT LIABILITIES
(a) Financial liabilities *** ***
(i) Borrowings *** ***
(ii) Trade Payable 15 *** ***
(iii) Other financial liabilities 16 *** ***
(b) Provisions 17 *** ***
(c) Deferred tax liabilities (net) 8 *** ***
(d) Other non-current liabilities 18 *** ***
*** ***
CURRENT LIABILITIES
(a) Financial liabilities
(i) Borrowings 15 *** ***
(ii) Trade payables 19 *** ***
(iii) Other financial liabilities 16 *** ***
(b) Provisions 17 *** ***
(c) Other current liabilities 18 *** ***
(d) Current tax liabilities (net) *** ***
TOTAL EQUITY AND LIABILITIES *** ***

CA. CMA Sameer Popat

X