Page 11 - 16. COMPILER QB - INDAS 103

On 1st January, 20X7, H Ltd. had paid Rs. 50 crore in cash to the selling shareholders of S Ltd. Additionally,
on 31stMarch, 20X9, H Ltd. will pay Rs. 30 crore to the selling shareholders of S Ltd. if return on equity of S
Ltd. for the year ended 31stMarch, 20X9 is more than 25% per annum. H Ltd. has estimated the fair value of

this obligation as on 1stJanuary, 20X7 and 31stMarch, 20X7 as Rs. 22 crore and Rs. 23 crore respectively. The
change in fair value of the obligation is attributable to the change in facts and circumstances after the
acquisition date.
Quoted price of equity shares of S Ltd.as on various dates is as follows:
As on November 20X6 Rs. 350 per share

As on 1st January, 20X7 Rs. 395 per share
As on 31st March, 20X7 Rs. 420 per share
On 31st May, 20X7, H Ltd. learned that certain customer relationships existing as on 1st January, 20X7, which
met the recognition criteria of an intangible asset as on that date, were not considered during the accounting
of business combination for the year ended 31st March, 20X7. The fair value of such customer relationships

as on 1st January, 20X7 was Rs. 3.5 crore (assume that there are no temporary differences associated with
customer relations; consequently, there is no impact of income taxes on customer relations).
On 31st May, 20X7 itself, H Ltd. further learned that due to additional customer relationships being developed
during the period 1st January, 20X7 to 31st March, 20X7, the fair value of such customer relationships has
increased to Rs. 4 crore as on 31st March, 20X7.
On 31st December, 20X7, H Ltd. has established that it has obtained all the information necessary for the

accounting of the business combination and that more information is not obtainable.
H Ltd. and S Ltd. are not related parties and follow Ind AS for financial reporting. Income tax rate applicable
is 30%.
You are required to provide your detailed responses to the following, along with reasoning and computation

notes:
(a) What should be the goodwill or bargain purchase gain to be recognised by H Ltd. in its financial statements
for the year ended 31st March, 20X7. For this purpose, measure non-controlling interest using proportionate
share of the fair value of the identifiable net assets of S Ltd.
(b) Will the amount of non-controlling interest, goodwill, or bargain purchase gain so recognised in (a) above
change subsequent to 31st March, 20X7? If yes, provide relevant journal entries.

(c) What should be the accounting treatment of the contingent consideration as on 31st March,20X7?
SOLUTION

i) An only exception to the principle of classification or designation of assets as they exist at the acquisition
date is that for lease contract and insurance contracts classification which will be based on the basis of
the conditions existing at inception and not on acquisition date. Therefore, H Ltd. would be required to
retain the original lease classification of the lease arrangements and thereby recognise the lease
arrangements as finance lease.
ii) The requirements in Ind AS 37 ―Provisions, Contingent Liabilities and Contingent Assets‖, do not apply in

determining which contingent liabilities to recognise as of the acquisition date as per Ind AS 103
―Business Combination‖. 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
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