Page 15 - 16. COMPILER QB - INDAS 103

Q7. (Nov. 20)

Veera Limited and Zeera Limited are both in the business of manufacturing and selling lubricant. Veera
Limited and Zeera Limited shareholders agree to join forces to benefit from lower delivery and distribution
costs. The business combination is carried out by setting up a new entity called Meera Limited that issues 100
shares to Veera Limited‖s shareholders and 50 shares to Zeera Limited‖s shareholders in exchange for the

transfer of the shares in those entities. The number of shares reflects the relative fair values of the entities
before the combination. Also, respective company‖s shareholders get the voting rights in Meera Limited based
on their respective shareholding. Determine the acquirer by applying the principles of Ind AS 103 ―Business
Combinations‖.

SOLUTION
As per Ind AS 103, in a business combination effected primarily by exchanging equity interests, the acquirer is
usually the entity that issues its equity interests. However, in some business combinations, commonly called
―reverse acquisitions‖, the issuing entity is the acquiree.

Other pertinent facts and circumstances shall also be considered in identifying the acquirer in a business
combination effected by exchanging equity interests, including:
The relative voting rights in the combined entity after the business combination – The acquirer is usually
the combining entity whose owners as a group retain or receive the largest portion of the voting rights in the

combined entity.
Based on above mentioned para, acquirer shall be either of the combining entities (i.e. Veera Limited or Zeera
Limited), whose owners as a Group retain or receive the largest portion of the voting rights in the combined
entity.
Hence, in the above scenario Veera Limited‖s shareholder gets 66.67% share (100 / 150 x 100) and Zeera
Limited‖s shareholder gets 33.33% share in Meera Limited. Hence, Veera Limited is acquirer as per the

principles of Ind AS 103.

Q8. (RTP May. 21 & MTP May 20 – 8 Marks)

Bima Ltd. acquired 65% of shares on 1 June, 20X1 in Nafa Ltd. Which is engaged in production of components
of machinery. Nafa Ltd. has 1,00,000 equity shares of Rs.10 each. The quoted market price of shares of Nafa
Ltd. was Rs.12 on the date of acquisition. The fair value of Nafa Ltd.'s identifiable net assets as on 1 June,
20X1 was Rs. 80,00,000.

Bima Ltd. wired Rs. 50,00,000 in cash and issued 50,000 equity shares as purchase consideration on the date
of acquisition. The quoted market price of shares of Bima Ltd. on the date of issue was Rs. 25 per share.
Bima Ltd. also agrees to pay additional consideration of Rs.15,00,000, if the cumulative profit earned by Nafa
Ltd. exceeds Rs. 1 crore over the next three years. On the date of acquisition, Nafa Ltd. assessed and
determined that it is considered probable that the extra consideration will be paid. The fair value of this

consideration on the date of acquisition is Rs.9,80,000. Nafa Ltd. incurred Rs.1,50,000 in relation to the
acquisition. It measures non-controlling interest at fair value.
How will the acquisition of Nafa Ltd. be accounted for by Bima Ltd., under Ind AS 103? Prepare detailed
workings and pass the necessary journal entry.

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