Page 71 - 16. COMPILER QB - INDAS 103

Non-controlling interest 0 173.70 173.70
Non-current liabilities:
Financial Liabilities
Long term borrowings 200 300 500
Long term provisions 100 80 23.81 203.81
Deferred tax 20 55 (64) 11
Current liabilities:
Financial Liabilities

Short term borrowings 130 170 300
Trade payable 200 320 0 520
Liability for lawsuit damages 10 10
Total 1,850 925 525 3,300

Q28. (Nov. 19 – 8 Marks) – (Similar to Q5) (IndAS 38 & IndAS 103)

MNC Ltd. is in process of setting up a medicine manufacturing business which is at very initial stage. For this

purpose, MNC Ltd. as part of its business expansion strategy acquired on 1 April, 2019, 100% shares of Akash
st
Ltd., a company that manufactures pharmacy products. The purchase consideration for the same was by way
of a share exchange valued at Rs 38 crore. The fair value of Akash Ltd.‖s assets and liabilities were Rs68

crore and Rs 50 crore respectively, but the same does not include the following:
(i) A patent owned by Akash Ltd. for an established successful new drug that has a remaining life of 6
years. A consultant has estimated the value of this patent to be Rs 8 crore. However, the outcome of
clinical trails for the same are awaited. If the trails are successful, the value of the drug would fetch the
estimated Rs 12 crore.
(ii) Akash Ltd. has developed and patented another new drug which has been approved for clinical use. The

cost of developing the drug was Rs 13 crore. Based on early assessment of its sales success, a reputed
valuer has estimated its market value at Rs 19 crore. However, there is no active market for the patent.
(iii) Akash Ltd.‖s manufacturing facilities have received a favourable inspection by a government department.
st
As a result of this, the company has been granted an exclusive five-year license on 1 April, 2018 to

manufacture and distribute a new vaccine. Although the license has no direct cost to the Company, its
directors believe that obtaining the license is valuable asset which assures guaranteed sales and the cost
to acquire the license is estimated at Rs 7 crore of remaining period of life. It is expected to generate at
least equivalent revenue.

Suggest the accounting treatment of the above transactions with reasoning under applicable Ind AS in the
books of MNC Ltd.
SOLUTION

As per para 13 of Ind AS 103 ―Business Combination‖, the acquirer's application of the recognition principle and
conditions may result in recognising some assets and liabilities that the acquiree had not previously recognised
as assets and liabilities in its financial statements. This may be the case when the asset is developed by the
entity internally and charged the related costs to expense.

Based on the above, the company can recognise following Intangible assets while determining Goodwill /
Bargain Purchase for the transaction:
(i) Patent owned by Akash Ltd.: The patent owned will be recognised at fair value by MNC Ltd. even
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