Business Combination and Consolidation

No.3

D.V.Ramanaramana@ximb.ac.in

Audio: Please use headphone for clarity

Relevant Accounting Standard

• IFRS-3: Business Combination• IndAS-3: Business Combination• AS-14:Amalgamation• IAS-27:Consolidation

Purchase Consideration

• Determination of Purchase– Assets based• PC = Assets - Liabilities

– Earning based• PC = PV of FCF

– Market price based• PC = Shares Acquired * MP of shares

Purchase Consideration

• Discharge– Cash– Shares– Bonds and Debentures– Combination of above

Standalone Balance Sheet

• Asset Side– Shares acquired will appear as investment– Reduction in Cash (if paid by cash)

• Sources side (depending on the mode of payment)– Increase in capital– Shares Premium– Bonds or Debentures

Balance sheet as on 1st April 2008

  A ltd B ltd A ltd B ltd

Creditors16,00

0 2,000 Cash25,00

0 600

Long Term Debt10,00

0 2,200 Inventories 4,900 5,500

Capital (5) 5,000 3,000 Debtors15,00

0 1,100

Reserves25,00

0 6,500 Shares of X 7,600  

    Plant 3,500 6,500

 56,00

013,70

0  56,00

0 13,700A acquires 480 shares for 15000Discharged by payment of cash

Consolidated Balance Sheet (CBS)

• CBS is required if the company acquires control of another company

• CBS will show the assets and liabilities of the buyer and seller

• CBS shows the financial position of the reporting entity

Consolidated Balance Sheet

• Good will– Purchase Consideration– Less– Proportionate Equity Acquired

• Minority Interest (non-controlling interest)– Total Equity of the seller– Less• Majority Equity Acquired