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Understanding Business Combinations: Key Accounting Standards and Purchase Considerations

This audio session by D.V. Ramana provides an in-depth analysis of business combinations under relevant accounting standards including IFRS 3, Ind AS 3, and AS 14. It covers methods for determining purchase consideration such as asset-based, earning-based, and market price-based approaches. Additionally, it explains the preparation of consolidated balance sheets, highlighting the treatment of goodwill, minority interests, and the impact of different methods of payment on financial statements. It's essential for professionals in finance and accounting.

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Understanding Business Combinations: Key Accounting Standards and Purchase Considerations

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Presentation Transcript

  1. Audio: Please use headphone for clarity Business CombinationNo.1 D.V.Ramana ramana@ximb.ac.in

  2. Relevant Accounting Standard • IFRS-3: Business Combination • IndAS-3: Business Combination • AS-14:Amalgamation

  3. 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

  4. Purchase Consideration • Discharge • Cash • Shares • Bonds and Debentures • Combination of above

  5. 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

  6. A acquires 480 shares for 15000 Discharged by payment of cash

  7. A acquires 480 shares for 15000 Discharged issue of shares of 5 at Rs.50

  8. Consolidated Balance Sheet (CBS) • CBS is required if the company acquires control on another company • CBS will show the assets and liabilities of the buyer and seller • CBS shows the financial position of the reporting entity

  9. Consolidated Balance Sheet • Good will • Purchase Consideration • Less • Proportionate Equity Acquired • Minority Interest • Total Equity of the seller • Less • Majority Equity Acquired

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