1. Business Combination and Consolidation No.2 D.V.Ramana ramana@ximb.ac.in Audio: Please use headphone for clarity

2. Relevant Accounting Standard IFRS-3: Business Combination IndAS-3: Business Combination AS-14:Amalgamation IAS-27:Consolidation

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. Balance sheet as on 1 st April 2008 A ltdB ltdA ltdB ltd Creditors16,0002,000Cash25,000600 Long Term Debt10,0002,200Inventories4,9005,500 Capital (5)5,0003,000Debtors15,0001,100 Reserves25,0006,500Shares of X7,600 Plant3,5006,500 56,00013,700 56,00013,700 A acquires 480 shares for 15000 Discharged by payment of cash

7. 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

8. 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