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An entity acquires equipment (FV ₹500 cr) and a patent (FV ₹1,000 cr) for ₹1,000 cr cash and land (CV ₹100 cr, FV ₹400 cr). The product is newly commercialised; no integrated workforce or process is acquired. Identify the CORRECT accounting:
ARecognise goodwill of ₹100 cr and the assets at their stand-alone fair values
BBusiness combination: recognise at fair values, with no relative-FV allocation
CAsset acquisition: capitalise total consideration ₹1,400 cr (cash + FV of land), allocate to equipment and patent on relative-FV basis (₹467 cr and ₹933 cr), recognise gain of ₹300 cr on land
DAsset acquisition: capitalise consideration at ₹1,100 cr (cash + carrying value of land), allocate on relative FV; no gain on land
Answer & Solution
Correct answer: C. Asset acquisition: capitalise total consideration ₹1,400 cr (cash + FV of land), allocate to equipment and patent on relative-FV basis (₹467 cr and ₹933 cr), recognise gain of ₹300 cr on land
Since the equipment + patent do not constitute a business, Ind AS 103 does not apply (asset acquisition under Ind AS 38/16). Consideration = FV of cash + FV of land = 1,000 + 400 = 1,400 cr. Allocate to equipment (500/1500 × 1,400 = 467) and patent (1,000/1500 × 1,400 = 933). The gain on land = FV − CV = 400 − 100 = 300 cr. No goodwill arises on an asset acquisition.
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