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PQR Ltd. holds 30% of XYZ Ltd. as an associate (equity method) with carrying amount ₹8,850 cr (cost ₹8,000 + share P&L 700 + FX OCI 100 + revaluation reserve OCI 50). On 1 April 20X2, PQR buys remaining 70% for ₹25,000 cr cash. FV of 30% existing interest is ₹9,000 cr; FV of XYZ's identifiable net assets ₹30,000 cr. Compute goodwill AND the gain in P&L on the previously held interest.
AGoodwill ₹3,000 cr; P&L gain ₹250 cr
BGoodwill ₹4,000 cr; P&L gain ₹250 cr (150 fair-value gain + 100 FX reserve recycled to P&L; 50 PPE revaluation reserve transferred to retained earnings, not P&L)
CGoodwill ₹4,000 cr; P&L gain ₹150 cr; no recycling at all
DGoodwill ₹4,000 cr; P&L gain ₹150 cr only (revaluation reserve recycled separately to retained earnings)
Answer & Solution
Correct answer: B. Goodwill ₹4,000 cr; P&L gain ₹250 cr (150 fair-value gain + 100 FX reserve recycled to P&L; 50 PPE revaluation reserve transferred to retained earnings, not P&L)
Goodwill = (25,000 cash + 9,000 FV of prior interest) − 30,000 net assets = ₹4,000 cr. Step-up gain in P&L = 9,000 − 8,850 = ₹150 cr; plus FX translation reserve (Ind AS 21 — reclassifiable to P&L) ₹100 cr = ₹250 cr total in P&L. PPE revaluation reserve ₹50 cr (Ind AS 16 — non-reclassifiable) goes directly to retained earnings, NOT through P&L.
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