Home › CA Final › financialreporting › Ind AS 103 — Closing Illustrations: Reverse Acquisition Consolidated BS, Contingent Consideration Classification, Transitory Common Control › A Ltd. acquires 100% of B Ltd. on 1 Apr 20X1. PC…
A Ltd. acquires 100% of B Ltd. on 1 Apr 20X1. PC = 10 lakh A-shares at ₹20 FV + variable contingent consideration to be settled by issuing 2 lakh A-shares IF PBIT > ₹1 cr in year 1 (a FIXED number). FV of contingent consideration = ₹25 lakh at acquisition. PBIT exceeds ₹1 cr in 20X2. FV of A-share at 31 Mar 20X2 = ₹25. Subsequent measurement:
ARecognise loss in OCI
BReclassify the contingent consideration to financial liability when target is met
CRemeasure contingent consideration to FV at year-end and recognise loss in P&L
DDo NOT remeasure (contingent consideration classified as equity because it settles in a fixed number of own equity instruments); on settlement, no gain/loss recognised — accounted within equity
Answer & Solution
Correct answer: D. Do NOT remeasure (contingent consideration classified as equity because it settles in a fixed number of own equity instruments); on settlement, no gain/loss recognised — accounted within equity
Fixed number of own equity instruments → equity classification → no remeasurement. The ₹25 lakh stays in equity even though the share FV has changed to ₹25. On issuance of 2 lakh shares, accounting is within equity.
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