Financial Reporting (Ind AS)SubjectiveQuestion 5863 of 507
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Pinnacle Corp acquired an 80% equity interest in Summit Ltd. on 1st April, 2024. The consideration transferred was as follows: - Cash payment of ₹40,00,000 on acquisition date. - Deferred cash consideration of ₹12,10,000 payable after 2 years (discount rate is 10% per annum; PV factor at 10% for year 2 = 0.8264). - 2,00,000 equity shares of Pinnacle Corp having par value of ₹10 each and quoted fair value of ₹25 each on acquisition date. On acquisition date, the fair value of identifiable net assets of Summit Ltd. was determined at ₹90,00,000. Required: 1. Compute the total Purchase Consideration transferred under Ind AS 103. 2. Compute Goodwill or Gain on Bargain Purchase assuming Non-Controlling Interest (NCI) is measured at its proportionate share of net identifiable assets. 3. Compute Goodwill or Gain on Bargain Purchase assuming NCI is measured at Fair Value (fair value of 20% NCI is assessed at ₹22,00,000).

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Detailed Solution & Explanation

### **Step 1: Computation of Purchase Consideration under Ind AS 103**

1. **Immediate Cash**: ₹40,00,000
2. **Fair value of Deferred Consideration** (PV at 10% for 2 years):
PV=₹12,10,000×0.8264=₹10,00,000PV\displaystyle \text{PV} = ₹12,10,000 ×\displaystyle \times 0.8264 = ₹10,00,000
3. **Equity Shares Transferred** ($2,00,000 ×\displaystyle \times ₹25\displaystyle fair value):<br><span class="katex-display"><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML" display="block"><semantics><mrow><mtext>Shares FV</mtext><mo>=</mo><mtext>₹</mtext><mn>50</mn><mo separator="true">,</mo><mn>00</mn><mo separator="true">,</mo><mn>000</mn></mrow><annotation encoding="application/x-tex">Shares FV\displaystyle \text{Shares FV} = ₹50,00,000</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.6944em;"></span><span class="mord text"><span class="mord">Shares FV</span></span><span class="mspace" style="margin-right:0.2778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2778em;"></span></span><span class="base"><span class="strut" style="height:0.8389em;vertical-align:-0.1944em;"></span><span class="mord">₹50</span><span class="mpunct">,</span><span class="mspace" style="margin-right:0.1667em;"></span><span class="mord">00</span><span class="mpunct">,</span><span class="mspace" style="margin-right:0.1667em;"></span><span class="mord">000</span></span></span></span></span><br><br><div class="overflow-x-auto"><table class="w-full border-collapse border border-slate-300 dark:border-slate-700 text-sm my-3"><thead><tr class="bg-slate-100 dark:bg-slate-800 text-left"><th class="p-2 border">Component of Consideration</th><th class="p-2 border text-right">Amount (₹)</th></tr></thead><tbody><tr><td class="p-2 border">Cash Consideration paid</td><td class="p-2 border text-right">40,00,000</td></tr><tr><td class="p-2 border">Present Value of Deferred Consideration</td><td class="p-2 border text-right">10,00,000</td></tr><tr><td class="p-2 border">Fair Value of Equity Shares Issued (2,00,000 × ₹25)</td><td class="p-2 border text-right">50,00,000</td></tr><tr class="font-bold bg-slate-50 dark:bg-slate-900"><td class="p-2 border">Total Purchase Consideration (A)</td><td class="p-2 border text-right text-indigo-600 dark:text-indigo-400">1,00,00,000</td></tr></tbody></table></div><br>### **Step 2: Goodwill when NCI is measured at Proportionate Share of Net Assets**<br><br>1. **Proportionate Share of NCI** (&#36;20\% ×\displaystyle \times ₹90,00,000):
NCI=₹18,00,000NCI\displaystyle \text{NCI} = ₹18,00,000
2. **Goodwill Calculation**:
Goodwill=Consideration+NCI−Net Identifiable Assets\displaystyle \text{Goodwill} = \text{Consideration} + \text{NCI} - \text{Net Identifiable Assets}
Goodwill=₹1,00,00,000+₹18,00,000−₹90,00,000=₹28,00,000Goodwill\displaystyle \text{Goodwill} = ₹1,00,00,000 + ₹18,00,000 - ₹90,00,000 = ₹28,00,000

### **Step 3: Goodwill when NCI is measured at Fair Value (Full Goodwill Method)**

1. **Fair Value of NCI**: ₹22,00,000
2. **Goodwill Calculation**:
Goodwill=₹1,00,00,000+₹22,00,000−₹90,00,000=₹32,00,000Goodwill\displaystyle \text{Goodwill} = ₹1,00,00,000 + ₹22,00,000 - ₹90,00,000 = ₹32,00,000

ParticularsProportionate NCI Method (₹)Fair Value NCI Method (₹)
Purchase Consideration Transferred1,00,00,0001,00,00,000
Add: Non-Controlling Interest (NCI)18,00,00022,00,000
Total Value (A + B)1,18,00,0001,22,00,000
Less: Fair Value of Net Identifiable Assets(90,00,000)(90,00,000)
Goodwill on Acquisition28,00,00032,00,000

**Conclusion**: Total Purchase Consideration is **₹1,00,00,000**. Goodwill under Proportionate NCI method is **₹28,00,000**, and Goodwill under Fair Value NCI method is **₹32,00,000**.

Key Concepts to Understand

Consideration

Something of value exchanged for a promise. 'Quid Pro Quo' (Something for something).

Goodwill

An intangible asset representing the good reputation, brand name, customer loyalty, and earning capacity of a business over and above its net tangible assets. It arises in accounting during partnership changes or business acquisitions.

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