Accounting Standard 14 - AS 14 (Revised) deals with the accounting to be made in the books of Transferee company in the case of amalgamation and the treatment of any resultant goodwill or reserve. now check difference between IndAS 103 and AS 12 from below....
An amalgamation may be either in the nature of merger or purchase. The standard specifies the conditions to be satisfied by an amalgamation to be considered as amalgamation in nature of merger or purchase.
An amalgamation in nature of merger is accounted for as per pooling of interests method and in nature of purchase is dealt under purchase method.
The standard describes the disclosure requirements for both types of amalgamations in the first financial statements. We will discuss the other amalgamation aspects in detail in subsequent paragraphs of this unit.
AS 14 (Revised) does not deal with cases of acquisitions. The distinguishing feature of an acquisition is that the acquired company is not dissolved and its separate entity continues to exist.
Ind AS 103:
Ind AS 103: Business Combinations (IFRS 3) - A business combination is a transaction or other event in which a reporting entity (the acquirer) obtains control of one or more businesses (the acquiree).
As per IFRS: IFRS 3 requires bargain purchase gain arising on business combination to be recognised in profit or loss as income.
Carve out: Ind AS 103 requires the bargain purchase gain to be recognised in other comprehensive income and accumulated in equity as capital reserve, unless there is no clear evidence for the underlying reason for classification of the business combination as a bargain purchase, in which case, it shall be recognised directly in equity as capital reserve. A similar carve-out is made in Ind AS 28, Investments in Associates and Joint Ventures.
Reasons: At present, since bargain purchase gain occurs at the time of acquiring a business, these are considered as capital reserve. Recognition of such gains in profit or loss would result into recognition of unrealised gains, which may get distributed in the form of dividends. Moreover, such a treatment may lead to structuring through acquisitions, which may not be in the interest of the stakeholders of the company.
Resulting in Carve-in
As per IFRS:-IFRS 3 excludes from its scope business combinations of entities under common control.
Carve-in:- Appendix C of Ind AS 103 Business Combinations gives guidance in this regard.
Difference Between AS 14 and Ind AS 103
|AS 14||IND AS 103|
Under AS 14, there are 2 methods of accounting:
1) Pooling of Interest Method and
2) Purchase Method
|IND AS 103 prescribes only acquisition method, which is an extension of purchase method.|
|AS 14 does not deal with the same.||IND AS 103 deals with reverse acquisitions.|
|Under AS 14, goodwill arising on amalgamation in the nature of purchase has to be amortised over a period of max. 5 years.||Under IND AS 103, the goodwill is not amortised but tested for impairment on annual basis in accordance with IND AS 36 on impairment of assets.|
|Deals only with mergers and amalgamations||Defines business combination, which has a wider scope.|
|Under the existing AS 14, the acquired assets and liabilities are recognised at their existing book values or at fair values under the purchase method.||Ind AS 103 requires the acquired identifiable assets, liabilities and non-controlling interest to be recognised at fair value under acquisition method.|
|Does not provide specific guidance on this aspect.||As per IND AS 103, the consideration includes any asset or liability resulting from a contingent consideration arrangement.|
|On other hand, the existing AS 21 states that the minority interest is the amount of equity attributable to minorities at the date on which investment in a subsidiary is made.||IND AS 103 requires that for each business combinaton, the acquirer shall measure any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.|
|There is no specific guidance on acquisition related costs.||IND AS 103 requires acquisition related costs to be charged to the statement of Profit and loss. Costs to issue debt or equity securities shall be recognised in accordance with IND AS 32 and 109.|
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