- The exemption arises because many first-time adopters may not have all the information necessary to apply Ind AS 103 to past business combinations
- A first-time adopter has the following options:
- apply Ind AS 103 retrospectively to all past business combinations.
- apply Ind AS 103 to restate a past business combination and any later business combinations.
- not apply Ind AS 103 to any past business combinations.
Exemption only for ‘business combinations’
- Exemption applicable only to transactions that meet Ind AS 103’s definition of a business combination.
- The exemption is not applicable to acquisitions of assets including entities holding one or more assets that do not constitute a business
- Business: An integrated set of activities and assets that generally consists of a) inputs, b) processes and c) the ability to create outputs; rebuttable presumption that a group of assets in which goodwill is present is a business [Ind AS 103]
Asset purchase that is not a business
- Prior to its transition date, a first-time adopter ABC acquired a group of assets.
- Under previous GAAP, this transaction was treated as a business combination.
- However as per Ind ASs this transaction should be treated as an asset purchase and not a business combination.
- Therefore, the exemption is not available to ABC in relation to this asset purchase.
ABC restates the asset purchase, and any goodwill recognised under previous GAAP is removed in the opening statement of financial position.
However, there may be other exemptions available to ABC in relation to the asset purchase, such as treating fair value as deemed cost.
Approach when exemption is availed
These requirements deal with the following:
- classification of the business combination as an acquisition by the legal acquirer, a reverse acquisition by the legal acquiree, or uniting of interests.
- the assets and liabilities acquired or assumed in the past business combination that are included in/excluded from the opening balance sheet.
- measurement in the opening balance sheet of assets and liabilities acquired or assumed in the past business combination.
- goodwill recognised in the past business combination.
Classification of business combination
- Same classification of the business combination as per previous GAAP is retained.
- The first time adopter does not restate the accounting using the purchase method.
- The requirements for recognising and measuring assets and liabilities are still applicable for assets acquired in business combination.
Recognition in the opening balance sheet
Effect of availing the exemption does not mean all assets and liabilities as per previous GAAP are included in the balance sheet as it is. Some items recognised under previous GAAP is derecognised under Ind ASs and some items not recognised under previous GAAP is recognised under Ind ASs.
Items recognised under previous GAAP
The first-time adopter continues to recognise assets such as PPE and receivables that would typically have been recognised under previous GAAP and also qualify for recognition under Ind ASs.
The first-time adopter should derecognise from its opening balance sheet any item that was recognised under previous GAAP that does not qualify for recognition under Ind ASs.