A group restructuring in which the combining entities are ultimately controlled by the same party before and after the combination is a common control business combination. Ind AS 103 excludes these transactions from the acquisition accounting and requires them to be accounted for under Appendix C, using the pooling of interests method.
The Common Control Definition
Appendix C defines a common control business combination as one in which all the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and the control is not transitory. The control may be exercised through the ownership of the voting shares, the board composition, or a shareholders’ agreement.
The Pooling of Interests Method
Under the pooling of interests method, the transferee company recognises the assets and liabilities of the transferor company at their carrying amounts, and it restates the financial information for the prior periods as if the combination had occurred at the beginning of the earliest period presented. The difference between the consideration and the share capital is adjusted in the reserves, and no goodwill is recognised.
The Restatement
The restatement of the prior periods is a significant accounting exercise, and it requires the company to adjust the comparative figures in its financial statements. The ITFG has clarified that the restatement is required only from the perspective of the transferee, and the transferor’s financial statements are not restated.
A technically sound common control scheme applies the pooling of interests method, restates the prior periods, and discloses the accounting in the financial statements.
Call to Action
Anuj Desai & Associates advises companies on the accounting for common control transactions—from the Appendix C analysis and the pooling of interests method to the restatement of the prior periods and the disclosure. If your scheme involves a group restructuring, we can help you structure the accounting.
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