Non-controlling Interest and Goodwill or Bargain Purchase Calculations as per Ind AS 103

Under Ind AS 103, “Business Combinations,” both Non-controlling Interest (NCI) and Goodwill (or Bargain Purchase) calculations play crucial roles in the accounting of business combinations. These elements reflect the value of the acquired business that is not directly attributable to the acquirer’s shareholders and the excess value paid or acquired in a transaction, respectively.

Non-controlling Interest (NCI)

NCI is the portion of the equity (net assets) of a subsidiary not attributable, directly or indirectly, to the parent company. Ind AS 103 provides two methods for measuring NCI at the acquisition date:

1. Fair Value Method:

NCI is measured at its fair value at the acquisition date. This method may include the fair value of any previously held equity interest in the acquiree. The fair value of NCI includes the proportionate share of the acquiree’s identifiable net assets.

2. Proportionate Share Method:

NCI is measured at its proportionate share of the acquiree’s identifiable net assets. This method excludes goodwill.

The choice of method affects the amount of goodwill recognized in the business combination.

Goodwill Calculation

Goodwill arises when the consideration transferred in a business combination exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, measured at their fair values.

Calculation of goodwill involves the following steps:

1. Determine the Consideration Transferred:

This includes the sum of the fair values of assets transferred, liabilities incurred to the former owners of the acquiree, and equity interests issued by the acquirer.

2. Measure the Fair Value of NCI:

Depending on the chosen method (fair value or proportionate share), calculate the fair value of NCI at the acquisition date.

3. Recognize and Measure Identifiable Assets and Liabilities:

Identify and measure at fair value the identifiable assets acquired and liabilities assumed at the acquisition date.

4. Calculate Goodwill:

Goodwill is calculated as follows:

Goodwill = Consideration Transferred + Fair Value of NCI + Fair Value of any Previously Held Equity Interests – Net Identifiable Assets Acquired

Bargain Purchase Gain Calculation

A bargain purchase occurs when the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed, measured at their fair values, exceeds the aggregate of the consideration transferred, the amount of any non-controlling interest in the acquiree, and in a business combination achieved in stages, the fair value of the acquirer’s previously held equity interest in the acquiree. The resulting gain is recognized in profit or loss.

• Calculate the Excess:

Determine the excess of the net identifiable assets over the sum of the consideration transferred, the fair value of any previously held interest, and the fair value of NCI.

• Recognize the Bargain Purchase Gain:

If there is an excess, reassess the identification and measurement of the acquiree’s assets, liabilities, and contingent liabilities and the measurement of the consideration transferred. If the excess still exists after reassessment, recognize the gain in the acquirer’s profit or loss.