The accounting treatment of Mergers and Acquisitions has undergone a drastic change with the introduction of IND-AS 103 Business Combination. Comment.

Accounting treatment of mergers and acquisitions (M&A) have undergone a drastic change with the introduction of IND AS-103 - Business Combination and Companies Act, 2013 . Section 232 of the Companies Act, 2013 provides that accounting treatment prescribed in the court approved scheme for merger, demerger, amalgamation or group restructuring should be in accordance with the accounting standards prescribed under section 133 of the Companies Act, 2013. Certain other developments in M&A accounting are as under: (a) Method of Accounting for business combination Under AS-14 many companies were able to account for business combination between commonly controlled enterprises using purchase method. As a result of this, tax benefit for goodwill amortisation was available while computing book profit for MAT purpose. Under IND AS-103 it is mandatory to use pooling of interests method for business combination between commonly controlled enterprises. As a result of this accounting alternatives gets restricted and the consequent tax benefits will also be not available. (b) Appointed date v. Effective date In court approved merger, demerger and other restructuring accounting was done from the appointed date once the court order became effective. However, with the implementation of IND AS-103 Business combinations this is going to change. As per IND AS-103 accounting for business combination should be done on the date on which the acquirer obtains control. (c) Accounting for goodwill AS-14 provided an accounting choice to compute the goodwill at the fair value of the assets taken over or at the net asset value of the assets taken over. However, this choice is not available in IND AS-103, as the value of goodwill has to be computed using the fair value of the net assets taken over. AS-14 provides for amortisation of goodwill over a period of five years. IND AS-103 prohibits amortisation of goodwill and is required to test goodwill for impairment annually. This will result in a volatile profit and loss account. Goodwill amortisation was available as tax deductible item while computing MAT liability. This is not available in the IND-AS regime.