Ind AS explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
When one company buys control of a business, Ind AS 103 requires the buyer to bring the acquired assets and liabilities into its books at fair value, to measure the minority's share, and to compare the total of price and minority with the net assets to find goodwill. If the price is too low, the Indian standard sends the gain to capital reserve, not profit. This guide takes the acquisition method step by step and works a purchase of 80 per cent of a company in both situations.
Account for each business combination by the acquisition method: identify the acquirer, fix the acquisition date, recognise and measure the identifiable assets, liabilities and non-controlling interest, then recognise goodwill or a bargain purchase gain (paragraphs 4 and 5). Identifiable items are measured at acquisition-date fair value (paragraph 18). Goodwill = consideration + NCI (+ any previously held interest) less net identifiable assets (paragraph 32). A bargain purchase gain goes to OCI and accumulates as capital reserve (paragraph 34), unlike IFRS.
Ind AS as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015). Amendments notified after 1 April 2025 are not reflected in this article and should be checked on mca.gov.in. Valuation of the target and the fair values behind a purchase price allocation are central to financial and legal due diligence before any deal closes.
What the paragraphs require
| Paragraph | Requirement | What it means in practice |
|---|---|---|
| 3 | The assets acquired and liabilities assumed must constitute a business; otherwise it is an asset acquisition | Test first, then apply the acquisition method |
| 6-9 | Identify the acquirer (the entity that obtains control, using Ind AS 110); the acquisition date is when control is obtained, usually the closing date | A written agreement can move the date |
| 10-14 | Recognise identifiable assets, liabilities and NCI separately from goodwill if they meet the Conceptual Framework definitions and are part of the exchange | Exit and restructuring costs the acquirer merely expects are not liabilities (paragraph 11) |
| 18-19 | Measure at acquisition-date fair value; NCI that is a present ownership interest at fair value or at its proportionate share of identifiable net assets | The choice is made transaction by transaction |
| 21-31 | Exceptions: contingent liabilities recognised if a present obligation with reliably measurable fair value, deferred tax under Ind AS 12, employee benefits under Ind AS 19, indemnification assets | Contrary to Ind AS 37, a contingent liability is recognised even if an outflow is not probable (paragraph 23) |
| 32-33 | Goodwill is the excess of consideration, NCI and any previously held interest over net identifiable assets | Equity-only exchanges may use the acquiree's value |
| 34-36A | Bargain purchase: review all measurements; then recognise the gain in OCI as capital reserve; with no clear evidence of the reason, directly in equity as capital reserve | A carve-out from IFRS 3 for Indian reasons |
| 37-40 | Consideration at fair value, including contingent consideration at acquisition-date fair value | Classified as liability or equity under Ind AS 32 |
| 45-50 | Measurement period of up to one year to complete provisional amounts | Adjust goodwill for new facts about the acquisition date |
| 53, 58 | Acquisition-related costs are expensed; post-acquisition changes in contingent consideration go to profit or loss unless equity-classified | Not a goodwill item |
The standard is outlined in Ind AS 103 Business Combinations; the purchase price allocation in an insolvency setting is covered in purchase price allocation after CIRP. Combinations under common control follow a different method, described in our guide to Appendix C.
The method
- Confirm that a business is acquired (paragraph 3) and identify the acquirer and the acquisition date.
- Measure the consideration at fair value, including contingent consideration (paragraphs 37 to 40).
- Identify and measure assets and liabilities at fair value, including intangibles the target never recognised and any contingent liability that is a present obligation (paragraphs 13, 18 and 23).
- Recognise deferred tax on the fair value adjustments under Ind AS 12 (paragraph 24).
- Choose how to measure NCI (paragraph 19).
- Compute goodwill or the bargain purchase excess (paragraph 32).
- Expense acquisition costs (paragraph 53); complete provisional amounts within the measurement period (paragraph 45).
Worked example
The entity and all figures in this example are invented for illustration. Tax rate and fair values are assumed, for arithmetic only. Amounts are in rupees lakh.
Gandak Industries Limited acquires 80 per cent of the shares of Bhagirathi Engineering Private Limited on 1 April of Year 1, the date it obtains control. It pays Rs 1,500 lakh in cash and agrees an additional payment in two years if earnings reach a target; the acquisition-date fair value of that contingent payment is Rs 200 lakh. Legal and advisory costs are Rs 30 lakh.
Step 1: consideration (paragraphs 37 to 39). 1,500 + 200 = Rs 1,700 lakh. The costs of Rs 30 lakh are an expense (paragraph 53).
Step 2: identifiable net assets at fair value (paragraphs 13, 18, 23 and 24). Bhagirathi's books show PPE 900, inventory 400, receivables 500, cash 100 and trade payables 700, a net Rs 1,200 lakh. The valuation finds PPE worth 1,100, an unrecorded customer list worth 300 (paragraph 13), and a present obligation from a past dispute with a fair value of 50, not previously provided because an outflow was not probable but recognised here (paragraph 23). Deferred tax at an assumed 25 per cent applies to the net adjustments of 450 (Ind AS 12, paragraph 24).
| Item | Book (Rs lakh) | Fair value adjustment (Rs lakh) | Fair value (Rs lakh) |
|---|---|---|---|
| PPE | 900 | +200 | 1,100 |
| Inventory | 400 | 400 | |
| Receivables | 500 | 500 | |
| Cash | 100 | 100 | |
| Customer list | nil | +300 | 300 |
| Trade payables | (700) | (700) | |
| Contingent liability recognised | nil | (50) | (50) |
| Deferred tax liability: 25% x (200 + 300 - 50) | nil | (112.5) | (112.5) |
| Identifiable net assets | 1,200 | 337.5 | 1,537.5 |
Step 3: goodwill with NCI at the proportionate share (paragraphs 19(b) and 32). NCI = 20% x 1,537.5 = 307.5.
| Goodwill working | Rs lakh |
|---|---|
| Consideration transferred | 1,700.0 |
| NCI at 20% of identifiable net assets | 307.5 |
| Less identifiable net assets | (1,537.5) |
| Goodwill | 470.0 |
Step 3A: the same deal with NCI at fair value (paragraph 19(a)). If the fair value of the 20 per cent is Rs 400 lakh (assumed), goodwill is 1,700 + 400 - 1,537.5 = Rs 562.5 lakh. The difference of 92.5 is the NCI's share of goodwill, which is recognised only under the fair value option.
Step 4: entries on the acquisition date (proportionate NCI case).
| Particulars | Debit (Rs lakh) | Credit (Rs lakh) |
|---|---|---|
| PPE | 1,100.0 | |
| Inventory | 400.0 | |
| Receivables | 500.0 | |
| Cash | 100.0 | |
| Customer list | 300.0 | |
| Goodwill | 470.0 | |
| To Trade payables | 700.0 | |
| To Contingent liability | 50.0 | |
| To Deferred tax liability | 112.5 | |
| To Non-controlling interest | 307.5 | |
| To Bank | 1,500.0 | |
| To Contingent consideration liability | 200.0 | |
| Acquisition-related costs (profit or loss) | 30.0 | |
| To Bank | 30.0 |
Check. Debits 2,870.0 = credits 700 + 50 + 112.5 + 307.5 + 1,500 + 200 = 2,870.0. Goodwill 470.0 = 2,870.0 less the identifiable assets of 2,400.0.
If the contingent payment's fair value later rises to Rs 260 lakh because the earnings target is being met, the Rs 60 lakh increase is a loss in profit or loss, not a goodwill adjustment (paragraph 58(b)), since it results from an event after the acquisition date.
Step 5: the same deal at a low price, a bargain purchase (paragraphs 34 to 36A). Suppose the seller is under compulsion and the consideration is only Rs 1,100 lakh (cash 900 and contingent consideration 200). With NCI at 307.5, the total in paragraph 32(a) is 1,407.5, below the net assets of 1,537.5, an excess of Rs 130.0 lakh. Before recognising it, the acquirer reassesses that it has identified all assets and liabilities and reviews the measurement of each item, the NCI and the consideration (paragraph 36). If the excess remains, it is recognised in other comprehensive income and accumulated in equity as capital reserve, attributed to the acquirer (paragraph 34); if there is no clear evidence of the reason for the bargain purchase, it goes directly to equity as capital reserve (paragraph 36A).
| Particulars | Debit (Rs lakh) | Credit (Rs lakh) |
|---|---|---|
| PPE, inventory, receivables, cash, customer list (1,100 + 400 + 500 + 100 + 300) | 2,400.0 | |
| To Trade payables, contingent liability and deferred tax liability (700 + 50 + 112.5) | 862.5 | |
| To Non-controlling interest | 307.5 | |
| To Bank | 900.0 | |
| To Contingent consideration liability | 200.0 | |
| To Capital reserve (OCI) | 130.0 |
Check: debits 2,400.0 = credits 862.5 + 307.5 + 900.0 + 200.0 + 130.0 = 2,400.0. IFRS 3 would take the 130.0 to profit or loss; the Indian carve-out is explained in the standard's comparison with IFRS and in Section III.A of ICAI's differences paper.
Presentation and disclosure
Goodwill is an intangible asset tested annually for impairment (see Ind AS 36). The acquirer discloses, among other things, the nature and fair values of the combination, the factors that make up goodwill, the contingent consideration and any bargain purchase gain with its reasons. Consolidation after the date is in consolidation procedure under Ind AS 110; the deferred tax on adjustments is in deferred tax under Ind AS 12. Valuation reports and tax on the transaction are for specialists; see our income-tax guides for the latter.
Common mistakes
- Treating acquisition costs as part of the price and goodwill (paragraph 53).
- Missing an intangible, such as a customer list, that the target never recorded (paragraph 13).
- Omitting deferred tax on fair value adjustments (paragraph 24).
- Not recognising a present obligation because an outflow is not probable (paragraph 23 overrides Ind AS 37).
- Taking a bargain purchase gain to profit or loss (paragraph 34).
- Taking later changes in contingent consideration to goodwill (paragraph 58).
Need help with deal accounting and valuation inputs?
A purchase price allocation draws on the valuation, the contracts and the tax position, and mistakes show up as goodwill that later has to be impaired. Our team can review the acquisition accounting alongside the diligence work in financial and legal due diligence, so that the numbers in the deal papers and the books agree.
Key takeaways
- Acquirer, date, assets and liabilities at fair value, NCI, then goodwill.
- NCI can be measured at fair value or at its proportionate share of net assets.
- Recognise unrecorded intangibles and present obligations, and deferred tax on adjustments.
- Acquisition costs are expenses; contingent consideration is at fair value on day one.
- A bargain purchase gain goes to capital reserve under Ind AS 103.
Read next
- Common control business combinations under Appendix C of Ind AS 103: pooling of interests
- Consolidation procedure under Ind AS 110: goodwill, NCI and intra-group eliminations
- Deferred tax under Ind AS 12: temporary differences, tax base and recognition
- Purchase price allocation after CIRP under Ind AS 103
Disclaimer: Based on the Indian Accounting Standards as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015) and, where named, the ITFG clarification bulletins of ICAI, as consulted on 4 October 2026. The worked example uses invented figures. Amendments notified after 1 April 2025 should be checked on mca.gov.in. This article is general information, not legal advice; check the official text before acting.