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Subject
Indian GAAP
US GAAP
the time of acquisition. The carrying amount of the
investment is adjusted thereafter for the post
acquisition change in the investor’s share of net
assets of the investee. The consolidated statement
of profit and loss reflects the investors’ share of the
results of the operations of the investee.
Unlisted companies that do not prepare consolidated
financial statements continue to account investments
in associates as before.
Interests in joint ventures Investment in jointly controlled entities is accounted
in stand alone financial statements of the parent in
the same manner as stated in ‘Consolidation and
investment in subsidiaries’ above.
Interests in jointly controlled entities of a venture
should be recognized in its consolidated financial
statements on a proportionate consolidation basis
unless by virtue of a contractual arrangement joint
control is established over an entity which is a
subsidiary of that enterprise within the meaning of
AS 21, in which case the entity is consolidated by
the said enterprise and is not treated as joint venture.
Additionally, interests in jointly-controlled assets and
jointly-controlled operations of a venture are required
to be recognized in the separate financial statements
and consequently in its consolidated financial
statements.
Unlisted companies that do not prepare consolidated
financial statements could continue to report joint
venture investments as before.
An incorporated joint venture is treated as a
subsidiary or an affiliate, depending on the level of
control of the joint venturer, and either consolidated
or accounted for using the equity method,
respectively.
Accounting for interests in jointly-controlled assets
and jointly-controlled operations of a venture is
similar to Indian GAAP.
Business combination
Business combinations are accounted for either as
pooling of interests or as acquisitions. Accounting
for business combinations as pooling of interests is
permitted only on fulfilment of certain conditions. Non-
fulfilment of one or more conditions results in the
combination being accounted for as an acquisition
using the ‘purchase method’ of accounting.
Under the pooling of interest method, the assets,
liabilities and reserves of the transferor company
are recorded by the transferee company at their
existing carrying amounts after making changes for
uniformity of accounting policies.
Under the purchase method, assets and liabilities
are recorded either at their existing carrying amounts
or by allocating the consideration to individual
identifiable assets and liabilities on the basis of their
fair values at the date of acquisition.
The ‘Purchase method’ of accounting is required for
all business combinations. SFAS No. 141 requires
intangible assets to be recognized if they arise from
contractual or legal rights or are “separable”, i.e., it
is feasible that they may be sold, transferred,
licensed, rented, exchanged or pledged.
Under APB Opinion No. 16, the pooling of interest
method is required in respect of combination of
entities under common control in a manner similar
to Indian GAAP.
Under purchase accounting, the consideration is
measured at fair value, the purchase price allocated
to the fair values of the next assets acquired
including intangibles, and goodwill recognized for the
difference between the consideration paid and the
fair value of the net assets acquired.
Acquired Goodwill
Goodwill arising on amalgamation is amortised to
income on a systematic basis over its useful life,
not exceeding five years unless a longer period can
be justified. (AS 14) The amount of goodwill
recognized is the difference between the
consideration paid and the book value of the net
assets acquired. Negative goodwill is credited to a
capital reserve.
Under SFAS No. 142, effective for fiscal years
beginning after December 15, 2001, goodwill arising
on new acquisitions and any unamortized balance
for prior acquisitions will no longer be subject to
amortization. Instead, such goodwill will be tested
for impairment on an annual basis or whenever
triggers indicating impairment arise, if earlier. The
impairment test is based on estimates of fair value
at a reporting unit level.
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