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CA Final · Financial Reporting · Ind AS 110 Consolidation Procedure for Subsidiaries

Aarav Holdings Ltd, a parent, has a subsidiary Bhavya Traders Ltd. During the year Aarav sold goods to Bhavya, and part of those goods remain unsold in Bhavya's closing inventory. In preparing the consolidated financial statements, how should Aarav treat the profit that arose on the intragroup sale and is included in the closing inventory?

The unrealised profit must be eliminated in full. Ind AS 110 requires profits or losses on intragroup transactions that are recognised in assets such as inventory to be eliminated entirely, regardless of the parent's ownership percentage or whether the transfer price was at arm's length.

  1. AEliminate it in fullCorrect
  2. BEliminate only the parent's percentage share of it
  3. CRetain it because the sale was at an arm's length price
  4. DEliminate it only if Bhavya is wholly owned

Explanation

Ind AS 110 (Appendix B, para B86) requires profits or losses from intragroup transactions recognised in assets such as inventory to be eliminated in full. The elimination does not depend on ownership percentage or on whether the price was arm's length. Eliminating only the parent's share is the proportionate approach, which Ind AS 110 does not permit.

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