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CS Executive · Corporate Accounting and Financial Management · Consolidation of Accounts

Alpha Ltd holds 80% of Beta Ltd, and Beta Ltd holds 70% of Gamma Ltd. Gamma Ltd is controlled by Beta Ltd, and Beta Ltd is controlled by Alpha Ltd. What is the effective interest of the Alpha group in Gamma Ltd's net assets, and is Gamma consolidated in Alpha's consolidated financial statements?

The effective interest is 56%, being 80% multiplied by 70%. Because Alpha controls Beta and Beta controls Gamma, Gamma is a subsidiary of Alpha and is consolidated in full, with the other 44% shown as non-controlling interest rather than consolidating only the proportionate share.

  1. A56%, and Gamma is consolidated in fullCorrect
  2. B56%, and Gamma is consolidated only to the extent of 56%
  3. C70%, and Gamma is consolidated in full
  4. D80%, and Gamma is not consolidated because it is an indirect holding

Explanation

Effective interest is 80% x 70% = 56%. Control is what drives consolidation, and Alpha controls Gamma through Beta, so Gamma's assets, liabilities, income and expenses are combined line by line in full. The non-controlling interest is the remaining 44%. Consolidating only 56% is wrong because Ind AS 110 combines like items in full rather than proportionately.

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