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CA Final · Financial Reporting · Consolidated Financial Statements

Arjun Holdings Ltd has a March year-end. Its subsidiary, Sagar Exports Ltd, has a December year-end. It is impracticable for Sagar to prepare additional statements as at 31 March. In February, Sagar sold a major plant at a significant gain. How should Arjun consolidate Sagar for the year ended 31 March?

Arjun should consolidate Sagar using its 31 December statements, adjusted for the effects of significant transactions or events, such as the plant sale, occurring between that date and 31 March. The three-month gap is allowed as a maximum, but it does not remove the need for adjustment.

  1. AUse Sagar's statements to 31 December without adjustment, because the difference is only three months
  2. BUse Sagar's most recent statements (31 December) adjusted for the effects of significant transactions or events between that date and 31 March, such as the plant saleCorrect
  3. CExclude Sagar from consolidation until it aligns its year-end
  4. DUse Sagar's statements to 31 December and disclose the plant sale only in the notes

Explanation

Where it is impracticable to use statements as at the parent's date, the parent uses the subsidiary's most recent statements adjusted for the effects of significant transactions or events between the two dates. The gap must be no more than three months. The plant sale is significant, so it must be adjusted for. Option A ignores this adjustment.

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