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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Financial Reporting

Case: Bharat Engineering Ltd (BEL) holds 60% of the voting rights of Kaveri Components Ltd (KCL), acquired on 1 April 2024, and prepares consolidated financial statements under Ind AS. KCL's other shareholders are 40 dispersed investors, none holding more than 1%. BEL can appoint all KCL directors and direct its relevant activities. Which statement about BEL's consolidation of KCL is correct?

BEL controls KCL because it has power through majority voting and board appointment rights, and exposure to returns. It therefore consolidates KCL line by line under Ind AS 110 and presents the outside 40% as non-controlling interest within equity, not as an equity-method investment.

  1. ABEL need not consolidate KCL because 40% of equity is held by outsiders
  2. BBEL controls KCL and consolidates it line by line, showing the 40% as non-controlling interestCorrect
  3. CBEL accounts for KCL under the equity method because holding is below 75%
  4. DBEL measures KCL as a financial asset at fair value through profit or loss

Explanation

Ind AS 110 requires consolidation when the investor has power over the investee, exposure to variable returns and the ability to use power to affect returns. BEL has majority votes and board control, so it controls KCL. The equity method applies to associates and joint ventures, not subsidiaries. Outside holders' 40% is presented as NCI within equity.

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