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

Case: Gopal Ltd owns 90% of Hemant Ltd, whose share capital is Rs 200 lakh. On 1 April 20X2 Hemant's net assets were Rs 400 lakh. During the year Hemant earned a profit of Rs 100 lakh and paid no dividend. Gopal then bought a further 5% of Hemant from NCI for Rs 40 lakh on 31 March 20X3, retaining control. Net assets at that date were Rs 500 lakh, and NCI was measured initially at proportionate share. Assume no goodwill impairment. How is the transaction treated in consolidated financial statements?

The Rs 15 lakh difference is charged directly to equity attributable to owners of the parent. Buying 5% from NCI without losing control is an equity transaction. NCI falls by 5% of Rs 500 lakh, Rs 25 lakh, against Rs 40 lakh paid; no profit or loss or goodwill arises.

  1. AGoodwill increases by Rs 15 lakh
  2. BLoss of Rs 15 lakh is recognised in profit or loss
  3. CEquity attributable to owners is reduced by Rs 15 lakhCorrect
  4. DGain of Rs 15 lakh is recognised in profit or loss

Explanation

Transfer of 5% from NCI: NCI carrying amount reduced = 5% x 500 = Rs 25 lakh. Consideration paid is Rs 40 lakh. Difference = 40 - 25 = Rs 15 lakh, recognised directly in equity attributable to owners (reduction). Ind AS 110 treats changes in ownership without loss of control as equity transactions, so no profit or loss and no goodwill change.

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