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

Case: Meru Ltd. owns 70% of Nila Ltd. During the year Meru sold goods costing Rs 80 lakh to Nila for Rs 100 lakh. At the year end, Nila still held 40% of these goods in inventory. Meru's separate profit includes the sale. In preparing the consolidated financial statements, what is the amount of unrealised profit to be eliminated from consolidated inventory and profit?

The unrealised profit to eliminate is Rs 8 lakh. The profit on the intragroup sale is Rs 20 lakh, and 40% of the goods remain unsold in the group. Ind AS 110 requires full elimination of intragroup profit, not a proportion based on the parent's holding.

  1. ARs 20 lakh
  2. BRs 8 lakhCorrect
  3. CRs 5.6 lakh
  4. DRs 12 lakh

Explanation

Total profit on the sale = 100 - 80 = 20 lakh. The portion still in inventory is 40% x 20 = 8 lakh. Under Ind AS 110, intragroup profits in inventory are eliminated in full, regardless of the NCI percentage. Rs 5.6 lakh wrongly applies the 70% holding.

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