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

Case: Varuna Industries Ltd holds 70% of the equity shares of Kaveri Components Ltd and controls it. Varuna prepares consolidated financial statements under Ind AS 110. Kaveri's reporting date is 31 March, the same as Varuna's. Kaveri's accounting policies for similar inventory differ from the group's policy. Which treatment is required in the consolidated financial statements?

Kaveri's financial statements must be adjusted to the group's uniform accounting policies before consolidation. Ind AS 110 requires like transactions in similar circumstances to be accounted for using the same policies across the group, so mere disclosure of the differences or exclusion of inventory is not acceptable.

  1. AUse Kaveri's own policies as they are, and disclose the difference in a note
  2. BAdjust Kaveri's financial statements to the group's uniform accounting policies before consolidationCorrect
  3. CAdjust Varuna's financial statements to match Kaveri's policies
  4. DExclude Kaveri's inventory from the consolidation until policies converge

Explanation

Ind AS 110 requires a parent to prepare consolidated financial statements using uniform accounting policies for like transactions and events in similar circumstances. Kaveri's figures must therefore be adjusted to the group policy before line-by-line combination. Merely disclosing the difference (the first option) does not meet the requirement.

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