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

Case: Veda Industries Ltd acquired 80% of the equity shares of Kiran Components Ltd on 1 April 2024 and obtained control on that date. For the year ended 31 March 2025, Veda prepares consolidated financial statements under Ind AS 110 and also separate financial statements under Ind AS 27. In its separate financial statements, Veda has chosen to account for its investment in Kiran at cost. Which statement is correct about Veda's separate financial statements?

In separate financial statements where the subsidiary investment is at cost, the dividend is recognised in profit or loss when the parent's right to receive it is established. It is not credited against the investment, and line-by-line consolidation does not apply to separate statements.

  1. ADividend received from Kiran is recognised in profit or loss when Veda's right to receive it is establishedCorrect
  2. BDividend received from Kiran is deducted from the carrying amount of the investment
  3. CVeda must account for Kiran using the equity method in separate statements
  4. DVeda must eliminate Kiran's assets and liabilities line by line in separate statements

Explanation

Under Ind AS 27, an investment in a subsidiary carried at cost (or under Ind AS 109) has dividends recognised in profit or loss when the right to receive the dividend is established. Deducting dividend from the investment is wrong, because that is not the Ind AS 27 treatment unless impairment arises. Line-by-line elimination belongs to consolidation, not separate statements.

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