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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Esha Ltd acquired 75% of Farhan Ltd on 1 October, when Farhan Ltd's equity share capital was Rs 8,00,000 and its reserves were Rs 2,00,000. Esha Ltd paid Rs 8,50,000. Farhan Ltd's profit for the year ended 31 March was Rs 4,00,000 and the profit accrued evenly; the reserves of Rs 2,00,000 at 1 October included profits up to that date and no dividends were paid. Opening reserves at 1 April were Rs 0, with Rs 2,00,000 being the profit of the first six months. The next six months' profit was Rs 2,00,000. What are the goodwill and the amount of the post-acquisition profit attributable to the minority at 31 March?

Goodwill is Rs 1,00,000 and the minority's share of post-acquisition profit is Rs 50,000. Net worth at acquisition was Rs 10,00,000, of which the 75% share is Rs 7,50,000, against cost of Rs 8,50,000. Post-acquisition profit of Rs 2,00,000 is shared 25% with the minority.

  1. AGoodwill Rs 1,00,000; minority share of post-acquisition profit Rs 50,000Correct
  2. BGoodwill Rs 1,00,000; minority share of post-acquisition profit Rs 1,00,000
  3. CGoodwill Rs 50,000; minority share of post-acquisition profit Rs 50,000
  4. DGoodwill Rs 75,000; minority share of post-acquisition profit Rs 50,000

Explanation

Net worth at acquisition = 8,00,000 + 2,00,000 = 10,00,000. Parent's share = 75% = 7,50,000. Goodwill = 8,50,000 - 7,50,000 = 1,00,000. Post-acquisition profit = 2,00,000; minority 25% = 50,000. Rs 1,00,000 for the minority wrongly uses 50% of the full-year profit.

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