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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Gita Ltd holds 90% of Hari Ltd and wants to exclude Hari Ltd from consolidation because Hari Ltd's business (manufacturing) is very different from Gita Ltd's business (financial services). Under AS 21, what is the correct treatment?

Hari Ltd must still be consolidated. AS 21 does not permit exclusion of a subsidiary just because its business activities are dissimilar to the parent's; the relevant information is provided through segment reporting under AS 17. Exclusion is allowed only for temporary control or severe long-term restrictions.

  1. AHari Ltd must still be consolidated, with dissimilar activities disclosed through segment reporting where requiredCorrect
  2. BHari Ltd must be excluded because of dissimilar business activities
  3. CHari Ltd may be excluded at the option of management if disclosed
  4. DHari Ltd must be accounted for under the equity method

Explanation

AS 21 states that a subsidiary is not excluded merely because its business is dissimilar to that of the other enterprises in the group; relevant information is given through segment reporting (AS 17). Exclusion is allowed only where control is temporary or operates under severe long-term restrictions. Equity method is therefore not applicable.

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