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CA Final · Financial Reporting · Ind AS 110 Consolidation Procedure for Subsidiaries

H Ltd owns 80% of S Ltd. During the year S Ltd sold goods costing ₹60,000 to H Ltd for ₹90,000, and H Ltd holds 1/3 of them at year end. The tax rate is 25%. Under Ind AS 110 and Ind AS 12, what is the deferred tax asset recognised on consolidation on the unrealised profit elimination, with sales eliminated in full?

The deferred tax asset is ₹2,500. Unrealised profit in closing inventory is one third of the ₹30,000 profit, which is ₹10,000. Ind AS 110 requires it to be eliminated in full, and Ind AS 12 applies tax at 25% to the temporary difference.

  1. A₹2,500Correct
  2. B₹2,000
  3. C₹7,500
  4. D₹1,500

Explanation

Total profit on the sale is ₹30,000. Goods unsold are 1/3, so unrealised profit is ₹10,000, eliminated in full regardless of the 80% holding. Ind AS 12 applies to the resulting temporary difference, so the deferred tax asset is 25% × 10,000 = ₹2,500. The ₹2,000 option wrongly applies the 80% holding to the profit, and ₹7,500 taxes the whole ₹30,000 profit.

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