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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Hari Ltd holds 75% of Sagar Ltd. At the balance sheet date Sagar's equity share capital is ₹10,00,000, and its reserves are ₹5,00,000, of which ₹2,00,000 existed on the date of acquisition. During the year Sagar sold goods to Hari at a profit, and ₹40,000 of that profit is unrealised in Hari's closing inventory. Following the usual ICAI treatment for upstream transactions, what is the minority interest in the consolidated balance sheet?

Minority interest is ₹3,65,000. Because the unrealised profit arose in the subsidiary's sales to the parent, it reduces the subsidiary's net worth: 15,00,000 less 40,000 gives 14,60,000. The minority's 25% share of this is ₹3,65,000. Ignoring the adjustment gives ₹3,75,000, which is wrong.

  1. A₹3,75,000
  2. B₹3,65,000Correct
  3. C₹3,35,000
  4. D₹3,85,000

Explanation

Sagar's net worth at the balance sheet date is 10,00,000 + 5,00,000 = 15,00,000. The unrealised profit of 40,000 arose in the subsidiary's books (upstream), so net worth is adjusted to 14,60,000. Minority interest = 25% × 14,60,000 = ₹3,65,000. ₹3,75,000 ignores the elimination, while ₹3,35,000 deducts the whole 40,000 from the minority's share.

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