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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Hari Ltd owns 80% of Sita Ltd. At the year end, Sita Ltd's equity (share capital plus reserves) is ₹10,00,000. During the year Sita Ltd sold goods costing ₹80,000 to Hari Ltd for ₹1,00,000, and half of these goods remain in Hari Ltd's closing inventory. Following the usual treatment of unrealised profit on such upstream sales, the minority interest in the consolidated balance sheet is:

Minority interest is ₹1,98,000. Unrealised profit of ₹10,000 on the upstream sale reduces the subsidiary's equity to ₹9,90,000, and the 20% minority holds ₹1,98,000 of it. Ignoring the elimination would wrongly show ₹2,00,000.

  1. A₹1,98,000Correct
  2. B₹2,00,000
  3. C₹1,90,000
  4. D₹2,02,000

Explanation

Unrealised profit = (₹1,00,000 − ₹80,000) × 1/2 = ₹10,000. Because Sita Ltd made the sale, this reduces Sita's equity to ₹9,90,000 and is shared between majority and minority. Minority interest = 20% × ₹9,90,000 = ₹1,98,000. Ignoring the adjustment gives ₹2,00,000, and deducting the whole ₹10,000 from the minority gives ₹1,90,000.

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