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

Himalaya Ltd (parent) sold a machine with a carrying amount of Rs 10,00,000 to its subsidiary Ganga Ltd for Rs 7,00,000. Ganga continues to use the machine. In the consolidated financial statements, what is the correct treatment of this intragroup loss under Ind AS 110?

The Rs 3,00,000 loss is eliminated in full on consolidation because the machine remains within the group. However, the intragroup loss may indicate impairment of the machine, so the group should assess whether an impairment loss must be recognised in the consolidated statements.

  1. ARecognise the Rs 3,00,000 loss in consolidated profit or loss because it was actually incurred on sale
  2. BEliminate the loss in full from the consolidated financial statements, while considering whether it indicates an impairment of the asset that needs recognitionCorrect
  3. CEliminate only the parent's share of the loss and retain the non-controlling interest's share
  4. DDefer the loss as a deferred asset to be amortised over the machine's life

Explanation

Ind AS 110 states that profits or losses on intragroup transactions recognised in assets are eliminated in full, and that intragroup losses may indicate an impairment requiring recognition. So the loss is eliminated, but impairment must be assessed. Retaining the loss without that assessment is wrong, as is proportionate elimination. Creating a deferred asset has no basis in the standard.

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