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CA Final · Financial Reporting · Ind AS 27 Separate Financial Statements

Kaveri Ltd accounts for its investment in a subsidiary, Lohit Ltd, at cost in its separate financial statements. In March the board commits to a plan to sell the whole investment, and all Ind AS 105 criteria for held-for-sale classification are met at the reporting date. How should Kaveri Ltd treat this investment in its separate financial statements?

Kaveri Ltd should account for the investment in accordance with Ind AS 105 because Ind AS 27 requires investments accounted for at cost to follow Ind AS 105 once classified as held for sale. It should not remain at cost unchanged or move to the equity method.

  1. AContinue at cost with no change, as Ind AS 105 does not apply to separate financial statements
  2. BAccount for it in accordance with Ind AS 105 as held for saleCorrect
  3. CSwitch the measurement to the equity method until sold
  4. DRemeasure it under Ind AS 109 and transfer the difference to retained earnings

Explanation

Ind AS 27 states that investments accounted for at cost shall be accounted for in accordance with Ind AS 105 when classified as held for sale. Hence the cost-based investment follows Ind AS 105. The claim that Ind AS 105 does not apply is wrong, and the equity method is not a permitted basis.

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