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

Kaveri Ltd holds 80% of Narmada Ltd. During the year Narmada sold goods costing Rs 6,00,000 to Kaveri for Rs 8,00,000. At year end Kaveri still holds all of these goods in inventory. Ignore tax. By how much should unrealised profit be eliminated in the consolidated financial statements, as per Ind AS 110?

Rs 2,00,000 is eliminated. The profit on the intragroup sale is Rs 8,00,000 less Rs 6,00,000 cost, and because all the goods remain in closing inventory, Ind AS 110 requires the profit in assets to be eliminated in full, not just the parent's 80% share.

  1. ARs 1,60,000, being 80% of the profit
  2. BRs 2,00,000, being the full profit on the intragroup saleCorrect
  3. CRs 40,000, being the non-controlling interest's 20% share of the profit
  4. DRs 8,00,000, being the full sale price

Explanation

Profit in inventory = 8,00,000 - 6,00,000 = Rs 2,00,000. Ind AS 110 requires profits from intragroup transactions recognised in assets such as inventory to be eliminated in full, regardless of the parent's ownership percentage. The 80% option applies a proportionate elimination, which is not permitted. The sales and purchases of Rs 8,00,000 are also eliminated, but that is revenue and cost, not the unrealised profit.

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