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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Mahanadi Ltd acquired 80% of Tapti Ltd on 1 April 2024, when Tapti Ltd's reserves were ₹5,00,000. At 31 March 2026 the balance sheets show: Mahanadi Ltd reserves ₹20,00,000; Tapti Ltd equity share capital ₹10,00,000 and reserves ₹9,00,000. Mahanadi Ltd's sales to Tapti Ltd left unrealised profit of ₹40,000 in Tapti Ltd's closing inventory. Tapti Ltd's sales to Mahanadi Ltd left unrealised profit of ₹30,000 in Mahanadi Ltd's closing inventory. Ignoring goodwill impairment and taxes, what are the consolidated reserves at 31 March 2026?

Consolidated reserves are ₹22,56,000. Tapti's reserves fall to ₹8,70,000 after the upstream unrealised profit, so post-acquisition reserves are ₹3,70,000 and the parent's 80% share is ₹2,96,000. Adding this to ₹20,00,000 and deducting the full downstream profit of ₹40,000 gives ₹22,56,000.

  1. A₹22,56,000Correct
  2. B₹22,80,000
  3. C₹22,50,000
  4. D₹22,96,000

Explanation

Tapti's reserves adjusted for upstream profit = 9,00,000 − 30,000 = ₹8,70,000. Post-acquisition = 8,70,000 − 5,00,000 = ₹3,70,000; Mahanadi's 80% = ₹2,96,000. The downstream profit of ₹40,000 is wholly deducted from the parent. Consolidated reserves = 20,00,000 + 2,96,000 − 40,000 = ₹22,56,000. ₹22,80,000 ignores the upstream profit, and ₹22,50,000 deducts the upstream profit fully from the parent.

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