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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Meera Ltd holds 80% of Nikhil Ltd. During 2025-26 Nikhil sold goods to Meera for ₹5,00,000 at a margin of 20% on selling price. At 31 March 2026 Meera still held goods bought from Nikhil at ₹2,00,000. What is the reduction in consolidated closing inventory for unrealised profit, and how much of the adjustment is borne by the minority interest?

Consolidated inventory is reduced by ₹40,000, which is 20% of the ₹2,00,000 still unsold within the group. Because Nikhil, the subsidiary, made the sale, the minority interest bears its 20% share of that elimination, which is ₹8,000, and the parent's share is ₹32,000.

  1. A₹40,000; ₹8,000Correct
  2. B₹40,000; nil
  3. C₹32,000; ₹8,000
  4. D₹8,000; ₹40,000

Explanation

Unrealised profit in the closing stock is 20% × 2,00,000 = ₹40,000. AS 21 requires intragroup profit to be eliminated in full, so inventory falls by ₹40,000. The sale is upstream, from the subsidiary to the parent, so the profit sits in Nikhil's profit and the minority bears 20% × 40,000 = ₹8,000. The option with nil for minority treats it as a downstream sale.

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