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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Meera Ltd holds 80% of Sagar Ltd. During the year Sagar Ltd sold goods to Meera Ltd for ₹90,000; these goods had cost Sagar Ltd ₹60,000. One-third of the goods remain unsold in Meera Ltd's closing inventory. At the balance sheet date, Sagar Ltd's equity share capital is ₹5,00,000 and its reserves and surplus are ₹3,00,000, with reserves already including the profit on this sale. Following the AS 21 approach of sharing the upstream unrealised profit in proportion to holdings, what is the minority interest in the consolidated balance sheet?

Minority interest is ₹1,58,000. The upstream unrealised profit is ₹10,000, which reduces Sagar Ltd's net worth from ₹8,00,000 to ₹7,90,000, and the minority's 20% share of that is ₹1,58,000.

  1. A₹1,60,000
  2. B₹1,50,000
  3. C₹1,58,000Correct
  4. D₹1,62,000

Explanation

Unrealised profit in closing inventory = (90,000 − 60,000) × 1/3 = ₹10,000. Because the sale was by the subsidiary (upstream), the elimination reduces the subsidiary's net worth: 8,00,000 − 10,000 = ₹7,90,000. Minority interest = 20% × 7,90,000 = ₹1,58,000. ₹1,60,000 ignores the elimination, and ₹1,50,000 wrongly charges the entire ₹10,000 to the minority.

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