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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Mehra Ltd holds 60% of Nisha Ltd. At the consolidated balance sheet date, Nisha's equity share capital is ₹5,00,000 and it has a debit balance of ₹5,50,000 in its profit and loss account, so net worth is negative ₹50,000. The minority shareholders have no binding obligation to make good the losses. How should the minority interest be reflected in the consolidated balance sheet?

Minority interest is shown as nil. The minority's 40% share of Nisha's negative net worth is ₹20,000, which exceeds its equity interest. Since the minority has no binding obligation to cover losses, AS 21 requires the excess to be adjusted against the majority interest, that is Mehra Ltd's share.

  1. AMinority interest of ₹20,000 shown as a negative balance on the liabilities side
  2. BMinority interest of ₹2,00,000, being 40% of share capital
  3. CMinority interest shown as nil, with the minority's ₹20,000 excess share of losses adjusted against the majority interestCorrect
  4. DMinority interest shown as ₹20,000 under assets as amount recoverable from minority

Explanation

The minority's share of net worth is 40% × (−50,000) = −20,000. AS 21 states that where the minority's share of losses exceeds its equity interest, the excess is adjusted against the majority interest, except to the extent the minority has a binding obligation and is able to cover it. There is no such obligation here, so minority interest is shown as nil and the excess 20,000 is borne by the parent. Showing a negative minority interest or a recoverable asset is not permitted.

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