Skip to content

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

Mehta Industries Ltd owns 100% of Nair Components Ltd. In the current year Mehta sold machinery to Nair for Rs 12,00,000. The machinery had a carrying amount of Rs 9,00,000 in Mehta's books. Nair depreciates it at 10% per annum straight line over the remaining life from the date of purchase, which was the start of the year. Ignore tax. What is the amount by which consolidated profit before tax is reduced for the year on account of this transaction, net of the depreciation adjustment?

The reduction is Rs 2,70,000. The unrealised profit of Rs 3,00,000 on the intragroup sale of machinery is eliminated in full, and the excess depreciation of Rs 30,000 (10% of Rs 3,00,000) charged on the inflated value is reversed, giving a net reduction of Rs 2,70,000.

  1. ARs 3,00,000
  2. BRs 2,70,000Correct
  3. CRs 30,000
  4. DRs 3,30,000

Explanation

Unrealised profit = 12,00,000 - 9,00,000 = 3,00,000, eliminated in full. Nair charged extra depreciation on the excess: 10% of 3,00,000 = 30,000, which is added back in consolidation. Net reduction in consolidated profit = 3,00,000 - 30,000 = 2,70,000. Rs 3,00,000 misses the depreciation add-back.

Did you get it right without looking?

One question tells you little. A timed set on Ind AS 110 Consolidation Procedure for Subsidiaries shows your real accuracy, how long you take and where you lose marks.

Practise Ind AS 110 Consolidation Procedure for SubsidiariesFree diagnostic mock

More Ind AS 110 Consolidation Procedure for Subsidiaries questions