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CA Final · Financial Reporting · Ind AS 27 Separate Financial Statements

Meru Ltd holds 80% in Sagar Ltd, carried at cost of ₹50 crore in Meru's separate financial statements. At the reporting date, Meru's board commits to a plan to sell the entire holding and the criteria for held for sale under Ind AS 105 are met. Fair value less costs to sell is ₹58 crore. How should Meru treat the investment in its separate financial statements?

The investment is accounted for under Ind AS 105 as held for sale, measured at the lower of carrying amount and fair value less costs to sell. Here that is ₹50 crore, so no gain is recognised, and the equity method is not available.

  1. AContinue at ₹50 crore, as Ind AS 105 does not apply to separate financial statements
  2. BMeasure at ₹58 crore and recognise a gain of ₹8 crore
  3. CAccount for it under Ind AS 105 as held for sale, at the lower of carrying amount and fair value less costs to sell, i.e. ₹50 croreCorrect
  4. DReclassify it to equity method at the date of the plan

Explanation

Investments accounted for at cost must be accounted for under Ind AS 105 when classified as held for sale. Ind AS 105 measures at the lower of carrying amount (₹50 crore) and fair value less costs to sell (₹58 crore), so ₹50 crore, with no upward gain. Option B recognises an impermissible gain.

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