Skip to content

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

Orion Ltd, a parent, sold a machine with a carrying amount of Rs 12,00,000 to its subsidiary Vega Ltd for Rs 10,00,000. Vega Ltd measures it at cost and depreciates over its remaining life. In the consolidated financial statements, which treatment follows Ind AS 110?

The loss is eliminated in full from the carrying amount of the machine in the consolidated statements, but the group must assess whether it indicates impairment that needs recognising. Ind AS 110 covers both profits and losses on intragroup asset transfers and notes that intragroup losses may signal impairment.

  1. AEliminate the Rs 2,00,000 loss in all cases, since intragroup losses must be reversed without any further consideration
  2. BRetain the loss, because only intragroup profits are eliminated
  3. CEliminate the loss from consolidated assets in full, while recognising that the loss may indicate an impairment requiring recognition in the consolidated statementsCorrect
  4. DEliminate 100% of the loss only when Vega Ltd is wholly owned

Explanation

Ind AS 110 states that profits or losses on intragroup transactions recognised in assets, including fixed assets, are eliminated in full. It also notes that intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements. Hence the loss is eliminated, but impairment must be evaluated; unconditional elimination ignoring impairment is incomplete and elimination is not limited to profits.

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