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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Param Ltd acquired 60% of the equity shares of Neel Ltd on 1 October 2025. Neel Ltd's financial year ends on 31 March 2026, and its profit for the year was ₹3,00,000, earned evenly through the year. Between 1 October 2025 and 31 March 2026, Neel Ltd sold goods to Param Ltd, and unrealised profit of ₹20,000 on these goods is included in Param Ltd's closing inventory. Neel Ltd paid no dividend. What amount will be credited to the consolidated reserves as Param Ltd's share of Neel Ltd's post-acquisition profit for the year ended 31 March 2026?

₹78,000 is credited to consolidated reserves. Post-acquisition profit of Neel Ltd is six months' profit of ₹1,50,000, less ₹20,000 of unrealised upstream profit, giving ₹1,30,000. Param Ltd's 60% share of this adjusted profit is ₹78,000.

  1. A₹78,000Correct
  2. B₹90,000
  3. C₹70,000
  4. D₹1,80,000

Explanation

Post-acquisition profit = 6/12 × 3,00,000 = ₹1,50,000. The sale is upstream, so the unrealised profit of ₹20,000 is deducted: 1,50,000 − 20,000 = ₹1,30,000. Param Ltd's 60% share = ₹78,000. ₹90,000 ignores the unrealised profit, while ₹70,000 deducts the whole ₹20,000 from the parent's share only.

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