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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Pranav Ltd acquired 70% of Quest Ltd on 1 April 2025, when Quest's reserves were ₹5,00,000. On 31 March 2026, Pranav's own reserves are ₹12,00,000 and Quest's reserves are ₹9,00,000. Quest sold goods to Pranav at a profit, leaving unrealised profit of ₹20,000 in Pranav's closing inventory. Pranav also sold goods to Quest, leaving unrealised profit of ₹30,000 in Quest's closing inventory. Assuming the usual consolidation treatment, the consolidated reserves attributable to Pranav's shareholders are:

Consolidated reserves are ₹14,36,000. Downstream unrealised profit of ₹30,000 is deducted fully from the parent's reserves, leaving ₹11,70,000. The upstream ₹20,000 reduces the subsidiary's post-acquisition reserves to ₹3,80,000, of which the parent's 70% share is ₹2,66,000. The total is ₹14,36,000.

  1. A₹14,36,000Correct
  2. B₹14,66,000
  3. C₹14,80,000
  4. D₹14,30,000

Explanation

The downstream unrealised profit of ₹30,000 is deducted fully from Pranav's reserves, giving ₹11,70,000. The upstream unrealised profit of ₹20,000 reduces Quest's reserves to ₹8,80,000, so post-acquisition reserves are ₹3,80,000 and Pranav's 70% share is ₹2,66,000. Consolidated reserves = ₹11,70,000 + ₹2,66,000 = ₹14,36,000. Ignoring the downstream adjustment gives ₹14,66,000. Charging the upstream ₹20,000 wholly to the parent gives ₹14,30,000.

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