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CS Executive · Corporate Accounting and Financial Management · Consolidation of Accounts

Ram Ltd holds 75% of Shyam Ltd, acquired two years ago. Shyam's profit for the current year is ₹8,00,000. How is this profit treated in preparing consolidated statements for the year?

₹2,00,000, the minority's 25% share, is identified as minority interest in net income, and the remaining ₹6,00,000 is attributable to the owners of the parent. This is a post-acquisition profit, so it does not create capital reserve or goodwill.

  1. AThe entire ₹8,00,000 is treated as post-acquisition profit of the parent
  2. B₹2,00,000 is identified as minority interest in net income and ₹6,00,000 is attributable to the parent's ownersCorrect
  3. C₹6,00,000 is treated as a capital reserve
  4. D₹2,00,000 is treated as goodwill

Explanation

Minority interest in net income is identified and adjusted against group income. Minority share = 25% × 8,00,000 = ₹2,00,000; parent's owners get ₹6,00,000. The profit arose after acquisition, so it is not capital reserve, and goodwill arises only from cost exceeding equity at investment.

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