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CA Final · Financial Reporting · Consolidated Financial Statements

Rohan Ltd consolidates Sagar Ltd using Sagar's financial statements as of 31 December 2025, as aligning dates is impracticable. The consolidated statements are as of 31 March 2026. On 15 February 2026, Sagar sold a major plant at a loss of Rs 40 lakh, which is a significant event. Sagar's 31 December statements show nothing of this. What should Rohan do?

Rohan should adjust the consolidation for the Rs 40 lakh loss, since Ind AS 110 requires adjustment for significant transactions or events between the subsidiary's statement date and the consolidated statements date, with the gap not exceeding three months. Ignoring it or deconsolidating Sagar would be wrong.

  1. AIgnore the loss, since it occurred after Sagar's reporting date
  2. BAdjust the consolidation for the effect of the loss, as it is a significant transaction between the two dates, and ensure the gap stays at three months or lessCorrect
  3. CRestate Sagar's 31 December statements and treat the loss as occurring in the prior year
  4. DDeconsolidate Sagar from 15 February 2026

Explanation

Where the most recent subsidiary statements are used, B93 requires adjustment for the effects of significant transactions or events between the subsidiary's statement date and the consolidated statements date. The Rs 40 lakh loss on the plant sale in February is such an event. The gap is exactly three months, which is within the limit. Ignoring it or restating prior-year figures is incorrect, and the sale of a plant does not itself cause loss of control.

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