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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Rohan Ltd holds 80% of Shreya Ltd, acquired when Shreya's reserves were ₹4,00,000. At the balance sheet date, Rohan's own reserves are ₹12,00,000 and Shreya's reserves are ₹9,00,000. During the year Rohan sold goods to Shreya, and ₹30,000 of Rohan's profit on those goods remains unrealised in Shreya's closing inventory. The ICAI treatment eliminates unrealised profit in full against the parent's profit for downstream sales. What are the consolidated reserves attributable to Rohan's shareholders?

Consolidated reserves attributable to Rohan's shareholders are ₹15,70,000. Add Rohan's 80% share of Shreya's post-acquisition reserves of ₹5,00,000, which is ₹4,00,000, to its own ₹12,00,000, then deduct the entire ₹30,000 unrealised profit because the sale was downstream. Deducting only 80% of it would be incorrect.

  1. A₹15,70,000Correct
  2. B₹16,00,000
  3. C₹15,76,000
  4. D₹18,90,000

Explanation

Post-acquisition reserves of Shreya = 9,00,000 − 4,00,000 = 5,00,000; Rohan's 80% share = 4,00,000. Because the sale was downstream, the full unrealised profit of 30,000 is deducted from Rohan's reserves. Consolidated reserves = 12,00,000 + 4,00,000 − 30,000 = ₹15,70,000. Deducting only 80% of 30,000 gives ₹15,76,000, which is wrong for a downstream sale.

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