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CA Final · Financial Reporting · Ind AS 110 Consolidation Procedure for Subsidiaries

Sundaram Holdings Ltd is a parent that prepares consolidated financial statements. Its subsidiary, Kaveri Components Ltd, sold goods to Sundaram Holdings at a profit, and some of those goods remain unsold in Sundaram Holdings' inventory at the year end. Which statement correctly describes the consolidation treatment of the unrealised profit in that closing inventory under Ind AS 110?

The unrealised profit in closing inventory must be eliminated in full. Ind AS 110 states that profits or losses from intragroup transactions recognised in assets such as inventory are eliminated entirely, regardless of the percentage held in the selling subsidiary or the presence of non-controlling interests.

  1. AEliminate the unrealised profit in full, because profits from intragroup transactions recognised in assets such as inventory are eliminated in fullCorrect
  2. BEliminate only the parent's percentage share of the unrealised profit, leaving the non-controlling interest share in inventory
  3. CEliminate the profit only if the selling subsidiary is wholly owned
  4. DLeave the profit in inventory and disclose it as an intragroup balance in the notes

Explanation

Ind AS 110 requires profits or losses from intragroup transactions that are recognised in assets, such as inventory and fixed assets, to be eliminated in full. Proportionate elimination is not permitted, so the option eliminating only the parent's share is wrong. The extent of ownership does not change this requirement.

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