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

Sundaram Holdings Ltd is a parent with two wholly owned subsidiaries. In preparing its consolidated financial statements, it sold goods to one subsidiary, and some of those goods remain unsold in the subsidiary's inventory at year end. Which treatment is consistent with the consolidation procedures in Ind AS 110?

The unrealised profit in the subsidiary's closing inventory must be eliminated in full on consolidation. Ind AS 110 requires profits from intragroup transactions recognised in assets, such as inventory, to be eliminated entirely, regardless of the ownership percentage or the price charged.

  1. AEliminate the profit in the unsold inventory in full, because profits on intragroup transactions recognised in assets are eliminated in fullCorrect
  2. BEliminate the profit only to the extent of the parent's ownership percentage in the subsidiary
  3. CRetain the profit because the sale was at an arm's length price
  4. DEliminate the profit only when the goods are sold by the parent to a non-wholly owned subsidiary

Explanation

Ind AS 110 requires intragroup assets, liabilities, equity, income, expenses and cash flows to be eliminated in full. Profits or losses on intragroup transactions recognised in assets such as inventory are eliminated in full. Eliminating only a proportionate share is not the Ind AS 110 treatment.

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