Skip to content

CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Tapti Ltd holds 90% of Mahi Ltd. Mahi Ltd declared a dividend of Rs 2,00,000 out of post-acquisition profits during the year, and Tapti Ltd credited its share to its own statement of profit and loss. In preparing the consolidated statements, how should this dividend be treated?

The dividend income of Rs 1,80,000 received by the parent from the subsidiary must be eliminated on consolidation. It is an intragroup transaction, and the subsidiary's profits are already consolidated, so recognising it again as income would double count the profit.

  1. AEliminate Rs 1,80,000 of dividend income from the group's profit and show it as an intragroup transactionCorrect
  2. BShow Rs 1,80,000 as other income in the consolidated profit
  3. CShow the entire Rs 2,00,000 as other income
  4. DCredit Rs 1,80,000 to capital reserve

Explanation

Tapti's share is 90% x 2,00,000 = Rs 1,80,000. Dividend within the group is an intragroup transaction; it is eliminated against the dividend paid by the subsidiary, so it is not group income. Treating it as income would double count profit already included in the subsidiary's results.

Did you get it right without looking?

One question tells you little. A timed set on AS 21 Consolidated Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise AS 21 Consolidated Financial StatementsFree diagnostic mock

More AS 21 Consolidated Financial Statements questions