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

Tara Ltd consolidates its subsidiary Uday Ltd. Uday has a loan of ₹10,00,000 payable to Tara, with interest of ₹1,00,000 accrued and paid during the year. Which statement correctly describes the consolidation treatment under Ind AS 110?

The loan balance and the interest income and expense are eliminated in full, leaving consolidated profit unchanged. Ind AS 110 requires intragroup assets, liabilities, income, expenses and cash flows to be eliminated completely, regardless of the parent's percentage holding.

  1. AEliminate the loan and interest income/expense in full, with no effect on consolidated profitCorrect
  2. BEliminate the loan but retain interest income and expense as external items
  3. CEliminate only Tara's share, being the parent's portion, of the loan and interest
  4. DRetain both because they are financial instruments under Ind AS 109

Explanation

Ind AS 110 requires intragroup assets, liabilities, income, expenses and cash flows between group entities to be eliminated in full. The loan receivable and payable cancel, and the interest income and expense cancel, so net consolidated profit is unaffected. Eliminating only part, or keeping the interest, would contradict the full-elimination rule.

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