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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Tara Ltd, whose year ends on 31 March 2026, has a subsidiary, Uday Ltd, whose financial statements are drawn up to 31 December 2025. It is not practicable for Uday to prepare statements as at 31 March 2026. Uday sold a major plant to an outside party in February 2026. How should Tara prepare its consolidated financial statements under AS 21?

Tara should consolidate Uday's 31 December 2025 statements after adjusting for the significant plant sale in February 2026. AS 21 allows a different reporting date only if same-date statements are impracticable and the gap is no more than six months, and it requires adjustment for significant intervening transactions.

  1. AUse Uday's statements at 31 December 2025 and adjust for the significant February 2026 transactionCorrect
  2. BUse Uday's statements at 31 December 2025 without any adjustment, as the gap is under six months
  3. CExclude Uday from consolidation, because its reporting date differs
  4. DUse Uday's statements as they stand and disclose the plant sale only in a note, without adjustment

Explanation

AS 21 prefers statements of the same date. Where this is not practicable, statements of an earlier date may be used if the gap is not more than six months, here three months. Adjustments must then be made for significant transactions or events between the two dates, such as the plant sale. Ignoring them or excluding the subsidiary is not allowed.

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