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CS Executive · Corporate Accounting and Financial Management · Consolidation of Accounts

Under the Ind AS 110 consolidation procedures, how should a group treat the balance owed by subsidiary S2 to subsidiary S1, both being subsidiaries of the same parent P, when preparing P's consolidated financial statements?

The balance is eliminated in full. Ind AS 110 requires intragroup assets and liabilities, income, expenses and cash flows between entities of the group to be eliminated in full, regardless of the parent's percentage holding, because the group is presented as a single economic entity.

  1. AEliminate it in full as an intragroup asset and liabilityCorrect
  2. BEliminate it only to the extent of P's effective interest in S2
  3. CShow it as a loan receivable and payable since both are separate legal entities
  4. DEliminate it only if S1 and S2 are wholly owned

Explanation

Ind AS 110 requires intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between group entities to be eliminated in full. Partial elimination based on ownership percentage is not permitted, and legal separateness does not change this.

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