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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Vayu Ltd holds 75% of the equity shares of Tej Ltd. During the year Tej Ltd sold goods costing ₹60,000 to Vayu Ltd for ₹80,000. Half of these goods remain unsold in Vayu Ltd's closing inventory. By how much will the minority interest be reduced because of the elimination of unrealised profit in the consolidated financial statements?

Minority interest is reduced by ₹2,500. The unrealised profit in closing inventory is half of the ₹20,000 profit, that is ₹10,000. Because the subsidiary sold to the parent, the elimination is shared with the minority, whose 25% share is ₹2,500.

  1. A₹10,000
  2. B₹7,500
  3. C₹2,500Correct
  4. D₹5,000

Explanation

Total profit on the sale = 80,000 − 60,000 = ₹20,000. Half remains in inventory, so unrealised profit = ₹10,000. This is an upstream transaction (subsidiary to parent), so it is shared in the ratio of holding: minority 25% × 10,000 = ₹2,500 and parent 75% = ₹7,500. The figure ₹7,500 is the parent's share, not the minority's.

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