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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Veda Industries Ltd. acquired 70% of the equity shares of Kiran Packaging Ltd. on 1 January with the clear intention of selling the entire holding within six months to a strategic buyer. Control is therefore intended to be temporary. How should Kiran Packaging Ltd. be treated in Veda's consolidated financial statements for the year ended 31 March under AS 21?

Kiran Packaging Ltd. is excluded from consolidation and the investment is accounted for under AS 13. AS 21 excludes a subsidiary where control is intended to be temporary because the shares were acquired and are held exclusively with a view to disposal in the near future.

  1. AExcluded from consolidation and the investment accounted for as per AS 13Correct
  2. BConsolidated line by line with the disposal intention disclosed in a note
  3. CConsolidated using the equity method as an associate
  4. DConsolidated only for the period from 1 January to 31 March, with no minority interest recognised

Explanation

AS 21 excludes a subsidiary from consolidation when control is intended to be temporary because the shares are acquired and held exclusively with a view to disposal in the near future. Such an investment is accounted for under AS 13. Line-by-line consolidation is wrong because the exclusion applies. The equity method applies to associates under AS 23, not to subsidiaries.

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