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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Veda Ltd holds more than half the voting power in four investees at the year end. Which one of these investees would be excluded from Veda Ltd's consolidated financial statements under AS 21?

The investee acquired and held exclusively for sale in the near future is excluded, because control is temporary. AS 21 does not allow exclusion for dissimilar business, different reporting dates or losses, so those subsidiaries are still consolidated line by line with the parent.

  1. AAn investee in a completely different line of business from Veda Ltd, which has been consistently profitable
  2. BAn investee acquired and held exclusively with a view to selling it in the near future, so that control is temporaryCorrect
  3. CAn investee whose financial year ends on a date different from Veda Ltd's, although the two are otherwise aligned
  4. DAn investee that incurred heavy losses during the year but is still operating normally

Explanation

AS 21 excludes a subsidiary from consolidation only when control is intended to be temporary because the investment is acquired and held exclusively for subsequent disposal in the near future, or when it operates under severe long-term restrictions. Dissimilar business activities, a different reporting date or losses are not grounds for exclusion. The other three investees must therefore be consolidated.

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