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CA Final · Financial Reporting · Ind AS 110 Consolidation Procedure for Subsidiaries

Vikram Ltd owns 70% of Wadia Ltd. Wadia sold machinery with a carrying amount of ₹4,00,000 to Vikram for ₹3,00,000, a loss of ₹1,00,000, and the machine's recoverable amount in Vikram's books equals ₹3,00,000. Which treatment is consistent with Ind AS 110?

The intragroup loss is eliminated in full, not in proportion to the holding, but the group must consider whether it signals an impairment needing recognition. Ind AS 110 states that intragroup losses may indicate an impairment, so the elimination must be assessed against the asset's recoverable amount.

  1. AEliminate only 70% of the loss, ₹70,000, from consolidated profit
  2. BEliminate the loss in full without considering whether an impairment exists
  3. CRetain the loss because losses are never eliminated
  4. DEliminate the loss in full from the asset's carrying amount, but consider that an intragroup loss may indicate an impairment requiring recognitionCorrect

Explanation

Profits or losses on intragroup transactions recognised in assets are eliminated in full. Ind AS 110 adds that intragroup losses may indicate an impairment that requires recognition in the consolidated statements. Here the recoverable amount is ₹3,00,000, below the group's carrying amount of ₹4,00,000, so the impairment is genuine and is retained. Proportionate elimination of 70% is wrong.

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