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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Vindhya Ltd acquired 70% of the shares of Aravali Ltd in February 2026 under an agreement with a buyer, to sell the entire holding within nine months, and held it exclusively for that purpose. Vindhya Ltd also owns 100% of Satpura Ltd, whose business activity is entirely different from that of the group. How should Vindhya Ltd treat these two subsidiaries in its consolidated financial statements as per AS 21?

Aravali Ltd should be excluded and treated as an investment under AS 13, because control is temporary and it is held exclusively for disposal in the near future. Satpura Ltd must still be consolidated, since dissimilar business activities are not a valid ground for excluding a subsidiary under AS 21.

  1. AConsolidate both Aravali Ltd and Satpura Ltd
  2. BExclude both, since both are not engaged in the group's main business
  3. CExclude Satpura Ltd for dissimilar activities and consolidate Aravali Ltd
  4. DExclude Aravali Ltd and account for it as an investment under AS 13, but consolidate Satpura LtdCorrect

Explanation

AS 21 excludes a subsidiary from consolidation when control is intended to be temporary because it is acquired and held exclusively with a view to its disposal in the near future; it is then accounted for as an investment under AS 13. Dissimilar business activity is not a ground for exclusion, so Satpura Ltd must be consolidated. Excluding Satpura Ltd for dissimilar activities is therefore wrong.

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