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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Xavier Ltd has a subsidiary Yash Ltd that is excluded from consolidation because control is intended to be temporary, as the shares were acquired and held exclusively with a view to subsequent disposal in the near future. How should Xavier Ltd account for its investment in Yash Ltd in its consolidated financial statements under AS 21?

The investment is accounted for under AS 13, Accounting for Investments. AS 21 excludes a subsidiary whose control is temporary because shares are held exclusively for near-future disposal, so it is not consolidated line by line, and the reasons for exclusion must be disclosed.

  1. AAs an investment in accordance with AS 13, Accounting for InvestmentsCorrect
  2. BBy the equity method under AS 23
  3. CBy proportionate consolidation under AS 27
  4. DBy line-by-line consolidation with a disclosure note

Explanation

AS 21 excludes a subsidiary from consolidation when control is intended to be temporary because shares are held exclusively for disposal in the near future. Such investments are accounted for as per AS 13 and the reasons for exclusion are disclosed. The equity method and proportionate consolidation apply to associates and joint ventures respectively.

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