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CA Final FR Consolidated and Separate Financial Statements of Group Entities Important Solved Questions

Consolidated and Separate Financial Statements of Group Entities, Important Questions with Solutions for CA Final Financial Reporting May & Nov 2021 Exams

Question 1 –

A parent purchased an 80% interest in a subsidiary for Rs. 1,60,000 on 1 April 20X1 when the fair value of the subsidiary’s net assets was Rs. 1,75,000. Goodwill of Rs. 20,000 arose on consolidation under the partial goodwill method. An impairment of goodwill of Rs. 8,000 was charged in the consolidated financial statements to 31 March 20X3. No other impairment charges have been recorded. The parent sold its investment in the subsidiary on 31 March 20X4 for Rs. 2,00,000. The book value of the subsidiary’s net assets in the consolidated financial statements on the date of the sale was Rs. 2,25,000 (not including goodwill of Rs. 12,000). When the subsidiary met the criteria to be classified as held for sale under Ind AS 105, no write down was required because the expected fair value less cost to sell (of 100% of the subsidiary) was greater than the carrying value.

The parent carried the investment in the subsidiary at cost, as permitted by Ind AS 27.

Calculate gain or loss on disposal of subsidiary in parent’s separate and consolidated financial statements as on 31st March 20X4.

Solution –

The parent’s separate statement of profit and loss for 20X3-20X4 would show a gain on the sale of investment of Rs. 40,000 calculated as follow:

Rs. ‘000
Sale proceeds 200
Less: cost of investment in subsidiary (160)
Gain on sale in parent’s account     40

However, the group’s statement of profit & loss for 20X3-20X4 would show a gain on the sale of subsidiary of Rs. 8,000 calculated as follows:

Rs.’000
Sale proceeds 200
Less: share of net assets at date of disposal (Rs. 2,25,000 X 80%) (180)
Goodwill on consolidation at date of sale (W.N 1)    (12)
Gain on sale in the group’s account     8

Working Note 1

The goodwill on consolidation (assuming partial goodwill method) is calculated as follows:

Rs.’000
Fair value of consideration at the date of acquisition 160
Non- controlling interest measured at proportionate share of the acquiree’s identifiable net assets (1,75,000 X 20%) 35
Less: fair value of net assets of subsidiary at date of acquisition (175)
Goodwill arising on consolidation     20
Impairment at 31 March 20X3 (8)
Goodwill at 31 March 20X4    12

Question 2 –

As provided in Ind- AS 111 – Joint Arrangements – this is a joint arrangement because two or more parties have joint control of the property under a contractual arrangement. The arrangement will be regarded as a joint operation because Alpha Ltd. and Gama Ltd. have rights to the assets and obligations for the liabilities of this joint arrangement. This means that the company and the other investor will each recognise 50% of the cost of constructing the asset in property, plant and equipment.

The borrowing cost incurred on constructing the property should under the principles of Ind AS 23 ‘Borrowing Costs’, be included as part of the cost of the asset for the period of construction.

In this case, the relevant borrowing cost to be included is Rs.50,00,000 (Rs.10,00,00,000 x 10% x 6/12).  The total cost of the asset is Rs.40,50,00,000 (Rs.40,00,00,000 + Rs.50,00,000) Rs.20,25,00,000 crores is included in the property, plant and equipment of Alpha Ltd. and the same amount in the property, plant and equipment of Gama Ltd.

The depreciation charge for the year ended 31 March 2018 will therefore be Rs.1,01,25,000 (Rs.40,50,00,000 x 1/20 x 6/12) Rs.50,62,500 will be charged in the statement of profit or loss of the company and the same amount in the statement of profit or loss of Gama Ltd.

The other costs relating to the arrangement in the current year totalling Rs.54,00,000 (finance cost for the second half year of Rs.50,00,000 plus maintenance costs of Rs.4,00,000) will be charged to the statement of profit or loss of Alpha Ltd. and Gama Ltd. in equal proportions- Rs.27,00,000 each.

Solution –

As provided in Ind- AS 111 – Joint Arrangements – this is a joint arrangement because two or more parties have joint control of the property under a contractual arrangement. The arrangement will be regarded as a joint operation because Alpha Ltd. and Gama Ltd. have rights to the assets and obligations for the liabilities of this joint arrangement. This means that the company and the other investor will each recognise 50% of the cost of constructing the asset in property, plant and equipment.

The borrowing cost incurred on constructing the property should under the principles of Ind AS 23 ‘Borrowing Costs’, be included as part of the cost of the asset for the period of construction.

In this case, the relevant borrowing cost to be included is Rs.50,00,000 (Rs.10,00,00,000 x 10% x 6/12).  The total cost of the asset is Rs.40,50,00,000 (Rs.40,00,00,000 + Rs.50,00,000) Rs.20,25,00,000 crores is included in the property, plant and equipment of Alpha Ltd. and the same amount in the property, plant and equipment of Gama Ltd.

The depreciation charge for the year ended 31 March 2018 will therefore be Rs.1,01,25,000 (Rs.40,50,00,000 x 1/20 x 6/12) Rs.50,62,500 will be charged in the statement of profit or loss of the company and the same amount in the statement of profit or loss of Gama Ltd.

The other costs relating to the arrangement in the current year totalling Rs.54,00,000 (finance cost for the second half year of Rs.50,00,000 plus maintenance costs of Rs.4,00,000) will be charged to the statement of profit or loss of Alpha Ltd. and Gama Ltd. in equal proportions- Rs.27,00,000 each.


Question 3 –

AT Ltd. purchased a 100% subsidiary for Rs. 50,00,000 on 31st March 20X1 when the fair value of the BT Ltd. whose net assets was Rs. 40,00,000. Therefore, goodwill is Rs.10,00,000. The AT Ltd. sold 60% of its investment in BT Ltd. on 31st March 20X3 for Rs. 67,50,000, leaving the AT Ltd. with 40% and significant influence. At the date of disposal, the carrying value of net assets of BT Ltd., excluding goodwill is Rs. 80,00,000. Assume the fair value of the investment in associate BT Ltd. retained is proportionate to the fair value of the 60% sold, that is Rs. 45,00,000.

Calculate gain or loss on sale of proportion of BT Ltd. in AT Ltd’s separate and consolidated financial statements as on 31st March 20X3.

Solution

AT Ltd.’s statement for profit or loss of 20X2-20X3 would  show a  gain on  the  sale of investment of Rs. 37,50,000 calculated as follows:

Rs.’ lakhs
Sale proceeds 67.5
Less: cost on investment in subsidiary (Rs. 50,00,000 X 60%) (30.0)
Gain on sale in the parent’s financial statement    37.5

In the consolidated financial statements, the group will calculate the gain or loss on disposal differently. The carrying amount of all of the assets including goodwill is  derecognized  when control is lost. This is compared to the proceeds received and the fair value of the investment retained.

The gain on the disposal will, therefore, be calculated as follows:

Rs.’ Lakhs
Sale proceeds 67.5
Fair value of 40% interest retained 45.0
Less: Net assets disposed, including goodwill (80,00,000+ 10,00,000)  (90.0)
Gain on sale in the group’s financial statements    22.5

The gain on loss of control would be recorded in profit or loss. The gain or loss includes the gain of Rs. 13,50,000 [Rs. 67,50,000 – (Rs. 90,00,000 X 60%)] on the portion sold. However, it also includes a gain on remeasurement of the 40% retained interest of Rs. 9,00,000 (Rs. 36,00,000* to Rs. 45,00,000). The entity will need to disclose the portion of the gain that is attributable to remeasuring any remaining interest to fair value, that is, Rs. 9,00,000.

* 90,00,000x 40% = 36,00,000


Question 4 –

What will be the accounting treatment of dividend distribution tax in the consolidated financial statements in case of partly-owned subsidiary in the following scenarios:

Scenario 1: H Limited (holding company) holds 12,000 equity shares in S Limited (Subsidiary of H Limited) with 60% holding. Accordingly, S Limited is a partly-owned subsidiary of H Limited. During the year 20X1, S Limited paid a dividend @ Rs.10 per share and DDT @ 20% on it.

Should the share of H Limited in DDT paid by S Limited amounting to Rs.24,000 (60% x Rs.40,000) be charged as expense in the consolidated profit and loss of H Limited?

Scenario 2 (A): Extending the situation given in scenario 1, H Limited also pays dividend of Rs.300,000 to its shareholders and DDT liability @ 20% thereon amounts to Rs.60,000. As per the tax laws, DDT paid by S Ltd. of Rs.24,000 is allowed as set off against the DDT liability of H Ltd., resulting in H Ltd. paying Rs.36,000 (Rs.60,000 – Rs.24,000) as DDT to tax authorities.

Scenario 2(B): If in (A) above, H Limited pays dividend amounting to Rs.100,000 with DDT liability @ 20% amounting to Rs.20,000.

Scenario (3): Will the answer be different for the treatment of dividend distribution tax paid by associate in the consolidated financial statement of investor, if as per tax laws the DDT paid by associate is not allowed set-off against the DDT liability of the investor?

Solution –

Scenario 1: Since H Limited is holding 12,000 shares it has received Rs.1,20,000 as dividend from S Limited. In the consolidated financial statements of H Ltd., dividend income earned by H Ltd. and dividend recorded by S Ltd. in its equity will both get eliminated as a result of consolidation adjustments. Dividend paid by S Ltd. to the 40% non-controlling interest (NCI) shareholders will be recorded in the Statement of Changes in Equity as reduction of NCI balance (as shares are classified as equity as per Ind AS 32).

DDT of Rs.40,000 paid to tax authorities has two components- One Rs.24,000 (related to H Limited’s shareholding and other Rs.16,000 (40,000 × 40%) belong to non-controlling interest (NCI) shareholders of S Limited). DDT of Rs.16,000 (pertaining to non-controlling interest (NCI) shareholders) will be recorded in the Statement of Changes in Equity along with dividend. DDT of Rs.24,000 paid outside the consolidated Group shall be charged as tax expense in the consolidated statement of profit and loss of H Ltd.

In accordance with the above, in the given case, CFS of H limited will be as under:

Transactions H Ltd. S Ltd. Consol Adjustments CFS H Ltd.
Dividend Income (P&L) 1,20,000 (1,20,000)
Dividend (in Statement of Changes in Equity by way of reduction of NCI) (2,00,000) 1,20,000 (80,000)
DDT (in Statement of Changes in Equity by way of reduction of NCI) (40,000) 24,000 (16,000)
DDT (in Statement of P&L) (24,000) (24,000)

Scenario 2 (A) : If DDT paid by the subsidiary S Ltd. is allowed as a set off against the DDT liability of its parent H Ltd. (as per the tax laws), then the amount of such DDT should be recognised in the consolidated statement of changes in equity of parent H Ltd.

In the given case, share of H Limited in DDT paid by S Limited is Rs.24,000 and entire Rs.24,000 was utilised by H Limited while paying dividend to its own shareholders.

Accordingly, DDT of Rs.76,000 (Rs.40,000 of DDT paid by S Ltd. (of which Rs.16,000 is attributable to NCI) and Rs.36,000 of DDT paid by H Ltd.) should be recognised in the consolidated statement of changes in equity of parent H Ltd. No amount will be charged to consolidated statement of profit and loss. The basis for such accounting would be that due to Parent H Ltd’s transaction of distributing dividend to its shareholders (a transaction recorded in Parent H Ltd’s equity) and the related DDT set-off, this DDT paid by the subsidiary is effectively a tax on distribution of dividend to the shareholders of the parent company.

In accordance with the above, in the given case, CFS of H limited will be as under:

Transactions

H Ltd. S Ltd. Consol Adjustments CFS H Ltd.
Dividend Income (P&L) 1,20,000 (1,20,000)
Dividend (in Statement of Changes in Equity ) (3,00,000) (2,00,000) 1,20,000 (3,80,000)*
DDT (in Statement of Changes in Equity ) (36,000) (40,000) (76,000)*

*Dividend of Rs.80,000 and DDT of Rs.16,000 will be reflected as reduction from non-controlling interest. Scenario 2(B): In the given case, share of H Limited in DDT paid by S Limited is Rs.24,000 out of which only Rs.20,000 was utilised by H Limited while paying dividend by its own. Therefore, balance Rs.4,000 should be charged in the consolidated statement of profit and loss.

In accordance with the above, in the given case, CFS of H limited will be as under:

Transactions H Ltd. S Ltd. Consol Adjustments CFS H Ltd.
Dividend Income (P&L) 1,20,000 (1,20,000)
Dividend (in Statement of Changes in Equity ) (1,00,000) (2,00,000) 1,20,000 (1,80,000)*
DDT (in Statement of Changes in Equity ) (40,000) 4,000 (36,000)*
DDT (in Statement of P&L) (4,000) (4,000)

*Dividend of Rs.80,000 and DDT of Rs.16,000 will be reflected as reduction from non- controlling interest.

Scenario (3): Considering that as per tax laws, DDT paid by associate is not allowed set off against the DDT liability of the investor, the investor’s share of DDT would be accounted by the investor company by crediting its investment account in the associate and recording a corresponding debit adjustment towards its share of profit or loss of the associate.


Question 5 –

Gamma Limited, a parent company, is engaged in manufacturing and retail activities. The group holds investments in different entities as follows:

  • Gamma Limited holds 100% Investment in G Limited and D Limited;
  • G Limited and D Limited hold 60% and 40% in GD Limited respectively;
  • Delta Limited is a 100% subsidiary of GD Limited

Firstly, Gamma Limited wants you to suggest whether GD Limited can avail the exemption from the preparation and presentation of consolidated financial statements as per applicable Ind AS?

Secondly, if all other facts remain the same as above except that G Limited and D Limited are both owned by an Individual (say, Mr. X) instead of Gamma Limited, then explain whether GD Limited can avail the exemption from the preparation and presentation of consolidated financial statements.

Solution –

As per paragraph 4(a) of Ind AS 110, an entity that is a parent shall present consolidated financial statements. This Ind AS applies to all entities, except as follows:

A parent need not present consolidated financial statements if it meets all the following conditions:

  1. it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements;
  2. its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets);
  3. it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and
  4. its ultimate or any intermediate parent produces financial statements that are available for public use and comply with Ind ASs, in which subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with this Ind AS.

In accordance with the above, it may be noted that as per paragraph 4(a)(i) above, a parent need not present consolidated financial statements if it is a:

  • wholly-owned subsidiary; or
  • is a partially-owned subsidiary of another entity and all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements.

Although GD Limited is a partly-owned subsidiary of G Limited, it is the wholly-owned subsidiary of Gamma Limited (and therefore satisfies the condition 4(a)(i) of Ind AS 110 without regard to the relationship with its immediate owners, i.e. G Limited and D Limited). Thus, GD Limited being the wholly owned subsidiary fulfils the conditions as mentioned under paragraph 4(a)(i) and is not required to inform its other owner D Limited of its intention not to prepare the consolidated financial statements.  Thus, in accordance with the above, GD Limited may take the exemption given under paragraph 4(a) of Ind AS 110 from presentation of consolidated financial statements.

In Alternative Scenario, where both G Limited and D Limited are owned by an individual Mr. X, then GD Limited is ultimately wholly in control of Mr. X (i.e., an individual) and hence it cannot be considered as a wholly owned subsidiary of an entity.

This is because Ind AS 110 makes use of the term ‘entity’ and the word ‘entity’ includes a company as well as any other form of entity. Since, Mr. X is an ‘individual’ and not an ‘entity’, therefore, GD Limited cannot be considered as wholly owned subsidiary of an entity.

Therefore, in the given case, GD Limited is a partially-owned subsidiary of another entity. Accordingly, in order to avail the exemption under paragraph 4(a), its other owner, D Limited should be informed about and do not object to GD Limited not presenting consolidated financial statements. Further, for the purpose of consolidation of G Limited and D Limited, GD Limited will be required to provide relevant financial information as per Ind AS.


Question 6 –

On 1st April 2017 Alpha Ltd. commenced joint construction of a property with Gama Ltd. For this purpose, an agreement has been entered into that provides for joint operation and ownership of the property. All the ongoing expenditure, comprising maintenance plus borrowing costs,  is   to   be shared  equally.  The construction was completed on 30th September 2017 and utilisation of the property started on 1st January 2018 at which time the estimated useful life of the same was estimated to be 20 years.

Total cost of the construction of the property was Rs. 40 crores. Besides internal accruals, the cost was partly funded by way of loan of Rs. 10 crores taken on 1st January 2017. The loan carries interest at an annual rate of 10% with interest payable at the end of year on 31st December each year. The company has spent Rs. 4,00,000 on the maintenance of such property.

The company has recorded the entire amount paid as investment in Joint Venture in the books of accounts. Suggest the suitable accounting treatment of the above transaction as the accounting entries as per applicable Ind AS.

Solution –

As provided in Ind- AS 111 – Joint Arrangements – this is a joint arrangement because two or more parties have joint control of the property under a contractual arrangement. The arrangement will be regarded as a joint operation because Alpha Ltd. and Gama Ltd. have rights to the assets and obligations for the liabilities of this joint arrangement. This means that the company and the other investor will each recognise 50% of the cost of constructing the asset in property, plant and equipment.

The borrowing cost incurred on constructing the property should under the principles of Ind AS 23 ‘Borrowing Costs’, be included as part of the cost of the asset for the period of construction.

In this case, the relevant borrowing cost to be included is Rs. 50,00,000 (Rs. 10,00,00,000 x 10% x 6/12).

The total cost of the asset is Rs. 40,50,00,000 (Rs. 40,00,00,000 + Rs. 50,00,000)

Rs. 20,25,00,000 crores is included in the property, plant and equipment of Alpha Ltd. and the same amount in the property, plant and equipment of Gama Ltd.

The depreciation charge for the year ended 31 March 2018 will therefore be Rs. 1,01,25,000 (Rs. 40,50,00,000 x 1/20 x 6/12) Rs. 50,62,500 will be charged in the statement of profit or loss of the company and the same amount in the statement of profit or loss of Gama Ltd. (finance cost for the second half year of Rs. 50,00,000 plus maintenance costs of Rs. 4,00,000) will be charged to the statement of profit or loss of Alpha Ltd. and Gama Ltd. in equal proportions- Rs. 27,00,000 each.


Question 7 –

Entity A holds a 20% equity interest in Entity B (an associate) that in turn has a 100% equity interest in Entity C. Entity B recognised net assets relating to Entity C of Rs. 1,000 in its consolidated financial statements. Entity B sells 20% of its interest in Entity C to a third party (a non-controlling shareholder) for Rs. 300 and recognises this transaction as an equity transaction in accordance with paragraph 23 of Ind AS 110, resulting in a credit in Entity B’s equity of Rs. 100.

The financial statements of Entity A and Entity B are summarised as follows before and after the transaction:

Before
A’s consolidated financial statements
Assets Rs. Liabilities Rs.
Investment in B 200 Equity 200
Total 200 Total 200
B’s consolidated financial statements
Assets Rs. Liabilities Rs.
Assets (from C) 1000 Equity 1000
Total 1000 Total 1000

The financial statements of B after the transaction are summarised below:

After
B’s consolidated financial statements
Assets Rs. Liabilities Rs.
Assets (from C) 1000 Equity 1000
Cash 300 Equity transaction with non-controlling interest 100
Equity attributable to owners 1100
      Non-controlling interest 200
Total 1300 Total 1300

Although Entity A did not participate in the transaction, Entity A’s share of net assets in Entity B increased as a result of the sale of B’s 20% interest in C. Effectively, A’s share in B’s net assets is now Rs. 220 (20% of Rs. 1,100) i.e., Rs. 20 in addition to its previous share.

How is an equity transaction that is recognised in the financial statements of Entity B reflected in the consolidated financial statements of Entity A that uses the equity method to account for its investment in Entity B?

Solution –

Ind AS 28 defines the equity method as “a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the  post-acquisition change in  the investor’s share of the investee’s net assets.  The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income.”

Paragraph 27 of Ind AS 28, states, inter alia, that when an associate or joint venture has subsidiaries, associates or joint ventures, the profit or loss, other comprehensive income, and net assets taken into account in applying the equity  method are  those recognised in  the associate’s  or joint venture’s financial statements (including the associate’s or joint  venture’s share of the  profit or loss, other comprehensive income and net assets of its associates and  joint ventures), after any adjustments necessary to give effect to uniform accounting policies.

The change of interest in the net assets / equity of the associate as a  result of  the investee’s equity transaction is reflected in the investor’s financial statements as ‘share of other changes in equity of investee’ (in the statement of changes in equity) instead of gain in  Statement  of  profit and loss, since it reflects the post-acquisition change in the net assets of the investee as per paragraph 3 of Ind AS 28 and also faithfully reflects the investor’s share of the associate’s transaction as presented in the associate’s consolidated financial statements.

Thus, in the given case, Entity A recognises Rs. 20 as change in other equity instead of in statement of profit and loss and maintains the same classification as of its associate, Entity B, i.e., a direct credit to equity as in its consolidated financial statements.


Question 8 –

AB Limited and BC Limited establish a joint arrangement through a separate vehicle PQR, but the legal form of the separate vehicle does not confer separation between the parties and the separate vehicle itself. Thus, both the parties have rights to the assets and obligations for the liabilities of PQR. As neither the contractual terms nor the other facts and circumstances indicate otherwise, it is concluded that the arrangement is a joint operation and not a joint venture.

Both the parties own 50% each of the equity interest in PQR. However, the contractual terms of the joint arrangement state that AB Limited has the rights to all of Building No. 1 owned by PQR and the obligation to pay all of the debt owed by PQR to a lender XYZ. AB Limited and BC Limited have rights to all other assets in PQR, and obligations for all other liabilities of PQR in proportion of their equity interests (i.e. 50% each).

PQR’s summarized balance sheet is as follows:

(Rs. in crore)

Amount
Building 1 240
Building 2 200
Cash    40
Total Assets  480
Equity 140
Debt owed to XYZ 240
Employee benefit plan obligation  100
Total Liabilities  480

How would AB Limited present its interest in PQR in its financial statements?

Solution –

Paragraph 20 of Ind AS 111 states that “a joint operator shall recognise in relation to its interest in a joint operation:

(a) its assets, including its share of any assets held jointly;

(b) its liabilities, including its share of any liabilities incurred jointly;

(c) its revenue from the sale of its share of the output arising from the joint operation;

(d) its share of the revenue from the sale of the output by the joint operation; and

(e) its expenses, including its share of any expenses incurred jointly.”

The rights and obligations, as specified in the contractual arrangement, that an entity has with respect to the assets, liabilities, revenue and expenses relating to a joint operation might differ from its ownership interest in the joint operation. Thus a joint operator needs to recognise its interest in the assets, liabilities, revenue and expenses of the joint operation on the basis (bases) specified in the contractual arrangement, rather than in proportion of its ownership interest in the joint operation.

Thus, AB Limited would record the following in its financial statements, to account for its rights to the assets of PQR and its obligations for the liabilities of PQR.

Rs. in crore
Assets
Cash 20
Building 1* 240
Building 2 100
Liabilities
Debt owned to XYZ (third party)** 240
          Employees benefit plan obligation 50

* Since AB Limited has the rights to all of Building No. 1, it records the amount in its entirety.

** AB Limited has obligation for the debt owed by PQR to XYZ in its entirety.


Question 9 –

Hold Limited acquired 100% ordinary shares of Rs.100 each of Sub Limited on 1st October, 2017. On 31st March, 2018 the summarized Balance Sheets of the two companies were as given below:

Hold Limited (Rs.) Sub Limited  (Rs.)
Assets
Property, Plant and Equipment
Land & Buildings 30,00,000 36,00,000
Plant & Machinery 48,00,000 27,00,000
Investment in Sub Ltd. 68,00,000
Inventory 24,00,000 7,28,000
Financial Assets
Trade Receivables 11,96,000 8,00,000
Cash 2,90,000 1,60,000
Total 1,84,86,000 79,88,000
Equity & Liabilities
Equity Capital (Shares of Rs. 100 each fully paid) 1,00,00,000 40,00,000
Other Equity
Other Reserves 48,00,000 20,00,000
Retained earnings 11,44,000 16,40,000
Financial Liabilities
Bank Overdraft 16,00,000
Trade Payable 9,42,000 3,48,000
Total 1,84,86,000 79,88,000

The retained earnings of Sub Limited showed a credit balance of Rs.6,00,000 on 1st April, 2017 out of which a dividend of 10% was paid on 1st November 2017. Hold Limited has credited the dividend received to retained earnings account. There was no fresh addition to other reserves in case of both companies during the current financial year. There was no opening balance in the retained earnings in the books of Hold Limited.

Following are the changes in fair value as per respective Ind AS from the book value as on 1st October, 2017 in the books of Sub Limited which is to be considered while consolidating the Balance Sheets.

(i) Fair value of Plant and Machinery was Rs.40,00,000. (Rate of depreciation on Plant and Machinery is 10% p.a.)

(ii) Land and Building appreciated by Rs.20,00,000.

(iii) Inventories increased by Rs.3,00,000.

(iv) Trade payable increased by Rs.2,00,000.

Prepare Consolidated Balance Sheet as on 31st March, 2018. The Balance Sheet should comply with the relevant lnd AS and Schedule III of the Companies Act, 2013.

Solution –

Consolidated Balance Sheet of Hold Ltd. and its subsidiary, Sub Ltd. as on 31st March, 2018

Particulars Note No. Rs.
I.  Assets
(1)  Non-current assets
Property, Plant & Equipment 1 1,72,00,000
(2)  Current Assets
Inventories 2 34,28,000
Financial Assets
Trade Receivables 3 19,96,000
Cash & Cash equivalents 4     4,50,000
Total Assets 2,30,74,000
II. Equity and Liabilities
(1)  Equity
Equity Share Capital 5 1,00,00,000
Other Equity 6 99,84,000
(2)  Current Liabilities
Financial Liabilities
Short term borrowings 7 16,00,000
Trade Payables 8    14,90,000
Total Equity & Liabilities 2,30,74,000

 Notes to accounts

Rs.
1. Property Plant & Equipment
Land & Building 86,00,000
Plant & Machinery 86,00,000 1,72,00,000
2. Inventories
Hold Ltd. 24,00,000
Sub Ltd. 10,28,000 34,28,000
3. Trade Receivables
Hold Ltd. 11,96,000
Sub Ltd. 8,00,000 19,96,000
4. Cash & Cash equivalents
Hold Ltd. 2,90,000
Sub Ltd. 1,60,000 4,50,000
7. Short-term borrowings
Bank overdraft of Hold Ltd. 16,00,000
8. Trade Payables
Hold Ltd. 9,42,000
Sub Ltd. 5,48,000 14,90,000

Statement of changes in Equity:

Equity share Capital

Balance at the beginning of the reporting period Changes in Equity share capital during the year Balance at the end of the reporting period
1,00,00,000 0 1,00,00,000

Other Equity

Reserves & Surplus

Total

Capital Reserve Other reserves Retained Earnings
Balance at the beginning 48,00,000 0 48,00,000
Profit or loss for the year (W.N.4)

Other comprehensive income for the year

Total comprehensive income for the year

0

          0

          0

14,14,000

         0

14,14,000

14,44,000

         0

14,14,000

Dividends 0 0 0
Gain on Bargain purchase on acquisition of a subsidiary* (W.N.5)  

 

37,70,000

 

 

           

 

 

           

 

 

37,70,000

Balance at the end of reporting period  

37,70,000

 

48,00,000

 

14,14,000

 

99,84,000

Working Notes:

1. Adjustments of Fair Value- Total Appreciation

Rs.
Plant & Machinery (W.N.7) 11,50,000
Land and Building 20,00,000
Inventories 3,00,000
Less: Trade Payables (2,00,000)
32,50,000

 2. Pre-acquisition reserves of Sub Ltd.

Rs.
Other Reserves on 1.4.2017 20,00,000
Retained earnings Balance on 1.4.2017 6,00,000
Retained earnings balance as on 31.3.2018  16,40,000
Less: Retained earnings balance as on 1.4.2017 Add back: Dividend  (6,00,000)

 4,00,000

Profit for the year 2017-2018  14,40,000
Profit for 6 months (14,40,000 x 6/12)   7,20,000
Share of Hold Ltd. 33,20,000

There will be no Non-controlling Interest as 100% shares of Sub Ltd. Are held by  Hold Ltd.

3. Post-acquisition profits of Sub Ltd.

Rs.

Profit for 6 months from 1.10.2017 to 31.3.2018 (14,40,000 x 6/12) 7,20,000
Less: Additional depreciation on account of revaluation of Plant and Machinery for 6 months [(40,00,000 x 10% x 6/12) – (30,00,000 x 10% x 6/12)]  (50,000)
Adjusted post-acquisition profit attributable to Hold Ltd. 6,70,000

4. Consolidated profit or loss for the year

Hold Ltd. Rs.
Retained earnings on 31.3.2018 11,44,000
Less: Retained earnings as on 1.4.2017         (0)
Profits for the year 2017-2018 11,44,000
Less: Elimination of intra-group dividend (4,00,000)
Adjusted profit for the year 7,44,000
Sub Ltd.
Adjusted profit attributable to Hold Ltd. (W.N.3) 6,70,000
Consolidated profit or loss for the year 14,14,000

5. Goodwill/ Gain on bargain purchase

Rs.

Amount paid for 40,000 shares of Sub Ltd. 68,00,000
Less: Share of Hold Ltd. in pre-acquisition equity of Sub Ltd.

Share capital

  

40,00,000

Pre-acquisition reserves of Sub Ltd. (W.N.2) Fair value adjustments (W.N.1) 33,20,000

32,50,000

 

(1,05,70,000)

Gain on Bargain Purchase     37,70,000

6. Value of Plant & Machinery

Rs.

Hold Ltd. 48,00,000
Sub Ltd.  Book value  as on 31.3.2018     27,00,000
Book value as on 1.4.2017 (27,00,000/90%) 30,00,000
Less: Depreciation @ 10% for 6 months (1,50,000)
 

Add: Appreciation on 1.10.2017

(Balancing fig. i.e., 40,00,000 – 28,50,000)

28,50,000
11,50,000
Revalued amount (given) 40,00,000
Less: Depreciation on Rs. 40,00,000 @ 10% for 6 months (2,00,000) 38,00,000
86,00,000

7. Consolidated retained earnings

Hold Ltd. Sub Ltd. Total
As given 11,44,000 16,40,000 27,84,000
Consolidation Adjustments:
(i)  Elimination of pre-acquisition element [6,00,000 + 7,20,000] 0 (13,20,000) (13,20,000)
(ii) Elimination of intra-group dividend (4,00,000) 4,00,000 0
(iii) Impact of fair value adjustments         0 (50,000) (50,000)
Adjusted retained earnings consolidated 7,44,000 6,70,000 14,14,000

Note: The above solution has been drawn by making following assumptions, at required places:

(i) Hold Ltd. measures the investment in Sub Ltd. at cost (less impairment, if any) in its separate financial statements as permitted in Ind AS 27, Separate Financial Statements.

(ii) Increase in land and buildings represents only land element.

(iii) Depreciation on plant and machinery is on WDV method.

(iv) Fair value adjusted trade payables continue to exist on 31.3.2018.

(v) Inventories are valued at cost, being lower than NRV and that application of cost formula for the purposes of consolidated financial statements results in entire fair value adjustment to be included in the carrying amount of inventories of Sub Ltd. on 31.3.2018.


Question 10 –

XYZ Limited acquired 70% of equity shares of TUV Limited on 1st April, 2010 at cost of Rs.20,00,000 when TUV Limited had an equity share capital of Rs.20,00,000 and reserve and surplus of Rs.1,60,000. In the four consecutive years, TUV Limited, fared badly and suffered losses of Rs.5,00,000, Rs.8,00,000, Rs.10,00,000 and Rs.2,40,000 respectively. Thereafter in 2014-15, TUV Limited, experienced turnaround and registered an annual profit of Rs.1,00,000. In the next two years i.e. 2015-16 and 2016-17, TUV Limited recorded annual profits of Rs.2,00,000 and Rs.3,00,000 respectively. Calculate the Non controlling interests and cost of control at the end of each year for the purpose of consolidation, as per Ind AS 110 “Consolidated Financial Statements”.

Solution –

1) Date of Acquisition 1/4/2010

Acquirer – XYZ Ltd.

Acquiree – TUV Ltd.

% Acquired = 70%

NCI = 30%

2) Calculation of cost of control on 1/1/2010

Consideration paid (70%) 20,00,000
+ NCI (At Proportional share)  (30%) 6,48,000
26,48,000
– FV of NA (20,00,000 + 1,60,000) (100%) (21,60,000)
Goodwill 4,88,000

3) NCI and Cost of Control at end of each year as per Ind AS 110.

Details P/L NCI Holding Goodwill
01/04/2010 6,48,000 4,88,000
2010-11 (5,00,000) (1,50,000) (3,50,000)
31/3/2011 4,98,000 4,88,000
2011-12 (8,00,000) (2,40,000) (5,60,000)
31/3/2012 2,58,000 4,88,000
2012-13 (10,00,000) (3,00,000) (7,00,000)
31/3/2013 (42,000) 4,88,000
2013-14 (2,40,000) (72,000) (1,68,000)
3/3/2014 (1,14,000) 4,88,000
2014-15 1,00,000 30,000 70,000
31/3/2015 (84,000) 4,88,000
2015-16 2,00,000 60,000 1,40,000
31/3/2016 (24,000) 4,88,000
2016-17 3,00,000 90,000 2,10,000
31/3/2017 66,000 4,88,000

Note :

1) P/L in subsequent yrs after acquisition does not have any impact on goodwill. Goodwill should be checked for impairment every year.

2) As per Ind AS 21 loss of subsidiary should be born by holding and minority interest will not be shown negative.

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