CHAPTER - 14 Consolidated and Separate Financial Statements of Group Entities Question 1 DEF Ltd, acquired 100% ordinary shares of € 100 each of XYZ Ltd. on 1% October 20X1. On March 31, 20X2 the summarised Balance Sheets of the two companies were as given below: DEF Ltd. XYZ Ltd. | Assets Property Plant Equipment Land & Buildings 15,00,000 18,00,000 Plant & Machinery 24,00,000 13,50,000 Investment in XYZ Ltd. 34,00,000 “ Inventory 12,00,000 3,64,000 Financial Assets ‘Trade Receivable 5,98,000 4,00,000 Cash 145,000 80,000 ‘Total 92,43,000 39,94,000 Equities & Liabilities Equity Capital (Shares of € 100 each fully paid) 50,00,000 20,00,000 Other Equity Other reserves 24,00,000 10,00,000 Retained Earnings 5,72,000 820,000 Financial Liabilities Bank Overdraft 8,00,000 - ‘Trade Payable 471,000 1,74,000 Total 972,43,000 39,94,000 ‘The retained earnings of XYZ Ltd, showed a credit balance of % 3,00,000 on 1* April 20X1 out of which a dividend of 10% was paid on 1 November; DEF Ltd. has recognised the dividend received to profit or loss account; Fair Value of P&M as on 1* October 20X1 was € 20,00,000. The rate of depreciation on plant & machinery is 10%. Following are the Increases on comparison of Fair value as per respective Ind AS with Book value as on 4s" October 20X1 which are to be considered while consolidating the Balance Sheets. Liabilities ‘Amount | Assets ‘Amount ‘Trade Payables 1,00,000 | Land & Buildings 10,00,000 Inventories 1,50,000 Note: 1 It may be assumed that the inventory is still unsold on balance sheet date and the Trade Payables are also not yet settled. ee BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.1Consolidated and Separate Financial Statements of Group Entities 2. Also assume that the Other Reserves of both the companies as on 31% March 20X2 are the same ‘as was on 1s April 20X1, 3. Allfair value adjustments have not yet started impacting consolidated post-acquisition profits. Prepare consolidated Balance Sheet as on March 31, 20X2. Answer Consolidated Balance Sheet of DEF Ltd. and its subsidiary, XYZ Ltd. on 31st March, 20X2 Particulars Note No. x 1 Assets (1) Non-currentassets (i) Property Plant & Equipment a 86,00,000 (2) Current Assets (Inventories 2 17,14,000 (ii) Financial Assets (a) Trade Receivables 3 9,98,000 (b) Cash & Cash equivalents 4 2,25,000 Total Assets 1,15,37,000 I. Equity and Liabilities QQ) Equity (Equity Share Capital 5 50,00,000 (il) Other Equity 6 49,92,000 (2) Current Liabilities (Financial Liabilities (a) Trade Payables 7 7,45,000 (>) _ Short term borrowings 8 8,00,000 Total Equity & Liabilities 1,15,37,000 Notes to Accounts x 1. | Property Plant & Equipment Land & Building 43,00,000 Plant & Machinery 43,00,000 86,00,000 2. | Inventories DEF Ltd, 12,00,000 XYZ Ltd. 514.000 17,14,000 3, | Trade Receivables DEF Ltd, 5,98,000 SSS... AIRICA Career Institute (ACI) Page 14.2Consolidated and Separate Financial Statements of Group Entities XYZ Ltd. Cash & Cash equivalents DEF Ltd. XYZ Ltd. ‘Trade payable DEF Ltd, XYZ Ltd. Shorter-term borrowings Bank overdraft 4.00,000 145,000 20,000 4,71,000 2.24,000 9,98,000 2,25,000 7,45,000 8,00,000 Statement of Changes in Equity: Ls Equity share Capital Balance atthe beginning of | Changes in Equity share | Balance at the end of the the reporting period capital during the year reporting period 50,00,000 0 50,00,000 Other Equity Share Equity Reserves & Surplus Total application | component |“ Capital | Retained | Other money of reserve | Earnings | Reserves pending | compound allotment | financial instrument Balance Ne "eae 0 | 2400,000 | 24,00,000 beginning Total comprehensive o 5,72,000 5,72,000 income for the year Dividends 0 (2,00,000) (2,00,000) ‘Total comprehensive Income © | 335,000 3,35,000 attributable to parent Gain on Bargain purhare 18,85,000 185,000 Balance at end of reporting 18,85,000 | 707,000 | 24,00,000 | 49,92,000 period BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.3Consolidated and Separate Financial Statements of Group Entities It is assumed that there exists no clear evidence for classifying the acquisition of the subsidiary as a bargain purchase and, hence, the bargain purchase gain has been recognized directly in capital reserve, If, however, there exists such a clear evidence, the bargain purchase gain would be recognized in other comprehensive income and then accumulated in capital reserve. In both the cases, closing balance of capital reserve will be € 18,85,000. Working Notes: 1. Adjustments of Fair Value ‘The Plant & Machinery of XYZ Ltd. would stand in the books at € 14,25,000 on 1* October, 20X1, considering only six months’ depreciation on % 15,00,000 total depreciation being ¥ 1,50,000. The value put on the assets being & 20,00,000 there is an appreciation to the extent of € 5,75,000. 2, Acquisition date profits of XYZ Ltd. x Reserves on 1.4.20X1 10,00,000 Profit & Loss Account Balance on 1.4.20X1 3,00,000 Profit for 20X2: Total % 8,20,000 less & 1,00,000 (3,00,000 ~ 2,00,000) ie. & 7,20,000; for 6 months ie. upto 1.10.20X1 3,60,000 Total Appreciation including machinery appreciation (10,00,000 + 1,50,000 + 5,75,000 - 1,00,000) 16.25,000 Share of DEF Ltd. 32,85,000 3. Post-acquisition profits of XYZ Ltd. x Profit after 1.10.20X1 [8,20,000 ~ 1,00,000] x 6/12 3,60,000 Less: 10% depreciation on € 20,00,000 for 6 months less depreciation already charged for 24 half of 20X1-20X2 on % 15,00,000 (1,00,000 ~ 75,000) (25,000) Share of DEF Ltd. 3,35,000 4. Consolidated total comprehensive income x DEF Lid. Retained earnings on 31.3.20X2 5,72,000 Less: Retained earnings as on 1.4.20X1 o Profits for the year 20X1-20X2 5,72,000 Less: Elimination of intra-group dividend (2,00,000) Adjusted profit for the year 3,72,000 XYZLtd, Adjusted profit attributable to DEF Ltd. (W.N.3) 3.35,000 Consolidated profit or loss for the year 7,07,000 5. _ NoNon-controlling Interestas 100% shares of XYZ Ltd. are held by DEF Ltd. 6. Gain on Bargain Purchase x —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.4Consolidated and Separate Financial Statements of Group Entities ‘Amount paid for 20,000 shares 34,00,000 Par value of shares 20,00,000 DEF Ltd’s share in acquisition date profits of XYZ Ltd 32,85,000 (52,85,000) Gain on Bargain Purchase 18,85,000 7. Value of Plant & Machinery x DEF Ltd, 24,00,000 XYZ Ltd. 13,50,000 ‘Add: Appreciation on 1.10.20X1 5.25000 19,25,000 Add; Depreciation for 2” half charged on pre-revalued 75,000 value Less: Depreciation on & 20,00,000 for 6 months (4,00,000) 19,00,000 43,00,000 8 Consolidated retained earnings x DEFLtd.| XYZ Ltd. Total Asgiven 5,72,000| 820,000! — 13,92,000 Consolidation Adjustments: (Elimination of pre-acquisition element: | (6,60,000) | (6,60,000) [3,00,000 + 3,60,000] (ii) Elimination of intra-group dividend (2,00.000)| —_2,00,000 0 (ii) Impact of fair value adjustments 0| —_(25,000)| (25,000) Adjusted retained earnings consolidated 3,72,000| 335,000] _7,07,000 Assumptions: 1, Investment in XYZ Ltd is carried at cost in the separate financial statements of DEF Ltd. 2. Appreciation of € 10 lakhs in land & buildings is entirely attributable to land element only. 3, Depreciation on plant and machinery is on WDV method. 4. Acquisition-date fair value adjustment to inventories of XYZ L.td. existing at the balance sheet date does not result in need for any write-down, Question 2 Ram Ltd. acquired 60% ordinary shares of € 100 each of Krishan Ltd. on 1% October 20X1.On March 31, 20X2 the summarised Balance Sheets of the two companies were as given below: Ram Ltd. Krishan Ltd. Assets Property, Plant and Equipment BY CA AJAY AGARWAL (AL 4) AIRICA Career Institute (ACI) Page 14.5Consolidated and Separate Financial Statements of Group Entities Land & Buildings 3,00,000 3,60,000 Plant & Machinery 480,000 270,000 Investment in Krishan Ltd. 8,00,000 - Inventory 2,40,000 72,800 Financial Assets Trade Receivables 119,600 80,000 Cash 29,000 16,000 Total 19,68,600 7,98,800 Equity & Liabilities Equity Capital (Shares of € 100 each fully paid) 10,00,000 4,00,000 Other Equity Other Reserves 6,00,000 2,00,000 Retained earnings 114,400 1,64,000 Financial Liabilities Bank Overdraft 1,60,000 7 ‘Trade Payable 94,200 34,800 Total 19,68,600 7,98,800 The Retained earnings of Krishan Ltd. showed a credit balance of % 60,000 on 1* April 20X1 out of which a dividend of 10% was paid on 1* November; Ram Ltd. has credited the dividend received to its Retained earnings; Fair Value of P&M as on 1* October 20X1 was € 4,00,000; The rate of depreciation on plant & machinery is 10%. Following are the increases on comparison of Fair value as per respective Ind AS with book value as on ‘1 October 20X1 which are to be considered while consolidating the Balance Sheets. Liabilities Amount | Assets Amount ‘Trade Payables 20,000 | Land & Buildings 2,00,000 Inventories 30,000 Note: 1. Itmay be assumed that the inventory is still unsold on balance sheet date and the Trade Payables are also not yet settled. 2. Also assume that the Other Reserves as on 315 March 20X2 are the same as was on 1st April 20X1 Prepare consolidated Balance Sheet as on March 31, 20X2. Answer Consolidated Balance Sheet of Ram Ltd. and its subsidiary, Krishan Ltd. as on 31" March, Z0X2 Particulars Note No. x 1. Assets —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.6Consolidated and Separate Financial Statements of Group Entities (1) Non-currentassets (Property, Plant & Equipment 1 17,20,000 Gil) Goodwill 2 1,65,800 (2) Current Assets () Inventories 3 342,800 (il) Financial Assets (a) Trade Receivables 4 1,99,600 (b) Cash & Cash equivalents 5 45,000 Total Assets 24,73.200 I. Equity and Liabilities (1) Equity (Equity Share Capital 6 10,00,000 (ii) Other Equity 7 7,30,600 (2) Non-controlling Interest (WN 5) 433,600 (3) Current Liabilities () Financial Liabilities (a) Trade Payables 8 1,49,000 (b) Short term borrowings 9 1.60,000 Total Equity & Liabilities 24,73,200 Notes to accounts x 1. | Property Plant & Equipment Land & Building 8,60,000 Plant & Machinery 8,60,000 17,20,000 2. | Goodwill 1,65,800 3. | Inventories Ram Ltd. 2,40,000 Krishan Ltd, 1,02,000 342,800 4, | Trade Receivables Ram Ltd. 119,600 Krishan Ltd, 20,000 1,99,600 5. | Cash & Cash equivalents Ram Ltd. 29,000 Krishan Ltd. 16,000 45,000 8, | Trade Payables —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.7Consolidated and Separate Financial Statements of Group Entities Ram Ltd. Krishan Ltd, Bank overdraft Short-term borrowings 94,200 54.800 149,000 1,60,000 Statement of Changes in Equity: 6. 7 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 10,00,000 0 10,00,000 Other Equity Share application money Equity component Reserves & Surplus ‘Total Capital | Retained | Other reserve | Earnings | Reserves Balance at the beginning of the reporting period ‘Total comprehensive income for the year Dividends ‘Total comprehensive income attributable to parent Gain on Bargain purchase 0 6,00,000 0) 114,400 0 (24,000) 0 40,200 6,00,000 1,14,400 (24,000) 40,200 Balance at end of reporting period Working Notes: Adjustments of Fair Value The Plant & Machinery of Krishan Ltd. would stand in the books at % 2,85,000 on 1 October, 20X1, considering only six months’ depreciation on & 3,00,000 total depreciation being & 30,000. ‘The value put on the assets being € 4,00,000 there is an appreciation to the extent of € 1,15,000. Acquisition date profits of Krishan Ltd. 1 130,600 | 6,00,000 7,30,600 BY CA AJAY AGARWAL (AL 4) AIRICA Career Institute (ACI) Page 14.8Consolidated and Separate Financial Statements of Group Entities Reserves on 14,20X1 2,00,000 Profit & Loss Account Balance on 1.4.20X1 60,000 Profit for 20X1-20X2: Total (¥ 1,64,000 less € 20,000) x 6/12 i.e. % 72,000; 72,000 upto 1.10.20X1 ‘Total Appreciation 3.25,000 ‘Total 657,000 Holding Co. Share (60%) 3,94,200 3. Post-acquisition profits of Krishan Ltd. Profit after 1.10,20X1 [1,64,000 - 20,000] x6/12 72,000 Less: 10% depreciation on % 4,00,000 for 6 months less depreciation (5,000) already charged for 2 half of 20X1-20X2 on € 3,00,000 (20,000 ~ 15,000) Total 67,000 Share of holding Co, (60%) 40,200 4. Non-controlling Interest Par value of 1,600 shares 1,60,000 Add: 2/5 Acquisition date profits (6,57,000 - 40,000) 246,800 2/5 Post-acquisition profits [WN 4] 26,800 4,33,600 Goodwill: “Amount paid for 2,400 shares 8,00,000 Par value of shares 2,40,000 Acquisition date profits share of Ram Ltd. 3.24,200 (6,34,200) Goodwill 1,65,800 6. Value of Plant & Machinery: Ram Ltd. 4,80,000 Krishan Ltd, 270,000 Add; Appreciation on 1,10,20X1 115,000 3,85,000 ‘Add; Depreciation for 2»¢half charged on pre-revalued 15,000 value Less: Depreciation on & 4,00,000 for 6 months (20,000) 3,80,000 8,60,000 7. Profit & Loss account consolidated —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.9Consolidated and Separate Financial Statements of Group Entities Ram Ltd, (as given) 114,400 Less: Dividend (24,000) 90,400 Share of Ram Ltd. in post-acquisition profits 40,200 1,30,600 Question 3 Summarized Balance Sheets of PN Ltd. and SR Ltd. as on 31 March 20X2 were given as below: (Amount in %) Particulars PN Ltd, SR Ltd, Assets Land & building 4,68,000 5,61,600 Plant & Machinery 748,800 4,21,200 Investment in SR Ltd. 12,48,000 - Inventories 3,74,400 1,13,600 ‘Trade Receivables 1,86,500 1,24,800 Cash & Cash equivalents 45,200 24,900 ‘Total Assets 30,70,900 12,46,100 Equity & Liabilities Equity Share Capital (Shares of € 100 each fully paid) 15,60,000 624,000 Other Reserves 9,36,000 3,12,000 Retained Earnings 178,400 255,800 ‘Trade Payables 1,46,900 34,300 Short-term borrowings 2,49,600 20,000 ‘Total Equity & Liabilities 30,70,900 12,46,100 (i) PN Ltd. acquired 70% equity shares of € 100 each of SR Ltd.on 1 October 20X1. (ii) The Retained Earnings of SR Ltd. showed a credit balance of € 93,600 on 1 April 20X1 out of which a dividend of 12% was paid on 15 December 20X1. (il) PN Ltd. has credited the dividend received to its Retained Earnings. (iv) Fair value of Plant & Machinery of SR Ltd. as on 1 October 20X1 was % 6,24,000, The rate of depreciation on Plant & Machinery was 10% pa. (v) Following are the increases on comparison of Fair Value as per respective Ind AS with book value as on 1 October 20X1 of SR Ltd. which are to be considered while consolidating the Balance Sheets: (a) Land & Buildings & 3,12,000 (b) Inventories & 46,800 (0 Trade Payables % 31,200 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.10Consolidated and Separate Financial Statements of Group Entities (vl). The inventory is still unsold on Balance Sheet date and the Trade Payables are not yet settled. (vii) Other Reserves as on 31 March 20X2 are the same as was on 1 April 20X1. (vill) The business activities of both the company are not seasonal in nature and therefore, it can be assumed that profits are earned evenly throughout the year; Prepare the Consolidated Balance Sheet as on 31 March 20X2 of the group of entities PN Ltd. and SR Ltd. Answer Consolidated Balance Sheet of PN Ltd. and its subsidiary SR Ltd. as on 31 March 20X2 Particulars Note No. x Ill. Assets (1) Non-currentassets () Property, Plant & Equipment 1 26,83,200 (ii) Goodwill 2 99,402 (2) Current Assets (2) Inventories 3 534,800 (i) Financial Assets (a) Trade Receivables 4 311,300 (b) Cash & Cash equivalents 5 20,100 Total Assets 36,88,802 IV. Equity and Liabilities (1) Equity (Equity Share Capital 15,60,000 (il) Other Equity 11,39,502, (2) Non-controlling Interest (W.N.3) 5,07,300 (3) Current Liabilities (i) Financial Liabilities (a) Trade Payables 212,400 (b) Short term borrowings 269,600 Total Equity & Liabilities 36,88,802 Notes to accounts x 1. Property, Plant & Equipment Land & Building (4,68,000 + 5,61,600 + 3,12,000) 13,41,600 Plant & Machinery (W.N.5) 13,41,600 26,83,200 2. | Goodwill (W.NA) 99,402 SSS. ee —— AIRICA Career Institute (ACI) Page 14.11Consolidated and Separate Financial Statements of Group Entities 3. | Inventories PN Ltd, 3,74,400 SR Ltd. (1,13,600 + 46,800) 1,60,400 5,34,800 4, Trade Receivables PN Ltd, 1,86,500 SR Ltd. 1.24,800 3,11,300 5. Cash & Cash equivalents PN Ltd. 45,200 SR Ltd. 24,900 70,100 8 Trade Payables PN Ltd. 1,46,900 SR Ltd. (34,300 + 31,200) 95,500 2,12,400 9, | Short-term borrowings PN Ltd, 2,49,600 SR Ltd. 20,000 269,600 Statement of Changes in Equity: 6. Equity share Capital Balance at the beginning of | Changes in Equity share | Balance atthe end of the the reporting period capital during the year reporting period 15,60,000 o 15,60,000 7. Other Equity Reserves & Surplus Total (%) Capital | Retained | Other reserve | Earnings | Reserves qt x x Balance at beginning of the reporting period 0 | 9,36000 | 9,36,000 ‘Total comprehensive income for the year 0 1,78,400 1,78,400 Dividends 0 (52416) (52/416) Total comprehensive income attributable to} 0 77,518 77518 parent (W.N.2) Gain on Bargain purchase 0 0 Balance at the end of reporting period 0 2,03,502 | 936,000 | 11,39,502 Working Notes: 8. Adjustments of Fair Value ‘The Plant & Machinery of SR Ltd. would stand in the books at € 4,44,600 on 1 October, 20X1, considering only six months’ depreciation on % (4,21,200/90%) 4,68,000; total depreciation BY CA AJAY AGARWAL (AL 4) AIRICA Career Institute (ACI) Page 14.12% 10. 11. 12. 13. Consolidated and Separate Financial Statements of Group Entities being € 4,68,000 x 10% x 6/12 = 23,400. Being the fair value of the asset % 6,24,000, there is an appreciation to the extent of 8 1,79,400 (8 6,24,000 - & 4,44,600). Acquisition date profits of SR Ltd, Reserves on 1.4.20X1 Profit & Loss Account Balance on 1.4.20X1 Profit for 20X1-20X2: Total [¥ 2,55,800 ~ (93,600 ~ 74,880)] x 6/12 ie. & 1,18,540 upto 1.10.20X1 ‘Total Appreciation ‘Total Holding Co. Share (70%) NCI 3.12,000 93,600 118,540 5,07,000* 10,31,140 721,798 3,09,342 1,79,400 - Trade Payables (8 31,200) = & 5,07,000, Post-acquisition profits of SR Ltd. “Appreciation = Land & Building € 3,12,000 + Inventories % 46,800 + Plant & Machinery ‘Ada: 30% Acquisition date profits [(10,31,1 40 ~ 74,880) x 30%] 30% Post-acquisition profits [W.N.2] Profit after 1.10.20X1 [2,55,800 - (93,600~ 74,880)] x 6/12 1,18,540 Less: 10% depreciation on % 6,24,000 for 6 months less depreciation (7,800) already charged for 2 half of 20X1-20X2 on & 4,68,800 (ie. 31,200 ~ 23,400) ‘Total 1,10,740 Share of holding Co, (70%) 77,518 Share of NCI (30%) 33,222 Non-controlling Interest Par value of 1,872 shares 1,87,200 Goodwill: ‘Amount paid for 4,368 shares 12,48,000 Less: Par value of shares 4,36,800 Acquisition date profits-share of PN Ltd. (W.N.1) 221,298 (11,58,598) Goodwill 99,402 Value of Plant & Machinery: PN Ltd. 7,48,800 SR Ltd. 421,200 ‘Add: Appreciation on 1.10.20X1 11.29,400 BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.13Consolidated and Separate Financial Statements of Group Entities 6,00,600 ‘Ada; Depreciation for 2nd half charged on pre-revalued 23,400 value Less: Depreciation on & 6,24,000 for 6 months 1200) 5,92,800 13,41,600 14. Consolidated Profit & Loss account PN Ltd. (as given) 1,78,400 Less: Dividend (52416) 1,25,984 Share of PN Ltd. in post-acquisition profits (W.N.2) 77,518 203,502 Question 4 On 31 March 20X2, Blue Heavens Ltd, acquired 100% ordinary shares carrying voting rights of Orange County Ltd. for % 6,000 lakh in cash and it controlled Orange County Ltd. from that date. The acquisition-date balance sheet of Blue Heavens Ltd. and Orange County Ltd. and the fair values of the assets and liabilities recognised on Orange County Ltd. balance sheet were: Blue Heavens Ltd. Orange County Ltd. Carrying Amount | Carrying Amount | Fair Value (in takh) (in lakh) (Xin lakh) Assets Non-current assets Building and other PPE 7,000 3,000 3,300 Investment in Orange County Ltd. 6,000 Currentassets Inventories 700 500 600 Trade receivables 300 250 250 Cash 1,500 700 700 Total assets 15,500 4,450 Equity and liabilities Equity Share capital 5,000 2,000 Retained earnings 10,200 2,300 Currentlliabilities Trade payables 300 150 150 ‘Total liabilities and equity 15,500 4,450 SSS. ee —— AIRICA Career Institute (ACI) Page 14.14Consolidated and Separate Financial Statements of Group Entities Prepare the Consolidated Balance Sheet as on March 31, 20X2 of group of entities Blue Heavens Ltd. and Orange County Ltd. Note: Presentall calculations in & lakh Answer Blue Heavens Ltd. consolidated balance sheet at 31 March 20X2 will be calculated as follows: (in lakhs) Blue Heavens | Orange County | Consolidation | Consolidated Ltd. Lid. adjustments | Blue Heavens Ltd. Carrying carrying amount amount Assets Non-current assets Goodwill 1,300 (WN1) 1,300 Buildings and other PPE 7,000 3,000 300 10,300 Financial Assets Investment in Orange} 6,000 (6000) County Ltd. Currentassets Inventories 700 500 100 1,300 Financial Assets ‘Trade receivables 300 250 550 Cash 1,500 700 2200 Total assets 15,500 4,450 15,650 Equity and liabilities Equity Share capital 5,000 2,000 (2,000) 5,000 Other Equity 10,200 2,300 (2300) 10,200 Trade payable 300 150 450 Total liabilities and equity | 15,500 4,450 15,650 Consolidation involves: + Adding the balance sheet of the parent and its subsidiary together line by line, * Eliminating the carrying amount of the parent’s investment in the subsidiary (because it is replaced by the goodwill and the fatr value of the assets, liabilities and contingent liabilities acquired) and the pre-acquisition equity of the subsidiary (because that equity was not earned or contributed by the group but is part of what was purchased) and recognising the fair value adjustments together with the goodwill asset that arose on acquisition of the subsidiary, 1, Working for goodwill: Consideration paid (®in lakhs) 6,000 BY CA AJAY AGARWAL (AL 4) AIRICA Career Institute (ACI) Page 14.15Consolidated and Separate Financial Statements of Group Entities Less: Acquisition date fair value of Orange County Ltd. net assets (4.200) Goodwill 41.300 2. Working for the acquisition date fair value of acquiree (Orange County Ltd.) net assets: Buildings and other PPE 3,300 Inventories 600 ‘Trade receivables 250 Cash. 700 Less: fair value of trade payables (150) Fair value of net assets acquired 4,700 Question 5 ‘The facts are the same as in Question 4 above, However, Blue Heavens Ltd. acquires only 75% of the ordinary shares, to which voting rights are attached of Orange County Ltd. Blue Heavens Ltd. pays & 4,500 lakhs for the shares. Prepare the Consolidated Balance Sheet as on March 31, 20X2 of group of entities Blue Heavens Ltd. and Orange County Ltd. Note: Presentall calculations in ® lakh Answer Non-controlling interest = 25% x Orange County Ltd. identifiable net assets at fair value of € 4,700 284175 Blue Heavens Ltd. consolidated balance sheet at 31 March 20X2 will be calculated as follows: (in lakhs) Blue Heavens | Orange County | Consolidation | Consolidated lid. Lid. adjustments | Blue Heavens Ltd. Carrying Carrying amount amount Assets Non-current assets Goodwill ‘975 (WN 1) 975 Buildings and other PPE 7,000 3,000 300 10,300 Financial Assets Investment in Orange| 4,500 (4500) County Ltd. Currentassets Inventories 700 500 100 1,300 Financial Assets Trade receivables 300 250 550 SS. AIRICA Career Institute (ACI) Page 14.16Consolidated and Separate Financial Statements of Group Entities Cash 3,000 700 3,700 Total assets 15,500 4,450 16,825 Equity and liabilities Equity 5,000 2,000 (2,000) 5,000 Share capital 10,200 2,300 (2,300) 10,200 Other Equity 475 4175 Non-controlling interest Currentliabilities Financial Liabilities Trade payables 300 150 450 ‘Total liabilities and equity | 15,500 4,450 16,825 Note: In this question, Blue Heavens Ltd.'s (and consequently the group's) cash balance is ® 1,500 lakh higher than in Question above because, in this question, Blue Heavens Ltd, paid € 1,500 less to acquire Orange County Ltd, (i. & 6,000 less & 4,500), Working for goodwill: (Cin lakhs) Consideration paid 4,500 Non-controlling interest L175 Less: Acquisition date fair value of Orange County Ltd. net assets (cal. as above) 4.700 Goodwill 225, (Goodwill recognized in the consolidated balance sheet relates solely to the acquirer's proportion of the subsidiary; it does not include the non-contralling interest’s share). Question 6 Facts are same as in Question 4 and 5 above, Blue Heavens Ltd. acquires 75% of Orange County Ltd. Blue Heavens Ltd. pays & 4,500 lakhs for the shares. At 31 March 20X3, i, one year after Blue Heavens Ltd, acquired Orange County Ltd, the individual balance sheets and statements of profit and loss of Blue Heavens Ltd, and Orange County Ltd. are: Blue Heavens Ltd. | Orange County Ltd. Carrying Amount | Carrying Amount (Cin lakh) (in lakh) Assets Non-current assets PPE (Building and others) 6500 2.750 Investment in Orange County Ltd. 4500 1.000 2250 Currentassets Inventories 800 550 BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.17Consolidated and Separate Financial Statements of Group Entities Financial Asset ~ Trade receivables 380 300 Cash, 4.170 1.420 5350 2270 Total assets 16,350 5,020 Equity and liabilities Equity Share capital 5,000 2,000 Retained earnings 41.000 2.050 16,000 4,950 Currentlliabilities Financial Liabilities - Trade payables 350 120 350 170 ‘Total liabilities and equity 16,350 5,020 Statements of Profit and Loss for the year ended 31 March 20X3: Blue Heavens Ltd. | Orange County Ltd. Carrying Amount | Carrying Amount Gin lakh) (in lakh) Revenue 3.000 1,900 Cost of sales (1,800) (4,000) Administrative expenses (400) (350) Profit for the year 800 550 Blue Heavens Ltd. estimates that goodwill has impaired by % 98 lakh. The fair value adjustment to buildings and other PPE isin respect of a building; all buildings have an estimated remaining useful life of 20 years from 31 March 20X2 and estimated residual values of zero. Blue Heavens Ltd, uses the straight-line method for depreciation of PPE. All the inventory held by Orange County Ltd. at 31 March 20X2 was sold during 20X3. Prepare the Consolidated Balance Sheet as on March 31, 20X3 of group of entities Blue Heavens Ltd. and Orange County Ltd. Note: Present all calculations in & lakh (rounded off to nearest & in lakh) Answer Alternative I for calculation of Non-controlling Interest: ‘The Non-controlling Interest proportion of Orange County Ltd. is 25%. At31 March 20X3, the NCI in the consolidated balance sheet would be calculated as: (lakh) NCI at date of acquisition (31 March 20X2) (see solution to Question 5) 4175 NCI's share of profit for the year ended 31 March 20X3, being 25% of & 435 lakh 109 ——_—_—_———————————— BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.18Consolidated and Separate Financial Statements of Group Entities (being % 550 profit of Orange County Ltd. as per Orange County Ltd. financial statements less & 100 group inventory Fair value adjustment less & 15 group depreciation on building fair value adjustment)" NCI as at 31 March 20X3 1,284 “In calculating the NCI's share of profit for the year ended 31 March 20X3, no deduction is made for goodwill amortisation because, as explained above, the goodwill arising on consolidation relates solely to the acquirer's proportion of the subsidiary and does not include the non-controlling interest’s share. Alternative II for calculation of Non-controlling Interest: As an alternative to the above three-step approach, at 31 March 20X3 the NCI in the consolidated balance sheet is calculated as 259% (the NCI's proportion) of & 5,135, which is & 1,284. & 5,135 is Orange County Ltd.net assets at 31 March 20X3 as shown in Orange County Ltd. balance sheet (& 4,850, being & 5,020 assets less € 170 labilities) plus the fair value adjustment to those assets as made in preparing, the group balance sheet (% 285, being the fair value adjustment in respect of Orange County Ltd. building, & 300, less one year’s depreciation of that adjustment, € 15). Blue Heavens Ltd. consolidated statement of profit and loss for the year ended 31 March 20X3 will be computed as follows: Blue Orange | Consolidated | Consolidated Heavens Ltd, | County Ltd, adjustments Revenue 3,000 1,900 4,900 Cost of sales (4.800) 000) (100)(WN1) | (2,900) Profit for the year 1,200 900 2,000 Administrative expenses (400) (350) | (113) (WN2) | (863) ‘Total comprehensive income for year 800 550 1,137 Total comprehensive income attributable to: Owners of the parent (75%) 1,028 Non-controlling interest (25%) 109 4137 Consolidation involves: * Adding the statement of profit and loss of the parent and its subsidiary together line by line © Recognising the fair value adjustments and/or amortisation thereof together with amortisation of the goodwill asset that arose on acquisition of the subsidiary. Blue Heavens Ltd. consolidated balance sheet at 31 March 20X3 will be computed as follows: (in lakh) Blue Orange | Consolidation | Consolidated Heavens Ltd. | County Ltd, | adjustments | Blue Heavens Ltd. Carrying | Carrying amount amount Assets —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.19Consolidated and Separate Financial Statements of Group Entities Non-current assets Goodwill 975 ~ 98 (WN 3) 877 Buildings and other PPE 6,500 2.750 285 (WN 4) 9.535 Financial Assets Investment in Entity B 4,500 (4,500) Currentassets Inventories 800 550 1,350 Financial Assets Trade receivables 380 300 680 Cash 4,170 1420 5590 Total assets 16,350 5,020 18,032 Equity and liabilities Equity Share capital 5,000 2,000 (2,000) 5,000 Other Equity 11,000 2,950 | (2,622) (WN5) 11,228 Non-controlling interest 1,284 1,204 Currentliabilities Financial Liabilities Trade payables 350 170 520 16,350 5,020 18,032 Consolidation involves: * Adding the balance sheet of the parent and its subsidiary together line by line. + Eliminating the carrying amount of the parent’s investment in the subsidiary (because it is replaced by the goodwill and the fair value of the assets, liabilities and contingent liabilities acquired) and the pre-acquisition equity of the subsidiary (because that equity was not earned or contributed by the group but is part of what was purchased), and recognising the fair value adjustments together with the goodwill asset that arose on acquisition of the subsidiary as adjusted to reflect the first year post-acquisition * Recognising the non-controlling interest in the net assets of Entity B. Working Notes: (1) Cost of sales adjustment: 100 = fair value adjustment in respect of inventories at 31 March 20X2 (2) Administrative expenses adjustment: %113= Amortisation of goodwill € 98 (WN 3) + additional depreciation on building € 15 (WN 4) For simplicity it is assumed that all the goodwill amortisation and the additional buildings depreciation is adjusted against administrative expenses. (3) Working for goodwill: Goodwill at the acquisition date, € 975, less accumulated impairment, € 98 = € 877 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.20Consolidated and Separate Financial Statements of Group Entities (4) Working for building consolidation adjustment: ‘The fair value adjustmentat 31 March 20X2 in respect of Orange County Ltd. building was & 300, that fs, the carrying amount at 31 March 20X2 was % 300 lower than was recognised in the group's consolidated balance sheet. The building is being depreciated over 20 years from 31 March 20X2. Thus at 31 March 20X3 the adjustment required on consolidation to the statement of financial position will be & 285, being % 300 x 19/20 years estimated useful life remaining, The additional depreciation recognised in consolidated statement of comprehensive income is 15 (being t 300 x 1/20). (5) Reserves adjustment: % 2,300 adjustment at the acquisition date (Question 5) plus % 98 (WN 3) impairment of goodwill plus & 15 (WN 4) additional depreciation on building plus € 100 (WN 1) fair value adjustment in respect of inventories plus € 109 NCI's share of Orange County Ltd. profit for the year (as included in the consolidated statement of comprehensive income) 2,622 Question 7 On 1# April 20X1, A Limited acquired 80% of the share capital of S Limited. On acquisition date the share capital and reserves of S Ltd. stood at € 5,00,000 and & 1,25,000 respectively. A Limited paid initial cash consideration of € 10,00,000. Additionally, A Limited issued 2,00,000 equity shares with @ nominal value of € 1 per share at current market value of 8 1.80 per share. It was also agreed that A Limited would pay a further sum of & 5,00,000 after three years. A Limited's cost of capital is 10%. The appropriate discount factor for 1 @ 10% receivable at the end of, ist year: 0.91 2nd year: 0.83 3rd year: 0.75 ‘The shares (Issued in the year 20X2-20X3) and deferred consideration have not yet been recorded by A limited. Below are the Balance Sheet of A Limited and S Limited as at 31% March, 20X3: A Limited (€ 000) | S Limited (% 000) Non-current assets: Property, plant & equipment 5,500 1,500 Investment in $ Limited at cost 1,000 Currentassets: Inventory 550 100 Receivables 400 200 Cash. 200 50 ——— BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.21Consolidated and Separate Financial Statements of Group Entities 7,650 1,850 Equity: Share capital 2,000 500 Retained earnings 4.400 300 3,400 800 Non-current liabilities 3,000 400 Currentliabilities 1,250 650 7,650 1,850 Further information: (On the date of acquisition the fair values of S Limited's plant exceeded its book value by & 2,00,000. The plant had a remaining useful life of five years at this date; (ii) The consolidated goodwill has been impaired by € 2,58,000; and (iii) The A Limited Group, values the non-controlling interest using the fair value method. At the date of acquisition, the fair value of the 20% non-controlling interest was € 3,80,000. You are required to prepare Consolidated Balance Sheet of A Limited as at 31" March, 20X3, (Notes to Account on Consolidated Balance Sheet is not required). Note: Present all calculations in € thousand upto 2 decimals Answer Consolidated Balance Sheet of A Ltd, and its subsidiary, S Ltd. as at $1 March, 20X3 Particulars tin 000s 1 Assets (1) Non-current assets () Property Plant & Equipment (W.N.#) 7,120.00 (ii) Intangible asset - Goodwill (W.N.3) 1,032.00 (2) Current Assets (Inventories (550 + 100) 650.00 (ii) Financial Assets (a) Trade Receivables (400 + 200) 600.00 (b) Cash & Cash equivalents (200 + 50) 250.00 Total Assets 9,652.00 I. Equity and Liabilities (1) Equity () Equity Share Capital (2,000 4 200) 2,200.00 (ii) Other Equity (a) _ Retained Earnings (W.N.6) 1190.85 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.22Consolidated and Separate Financial Statements of Group Entities (b) Securities Premium 160.00 (2) Non-Controlling Interest (W.N.5) 347.40 (3) Non-Current Liabilities (3,000 + 400) 3,400.00 (4) Current Liabilities (W.N.8) 2,353.75 Total Equity & Liabilities 9,652.00 Notes: 1, Since the question required not to prepare Notes to Account, the column of Note to Accounts had hot been drawn, 2. Itisassumed that shares were issued during the year 20X2-20X3 and entries are yet to be made. Working Notes: 4. Calculation of purchase consideration at the acquisition date i.e. 1 April, 20X14 tin 000s Payment made by A Ltd, to Ltd. Cash 1,000.00 Equity shares (2,00,000 shares x € 1.80) 360.00 Present value of deferred consideration (3 5,00,000 x 0.75) 375.00 ‘Total consideration 1,735.00 2, Calculation of net assets i.e, net worth at the acquisition date ie. 1* April, 20X1 tin 000s Share capital of S Ltd, 500.00 Reserves of S Ltd. 125.00 Fair value increase on Property, Plant and Equipment 200.00 Net worth on acquisition date 825.00 3. Calculation of Goodwill at the acquisition date ie. 1* April, 20X1 and 31s March, 20X3 tin 000s Purchase consideration (W.N.1) 1,735.00 Non-controlling interest at fair value (as given in the question) 380,00 2,115.00 Less: Net worth (W.N.2) (825.00) Goodwill as on 1+ April 20X1 1,290.00 Less: Impairment (as given in the question) 258.00 Goodwill as on 31 March 20X3 1,032.00 4. Calculation of Property, Plant and Equipment as on $1* March 0X3 tin 000s —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.23Consolidated and Separate Financial Statements of Group Entities Altd. 5,500.00 S Ltd. 1,500.00 Add: Net fair value gain not recorded yet 200.00 Less: Depreciation ((200/5) x 2] (80,00) 120,00 1,620.00 7,120.00 5. Calculation of Post-acquisition gain (after adjustment of impairment on goodwill) and value of NCIas on 31* March 20X3 in 000s tin 000s NCI (20%) | A Ltd. (80%) ‘Acquisition date balance 380.00 Nil Closing balance of Retained Earnings 300.00 Less: Pre-acquisition balance (125.00) Post-acquisition gain 175.00 Less: Additional Depreciation on PPE [(200/5) x 2] (80.00) Share in post-acquisition gain 95.00 19.00 76.00 Less: Impairment on goodwill 258.00 (51.60) (206.40) 347.40 (130.40) 6. Consolidated Retained Earnings as on 31% March 20X3 tin 000s Altd, 1,400.00 ‘Add: Share of post-acquisition loss of $ Ltd. (W.N.5) (13040) Less: Finance cost on deferred consideration (37.5 + 41.25) (W.N.7) (7875) Retained Earnings as on 31% March 20X3 1,190.85 7. Calculation of value of deferred consideration as on 31s March 20X3 tin 000s Value of deferred consideration as on 1 April 20X1 (W.N.1) 375.00 ‘Add: Finance cost for the year 20X1-20X2 (375 x 10%) 32.50 412.50 Add; Finance cost for the year 20X2-20X3 (412.50 x 10%) 41.25 Deferred consideration as on 31 March 203 453.75 8. Calculation of current Liability as on 31% March 20X3 tin 000s Altd. 1,250.00 S Ltd. 650.00 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.24Consolidated and Separate Financial Statements of Group Entities Deferred consideration as on 31 March 20X3 (W.N.7) 453.75 Current Liability as on 316 March 20X3 2353.75 Question 8 Given below are the financial statements of P Lid and Q Ltd as on 31.3.20X1: Balance Sheets (in lakhs) P itd. Q Ltd. Assets Non-current Assets Property Plant Equipment 1,07,000 44,000 Financial Assets: Non-Current Investments 5,000 1,000 Loans 10,000 Current Assets Inventories 20,000 10,000 Financial Assets: Trade Receivables 8,000 10,000 Cash and Cash Equivalents 38,000 1,000 Total Assets 1,88,000 66,000 Equity and Liabilities Equity Equity Share Capital 20,000 10,000 Other equity 1,20,000 40,000 Non-current Liabilities Financial liabilities: Long term liabilities 30,000 10,000 Deferred tax liabilities 5,000 1,000 Long term provisions 5,000 1,000 Current Liabilities Financial liabilities: ‘Trade Payables 6,000 2,000 Short term Provisions 2,000 2,000 Total Equity & Liabilities 1,88,000 66,000 Notes to Financial Statements Pitd Quid —- BY CA AJAY AGARWAL (AIR-1) AIRACA Career Institute (ACI) Page 14.25Consolidated and Separate Financial Statements of Group Entities Reserve & Surplus General Reserve 1,00,000 30,000 Retained earnings 20.000 10.000 1.20,000 40.000 Inventories Raw Material 10,000 5,000 Finished Goods 10,000 5,000 20,000 10,000 Statement of Profitand Loss for the year ended on 31 March, 20X2 —_(* in lakhs) Notes Pld Quid 1. Statement of Profit and Loss for the year ended on 31 March 20x2 Sales 1 2,00,000 80,000 Other Income 2 3.000 = Total Revenue 2,03,000 20,000 Expenses Raw Material Consumed 3 1,10,000 48,000 Change in inventories finished stock 4 (5,000) (3,000) Employee benefit expenses 30,000 10,000 Finance Costs 5 2,700 1,000 Depreciation 7,000 4,000 Other Expenses 6 10,350 6.040 Total expenses 1,55,050 96,040 Profit Before Tax 47,950 13,960 ‘Tax Expense: Current Tax 1" 15,000 4,000 Deferred Tax 2.000 1,000 47,000 5,000 Profit After Tax 30,950 8,960, IL, Statement of Other Comprehensive Income Fair value gain on investment in subsidiary a 1,000 0 Fair value gain on other non-eurrent investments 8 500 250 1,500 250 Statement of changes in Equity for the year ended on 31 March 20X2 PLtd. Share | General | Profit& | FairValue| Total Capital Reserve | Loss | Reserve —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.26Consolidated and Separate Financial Statements of Group Entities Balance as on 1.4.20X1 20,000 | 100,000 | 20,000 1,40,000 Dividend for the year 20X1-20X2 (8,000) (8,000) Dividend distribution tax (1,350) (1,350) Dividend received from subsidiary 1680 1,680 Profit for the year 20X1-20x2 30,950 30,950 Fair value gain on investment in 1,000 1,000 subsidiary (See Note 7) Fair value gain on other non- 500 500 current investments (See Note 7) ‘Transfer to reserve 20,000 | (20,000) Balance as on 31.3.20X2 20,000 | 1,20,000 | 23,280 | 1,500 | 1,64,780 Qutd Balance as on 1.4.20X1 10,000 | 30,000 | 10,000 50,000 Dividend for the year 20X1-20x2 (2,400) (2,400) Dividend distribution tax (400) (400) Profit for the year 20X1-20X2 8,960 8,960 Fair value gain on other non- 250 250 current investments (See Note 7) ‘Transfer to reserve 5,000 (5,000) Balance as on 31,3.20X2 10,000 | 35,000 | 11,160 250 56,410 Balance Sheet as on 31 March, 20X2 Note P Ltd QL Assets Non-current Assets Property Plant Equipment 7 1,17,000 45,000 Financial Assets: Non-Current Investments 8 42,500 1,250 Long term loans 10,000 Current Assets Inventories 35,000 15,000 Financial Assets: Trade Receivables 10,000 8,000 Cash & Cash Equivalent (See Statement of cash flow) 930 4,200 Total Assets 2,15,430 73,450 Equity and Liabilities Share Capital 20,000 10,000 a BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.27Consolidated and Separate Financial Statements of Group Entities Other Equity (See Statement of changes in Equity) 144.780 46.410 164.780 56.410 Non-current Liabilities Financial Liabilities: Borrowings 30,000 10,000 Deferred tax liabilities 7,000 2,000 Long term provisions 9 4.600 930 41,600 12.930 Current Liabilities Financial Liabilities: ‘Trade Payables 8,000 4,000 Short term Provisions 10 1.050 110 2.050 4.110 ‘Total Liabilities 50,650 17,040 Total Equity & Liabilities 215,430 73,450 Statement of Cash Flows for the year ended on 31 March 20X2 Pid Qua 1. Cash flows from operating activities Profit after Tax 30,950 8,960 ‘Add Back: Current Tax 15,000 4,000 Deferred Tax 2,000 1,000 Depreciation 7,000 4,000 Finance Costs 2.700 1,000 Change in Provisions (1.350) (1,960) Reversal of Interest Income (1,000) 0 Working capital adjustments: Inventories (25,000) (5,000) Trade Receivables (2,000) 2,000 Trade Payables 2.000 2.000 40,300 16,000 Less: Advance Tax (15,000) (4,000), 25,300 12,000 I Cash flows from investment activities Purchase of Property Plant Equipment (17,000) (5.000) —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.28Consolidated and Separate Financial Statements of Group Entities ‘Acquisition of subsidiary (36,000) 0 Interest Income 1,000 Dividend Income L680 £50,320) (5,000) IIL. Cash flow from financing activities Dividend Payment (8.000) (2,400) Dividend distribution tax (1.350) (400) Interest payment (2.200) 1.000) 42.050) (3.800) Net Changes in Cash Flows (I + 11+ 111) (37,070) 3,200 Balance of Cash and Cash Equivalents as on 1.4.20X1 38,000 1,000 Balance of Cash and Cash Equivalents as on 31.3,20X2 930 4.200 Notes P Ltd. Q Ltd. Note 4 -Sales Sales to Q Ltd. 20,000 Other Sales 80,000 ‘80,000 Note 2 - Other Income Interest from Q Ltd 1,000 Royalty from Q Ltd 2.000 3.900 Note 3 - Raw Material Consumed Opening Stock 10,000 5,000 Purchases from P Ltd 20,000 Other Purchases 1,20,000 30,000 Closing stock 20,900 72000 Note 4 - Change in inventories of finished stock Opening Stock 10,000 5,000 Closing Stock 15,000 8,000 45,000) (3.000) Note 5 - Finance costs Interest 2,700 Interest to P Ltd = 1,000 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.29Consolidated and Separate Financial Statements of Group Entities 2,200 1,000 Note 6 - Other Expenses Long term provisions 100 30 Short term provisions 50 10 Royalty to P Ltd 2,000 Others 10,000 4,000 Acquisition Expenses 200 = 10,350 6,040 Note 7 - Property Plant Equipment New Purchases 47,000 $000 Note 8 - Fair value of non-current investments Investments in subsidiary 37,000 Other Investments. 5.500 1250 42,500 1,250 Fair value gain Investments in subsidiary 1,000 0 Other investments soo 250 1.500 250 Note 9 - Long term provisions Balance as on 1.4.20X1 5,000 1,000 ‘Transfer to short term provisions (500) (100) New Provision 100 30, Balance as on 31.3.20X2 4,600 930 Note 10- Short term provisions Balance as on 1.4.20X1 2,000 2,000 ‘Transfer from long term provisions 500 100 Payment (1,500) (2,000) New 50 10 Balance as on 31.3.20X2 1.050 410 Note 14 - Provision for Tax & Advance Tax ‘Tax Provision 15,000 4,000 Less: Advance Tax 45,000 4,000 o o On 1.4.20X1, P Ltd acquired 70% of equity shares (700 lakhs out of 1,000 lakhs shares) of Q Ltd. at & 36,000 lakhs. The company has adopted an accounting policy to measure Non-controlling interest at fair value (quoted market price) applying Ind AS 103. Accordingly, the company computed full goodwill RRR SRR REE BY CA AJAY AGARWAL (AI AIRICA Career Institute (ACI) Page 14.30Consolidated and Separate Financial Statements of Group Entities on the date of acquisition. Shares of both the companies are of face value & 10 each. Market price per share of Q Ltd. as on 1.4.20X1 is 855. Entire long term borrowings of Q Ltd. is from P Ltd. The fair value ofnet identifiable assets is at % 50,000 lakhs. P Ltd has decided to account for investment in subsidiary at fair value through other comprehensive income as per Ind AS 27. Other non-current investments are classified as financial assets at FVTOCI by irrevocable choice as per Ind AS 109, There is no tax on long term capital gains. ‘The group has pald dividend for the year 20X0-20X1 and transferred to reserve out of profit for 20X1- 20X2 as follows: (Cin lakhs) Pitd Qutd Dividend for the year 20X0-20X1 Share | Non- | Total of P| Controlling Lid. | interest Dividend 8,000 | 1,680 720 2400 Dividend distribution tax 41350 | 280 120 400 9,350 | 1,960 240 2.800 ‘Transfer to Reserve out of profit for the year 20X1-20X2 | 20,000 ‘Trade Receivables of P Ltd, includes % 3,000 lakhs due from Q Ltd. Based on the above financial statements for the year ended on 31 March, 20X2 and information given, prepare Consolidated Financial Statements. Note: Present all calculations in & lakh Answer Consolidated Financial Statements of P Ltd. Group (in lakhs) Consolidated Statement of Comprehensive Income for the year ended on 31 March, 20X2 1. Statement of Profit and|Notes) PLtd| — QLtd Workings | Group loss Sales 1 | 200,000] 80,000] 2,00,000 + 80,000 - 20,000) 2,60,000 Other Income 2 3.000 a 3,000 - 3,000 o Total Revenue 2.03,000| 80,000 2.60,000 Expenses Raw materials consumed 3 | 110,000] 48,000 | 1,10,000 + 48,000 - 20,000 | 1,38,000 Change in inventories | 4 -5,000| -3,000 -5,000- 3,000 — -8,000 finished stock Employee benefit expenses 30,000] 10,000 30,000 +10,000| 40,000 Finance Costs 5 2,700} 1,000 2,700.4 1,000-1,000| 2,700 Depreciation 7,000} 4,000 7,000 + 4,000] 11,000 Other expense 6 | 10350! 6,040| 10,3504 6,040- 2,000] 14,390 ‘Total Expenses 155,050 66,040 198,090 SSS. AIRICA Career Institute (ACI) Page 14.31Consolidated and Separate Financial Statements of Group Entities Profit Before Tax 47,950| 13,960 61,910 ‘Tax Expense: Current Tax 15,000} 4,000 15,000 + 4,000] 19,000 Deferred Tax 2,000} 1,000 2,000+ 1,000] 3,000 12.000 5,000 22,000 Profit After Tax 30,950| 8,960 39,910 Profitattributable to: Parent 37,222 Non-controlling interest 2,688 Il Statement of Other Comprehensive Income Fair value gain on| 8 1,000 0 1,000 + 0- 1,000 0 investment in subsidiary Fair value gain on other non-| 8 soo} 250 5004250} 250 current investments 1,500 250 750 Other comprehensive income attributable to: Parent 675 Non-Controlling Interests 15 Consolidated Statement of changes in Equity for the year ended on 31 March 20X2 Fair Non- Ss Som aca ne | rot [cng] Soa Reserve Interest, Balance as on anes 20,000 | 1,000 | 20,000 140,000 | 16,500 | 1,56,500 eesti | (8,000) (8,000) (8,000) rr cm) | eam) | ea 1,680 1,680 1,680 — = 37,222 37222 | 2688 | 39910 Fair value gain on investment in subsidiary Fair value gain on other non-current 07s | 675 15 750 investments BY CA AJAY AGARWAL (AL 4) AIRICA Career Institute (ACI) Page 14.32Consolidated and Separate Financial Statements of Group Entities ‘Transfer to reserve 20,000 | (20,000) ° 0 Dividend from suet (1,680) (4.680) | (720) | (2,400) Dividend distribution tax of (280) (280) (120) (400) subsidiary Balance as on ee te 20,000 | 1,20,000 | 27,592 | 675 |1,68,267| 18,423 | 1,86,690 Dividend and dividend distribution tax paid by the subsidiary is deducted from profit and non- controlling interest. Note: As per the response to Issue 1 given in ITFG Bulletin 9, in the consolidated financial statements of parent company, dividend income earned by parent company from subsidiary company and dividend recorded by subsidiary company in its equity will both get eliminated as a result of consolidation adjustments. DDT paid by subsidiary company outside the consolidated Group i.e, to the tax authorities should be charged as expense in the consolidated statement of Profit and Loss of holding company. If DDT paid by the subsidiary is allowed as a set off against the DDT liability of its parent (as per the tax Jaws), then the amount of such DDT should be recognised in the consolidated statement of changes in equity of parent company. Consolidated Balance Sheet as on 31 March 20X2__ (Amount in € lakhs) Pld Qltd Workings Group Assets Non-Current Assets Fixed Assets Property Plant Equipment 1,17,000 45,000 1,17,000 + 45,000 | 1,62,000 Goodwill 2,500 Financial Assets: Non-Current Investments 42,500 1,250 5,500 4 1,250 6,750 Long term loans 10,000 o 10,000 + 0 - 10,000 0 169,500 46.250 121.250 Current Assets Inventories 35,000 15,000 35,000 + 15,000 50,000 Financial Assets: Trade Receivables 10,000 8,000] 10,000 + 8,000 - 3,000 15,000 Cash and Cash Equivalents 230 4.200 930 + 4,200 5130 45,930 27,200 70,130 Total Assets 215,430) 73,450 2,41,380 Equity and Liabilities Equity SSS. AIRACA Career Institute (ACI) Page 14.33Consolidated and Separate Financial Statements of Group Entities Equity Share Capital 20,000 10,000 SOc 20,000 Other Equity 144,780 46,410 SOCE) 148,267 Non-controlling interest = = sock 18.423 1,64,780, 56.410 186,690 Non-current Liabilities Financial Liabilities: Borrowings 30,000 10,000 | 30,000 + 10,000 - 10,000 30,000 Deferred tax liabilities 7,000 2,000 7000 + 2,000 9,000 Long term provisions 4,600 930 4,600 +930 5.520 41,600 12,930 44,530 Current Liabilities Financial Liabilities: ‘Trade Payables 8000 4,000} 8,000-+ 4,000 - 3,000 9,000 Short term Provisions 1.050 0 1,050 4110 1.160 9.050 A110 10.160 ‘Total Liabilities 50,650 17,040 54,690 ‘Total Equity & Liabilities 215,430) 73,450 2,441,380 Statement of Cash Flows for the year ended on 31 March 20X2 Puta] uta Workings Group 1. Cash flows from — operating activities Profit after Tax 30,950] 8,960 39,910 ‘Ada Back Current Tax 15,000] 4,000 15,000 + 4,000 19,000 Deferred Tax 2000| 1,000 2000+ 1,000) 3,000 Depreciation 7,000| 4,000 7000+ 4,000, 11,000 Finance Costs 2700] 1,000] 2,700+1,000-1,000| 2,700 Change in Provisions (1.350) | (1,960) 1350-1960) (3,310) Reversal of Interest Income (4,000) 0 -1,000 40+ 1,000 ° Working capital adjustments Inventories (15,000) | (5,000) 30,000 - 50,000 | -20,000 ‘Trade Receivables (2,000) | 2,000 18,000 15,000, 3,000 ‘Trade Payables 2000} 2,000 8000-9000) 1,000 40,300 | — 16,000 56,300 Less: Advance Tax 45,000) | (4,000) 15,000 - 4,000 (19,000) 25,300} 12,000 32300 SSS. AIRICA Career Institute (ACI) Page 14.34Consolidated and Separate Financial Statements of Group Entities I, Cash flows from investment activities Purchase of Property Plant Equipment | (17,000) | (5,000) -17,000- 5,000 (22,000) Acquisition of subsidiary (36,000) 0 -36,000 +0) (36,000) Interest Income 1,000 1,000- 1,000 0 Dividend Income 1.680 = 1,680 - 1,680 o (50.320) | (5,000) (58,000) IL. Cash flow from financing activities Dividend Payment (8,000) | (2,400) | -8,000-2,4004 1,680, (8,720) Dividend distribution tax (1,350) | (400) -1,350-400| (1,750) Interest payment {2.200} |} 4,000} -2,700- 1000+ 1,000, (2,700) (12,050) | (3,800) 3.170) Net Changes in Cash Flows (I+11+111) (37.070) 3.200 (33.870) Balance of Cash and Cash Equivalents as on 14.20X1 38,000) — 1,000 38,000+1,000 39,000 Balance of Cash and Cash Equivalents as on 31.3.20X2 230| 4.200 5.130 While preparing Consolidated Statement of Cash flows also intra-group transactions are eliminated, Question 9 Prepare the consolidated Balance Sheet as on 31s March, 20X2 of a group of companies comprising P Limited, S Limited and SS Limited. Their balance sheets on that date are given below: Tin lakhs Pitd. S Ltd. SS Ltd. Assets ‘Non-Current Assets Property, Plant and Equipment 320 360 300 Investment: 32 lakhs shares in $ Ltd. 340 24 Lakhs shares in SS Ltd. 280 Current Assets Inventories 220 70 50 Financial Assets ‘Trade Receivables 260 100 220 Bills Receivable nm - 30 Cash in hand and at Bank 228 40 40 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.35Consolidated and Separate Financial Statements of Group Entities 1440 850 640 Equity and Liabilities ‘Shareholder's Equity Share capital (8 10 per Share) 600 400 320 Other Equity Reserves 180 100 80 Retained earnings 160 50 60 Current Liabilities Financial Liabilities ‘Trade Payables 470 230 180 Bills Payable P Ltd, 70 SSLitd, 30 - - 1440 850 640 The following additional information is available: ()_P Ltd, holds 80% shares in S Ltd, and § Ltd, holds 75% shares in SS Ltd. Their holdings were ‘acquired on 30 September, 20X1, (il) The business activities of all the companies are not seasonal In nature and therefore, it can be assumed that profits are earned evenly throughout the year. (ii) On 1 April, 20X1 the following balances stood in the books of S Limited and S$ Limited. Rin lakhs S Limited ‘SS Limited Reserves 80 60. Retained earnings 20 30 (iv) © 10 lakhs included in the inventory figure of S Limited, is inventory which has been purchased from SS Limited at cost plus 25%. (v)__ The parent company has adopted an accounting policy to measure non-controlling interest at fair value (quoted market price) applying Ind AS 103. Assume market prices of $ Limited and $s Limited are the same as respective face values. Note: Present all calculations in ® lakh in upto 2 decimals Answer Consolidated Balance Sheet of the Group as on 31% March, 20X2 Particulars Note No. in lakh ASSETS Non-current assets Property, plant and equipment 1 980 —l|+ eo BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.36Consolidated and Separate Financial Statements of Group Entities Currentassets (a)_ Inventory ) 338 (b) Financial assets ‘Trade receivables 3 590 Bills receivable 4 2 Cash and cash equivalents 5 308 Total assets 2,208 EQUITY & LIABILITIES Equity attributable to owners ofthe parent Share capital 600 Other Equity Reserves (WS) 194 Retained Earnings (W.NS) 1798 Capital Reserve (W.N.3) 188 Non-controlling interests (W.N-) 166.2 Total equity 1.328 LIABILITI Non-current liabilities Nil Current liabilities (@)_ Financial Liabilities (i) Trade payables 6 880 Total liabilities 880 ‘Total equity and liabilities 2,208 Notes to Accounts (Xin Jakh) 1, | Property Plant & Equipment P itd. 320 S Ltd. 360 SS Ltd. 300 980 2. Inventories P itd. 220 S Ltd, (70-2) 68 8S Ltd. 50 338 ‘Trade Receivables P utd. 260 S Ltd. 100 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.37Consolidated and Separate Financial Statements of Group Entities SS Ltd. 220 580 4. Bills Receivable P Ltd. (72-70) 2 $8 Ltd. (30 - 30) 2 Cash & Cash equivalents P itd. 228 S Ltd. 40 SS Ltd, 40, 308 6. Trade Payables P itd. 470 S Ltd. 230 8S Ltd. 180 880 Working Notes: 4. Analysis of Reserves and Surplus (Xin lakh) S Ltd. SS Ltd. Reserves as on 31.3.20X1 80 60 Increase during the year 20X1-20X2 20 20 | Increase for the half year till 30.9.20K1 0 10 Balance as on 30.9.20X1 (A) 90 70 ‘Total balance as on 31.3.20X2 100 80, Post-acquisition balance 10 10 Retained Earnings as on 31.3.20X1 20 30 Increase during the year 20X1-20X2 30 30 Increase for the half year till 30.9.20X1 45, 15, Balance as on 30.9.20X1 (B) 35 | 45 Total balance as on 31.3.20X2 50, 60, Post-acquisition balance 15 45 Less: Unrealised Gain on inventories = @Q (10x 25/125) Post-acquisition balance for CFS 15 13 Total balance on the acquisition date ie. 125 115 30.09,20X4 (A+B) 2. Calculation of Effective Interest of P Ltd. in 8S Ltd. Acquisition by P Ltd. in Ltd. = 80% Acquisition by S Ltd. in $$ Ltd. = 75% BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.38Consolidated and Separate Financial Statements of Group Entities Acquisition by Group in SS Ltd. (80% x 75%) = 60% Non-Controlling Interest = 40% Calculation of Goodwill /Capital Reserve on the acquisition date Std. $8 Ltd. Investment or consideration 340 224 (280x80%) ‘Add; NCI at Fair value (400 x 20%) 80 (320x 40%) = 128 420 352 Less: Identifiable net assets (Share capital + Increase 525 435 in Reserves and Surplus till acquisition date) (400+ 125) (3204115) Capital Reserve 105 83 ‘Total Capital Reserve (105 + 83) 188 Calculation of Non-Controlling Interest Std. SS Ltd. ‘At Fair Value (See Note 3) 80 128 ‘Add: Post Acquisition Reserves (See Note 1) 2 4 (20x 20%) (10x 40%) ‘Add: Post Acquisition Retained Earnings (See Note 1) 3 52 (15x 20%) (13 x 40%) Less: NCI share of investment in SS Ltd. 56 (280 x 20%)" 29 137.2 ‘Total (29 + 137.2) 166.2 “Note: The Non-controlling interest in $ Ltd. will take its proportion in SS Ltd, so they have to bear their proportion in the investment by S Ltd, (in SS Ltd.) also. Calculation of Consolidated Other Equity Reserves _| Retained Earnings P Ltd, 180 160 Add: Share in S Ltd, 8 2 (10x 80%) (15 x 80%) Add: Share in SS Ltd. 6 78 (10x 60%) (13 x 60%) | 14 ~=6| 798 Note: It is assumed that the sale of goods by SS Ltd. is done after acquisition of shares by S Ltd. BY CA AJAY AGARWAL (AL 4) AIRICA Career Institute (ACI) Page 14.39Consolidated and Separate Financial Statements of Group Entities Alternatively, it may be assumed that the sale has either been done before acquisition of shares by $ Ltd. in $S Ltd. or sale has been throughout the year. Accordingly, the treatment for unrealized gain may vary. Question 10 XYZ Ltd. purchased 80% shares of ABC Ltd. on 1# April, 20X1 for & 1,40,000. The issued capital of ABC Ltd., on 1 April, 20X1 was & 1,00,000 and the balance in the Statement of Profit and Loss was & 60,000. For the year ending on 31* March, 20X2 ABC Ltd. has earned a profit of € 20,000 and later on, it declared and paid a dividend of € 30,000. ‘The fair value of identifiable net assets is € 1,50,000. Calculate the amount of non-controlling interest as on 1% April, 20X1 (Using NCI’s proportionate share method) and 31 March, 20X2, Also pass a journal entry on the acquisition date. Answer NCI on 1#* April 20X1 = 20% of the fair value on identifiable assets 20% x € 150,000 = % 30,000 ‘The journal entry recorded on the acquisition date for the 80% interest acquired is as follows: x x Identifiable net assets Dr. 1,50,000 Goodwill (Balancing Figure) Dr. 20,000 To Cash 1,40,000 To NCI 30,000 NCI on 31* March 20X2 = NCI on 31 March 20X1 + Share of NCI in Profits of 20x1-20x2 = 30,000 + (20,000 x 20%) = & 34,000 Note: Dividend as per Ind AS will be recognized only when approval by the shareholder is received in the annual general meeting. Question 11 XYZ Ltd. purchased 80% shares of ABC Ltd. on 1% April, 20X1 for € 1,40,000. The issued capital of ABC Ltd. on 1 April, 20X1 was € 1,00,000 and the balance in the Statement of Profit and Loss was € 60,000, For the year ending on 31* March, 20X2 ABC Ltd. has earned a profit of € 20,000 and later on, it declared and paid a dividend of € 30,000, The fair value of identifiable net assets is € 1,60,000. Calculate the amount of non-controlling interest as on 1s April, 20X1 (Using NCI's proportionate share method) and 31% March, 20X2, Also pass a journal entry on the acquisition date, Answer NCI on 14 April 20X1 = 20% of the fair value on identifiable assets es BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.40Consolidated and Separate Financial Statements of Group Entities = 20% x & 1,60,000 = € 32,000 ‘The journal entry recorded on the acquisition date for the 80% Interest acquired is as follows: x x Identifiable net assets, Dr. 1,60,000 Goodwill (Balancing Figure) Dr. 12,000 To Cash 1,40,000, To NCL 32,000 NCI on 31% March 20x NCI on 31* March 20X1 + Share of NCI in Profits of 20X1-20X2 = 32,000 + (20,000 x 20%) = € 36,000 Note: Dividend as per Ind AS will be recognized only when approval by the shareholder is received in the annual general meeting. Question 12 XYZ Ltd. purchased 80% shares of ABC Ltd. on 1% April, 20X1 for & 1,40,000. The issued capital of ABC Ltd. on 1 April, 20X1 was & 1,00,000 and the balance in the Statement of Profit and Loss was € 60,000. For the year ending on 31* March, 20X2 ABC Ltd. has earned a profit of € 20,000 and later on, it declared and paid a dividend of € 30,000. Assume, the fair value of non-controlling interest is same as the fair value on a per-share basis of the purchased interest. All net assets are identifiable net assets, there are no non-identifiable assets, The fair value of Identifiable net assets Is & 1,50,000. Show by an entry how the dividend should be recorded in the books of XYZ Ltd. whenever it is received after approval in the ensuing annual general meeting. What is the amount of non-controlling interest as on 1st April, 20X1 (using Fair Value Method) and 31% March, 20X2, Also pass a journal entry on the acquisition date. Answer XYZ Ltd's share of dividend = & 30,000 x 80% = % 24,000 Bank A/c Dr. 24,000 To Profit & Loss A/c 24,000 Calculation of Non-controlling interest and Journal Entry NCI on 1% April 20X1 = 20% of Fair value on a per-share basis of the purchased interest. = 20% x 1,75,000 (W.N 1) = © 35,000 ‘The journal entry recorded on the acquisition date for the 80% interest acquired is as follows: x x Identifiable net assets Dr. 1,50,000 Goodwill (Balancing Figure) Dr. 25,000 To Cash —. jj BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.41Consolidated and Separate Financial Statements of Group Entities To NCL {| l 35,000 Working Note 1 Fair value on a per-share basis of the purchased interest/Fair Value of Identifiable net assets = Consideration transferred x 100/80 = 1,40,000 x 100/80 = € 1,75,000 NCI on 31st March 20X2 = NCI on 31* March 20X1 + Share of NCI in Profits of 20X1-20X2 = 35,000 + (20,000 x 20%) = 8 39,000 Note: Dividend as per Ind AS will be recognized only when approval by the shareholder is received in the annual general meeting. Question 13 XYZ Ltd. purchased 80% shares of ABC Ltd. on 1 April, 20X1 for € 1,40,000. The issued capital of ABC Ltd.,on 1 April, 20X1 was 8 1,00,000 and the balance in the Statement of Profit and Loss was € 60,000. For the year ending on 31% March, 20X2 ABC Ltd. has earned a profit of € 20,000 and later on, it declared and paid a dividend of € 30,000, Assume, the fair value of non-controlling interest is same as the fair value on a per-share basis of the purchased interest. All net assets are identifiable net assets, there are no non-identifiable assets. The fair value of identifiable net assets is & 1,60,000. What is the amount of non-controlling interest as on 1 April, 20X1 (using Fair Value Method) and 31% March, 20X2. Also pass a journal entry on the acquisition date. Answer Calculation of Non-controlling interest and Journal Entry NCI on 18 April 20X1 = 20% of Fair value on a per-share basis of the purchased interest. = 20% x8 1,75,000 (W.N 1) = € 35,000 ‘The journal entry recorded on the acquisition date for the 80% interest acquired is as follows: x x Identifiable net assets Dr. 1,60,000 Goodwill (Balancing Figure) Dr. 15,000 To Cash 140,000 ‘To NCI 35,000 Working Note 1 Fair value on a per-share basis of the purchased interest/Fair Value of Identifiable netassets Consideration transferred x 100/80 = 1,40,000 x 100/80 = € 1,75,000 NCI on 31% March 20X2 = NCI on 31 March 20X1 + Share of NCI in Profits of 20X1-20X2 5,000 + (20,000 x 20%) = % 39,000 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.42Consolidated and Separate Financial Statements of Group Entities Note: Dividend as per Ind AS will be recognized only when approval by the shareholder is received in the annual general meeting, Question 14 A Ltd. acquired 70% of equity shares of B Ltd. on 1.04.20X1 at cost of € 10,00,000 when B Ltd. had an equity share capital of € 10,00,000 and other equity of € 80,000. In the four consecutive years B Ltd. fared badly and suffered losses of % 2,50,000, & 4,00,000, € 5,00,000 and & 1,20,000 respectively. ‘Thereafter in 20X5-20X6, B Ltd. experienced turnaround and registered an annual profit of 50,000. In the next two years i, 20X6-20X7 and 20X7-20X8, B Ltd. recorded annual profits of € 1,00,000 and & 1,50,000 respectively. Show the non-controlling interests and goodwill at the end of each year for the purpose of consolidation, Assume that the assets are at fair value, Answer Year Profit/loss Non- Additional | Goodwill controlling | Consolidated Interest (30%) | P&I. (Dr.)/Cr. At the time of acquisition in 20X1 3,24,000 (W.N,) 244,000 (W.N,) 20X1-20K2 (250,000) | (75,000) (1,75,000) 2,44,000 249,000 20X2-20K3 (4.00000) | (4.20.00) | (2,80,000) 244,000 1,29,000 20%3-20K4 (5,00,000) | (4,50,000) | (3,50,000) 244,000 (21,000) 20X4-20K5 (120,000) | (36,000) (84,000) 244,000 (57,000) 20X5-20K6 50,000 15,000 35,000 244,000 (42,000) 20X6-20X7 1,00,000 20,000 70,000 2,44,000 (12,000) 20X7-20K8 1,50000 45,000 105,000 244,000 33,000 Working Note: Calculation of Non-controlling interest: x Share Capital 10,00,000 Other equity 80,000 Total 10,80,000 NCI (30% x 10,80,000) 3,24,000 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.43Consolidated and Separate Financial Statements of Group Entities NCI is measured at NCI’s proportionate share of the acquiree’s Identifiable net assets. (Considering the carrying amount of share capital & other equity to be fair value). Calculation of Goodwill: x Consideration 10,00,000 Non-controlling interest 324,000 Less: Net Assets (10,80,000) Goodwill 244,000 Question 15 From the following data, determine in each case: (1) Non-controlling interest at the date of acquisition (using proportionate share method) and at the date of consolidation (2) Goodwill or Gain on bargain purchase, (3) Amount of holding company’s profit in the consolidated Balance Sheet assuming holding ‘company’s own retained earnings to be & 2,00,000 in each case Case | Subsidiary) % of | Cost Date of Acquisition Consolidation date company | shares 1.04,20X1. 31.03,20X2 owned Share | Retained | Share | Retained Capital earnings Capital earnings fal [B) {c] 1p} Case 1 A 90% | 140,000 | 1,00,.000 | 50000 | 1,00,.000 | 70,000 Case 2 B 85% 1,04,000 1,00,000 30,000 1,00,000 20,000 Case 3 c 80% 56,000 50,000 20,000 50,000 20,000 Case 4 D 100% | 1,00,000 50,000 40,000 50,000 56,000 ‘The company has adopted an accounting policy to measure Non-controlling interest at NCI's proportionate share of the acquiree’s identifiable net assets, It may be assumed that the fair value of acquiree’s net identifiable assets is equal to their book values. Answer (1) Non-controlling Interest = the equity in a subsidiary not attributable, directly or indirectly, to a parent. Equity is the residual interest in the assets of an entity after deducting all its liabilities ie. in this given case Share Capital + Statement of Profit & Loss (Assuming it to be the net aggregate value of identifiable assets in accordance with Ind AS) % Shares | Non-controlling interestas | Non-controlling interest as Owned by| atthe date of acquisition at the date of consolidation NCI IE] [E]x{A +B] [E]x [C+D] Case 1[100% 90%] | 10% 15,000 17,000 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.44Consolidated and Separate Financial Statements of Group Entities Case 2 [100% - 85%] | 15% 19,500 18,000 Case 3 [100% - 80%] | 20% 14,000 14,000 Case 4[100% -100%]| Nil Nil Nil (2) Calculation of Goodwill or Gain on bargain purchase Consideration Non- Net Goodwill Gain on Ic controlling | Identifiable | jy 4 (uy -(x) | bargain interest assets Purchase (a (l+ B= [1 (1 - {61 - (Hy Case1 1,40,000 15,000 150,000 5,000 - Case 2 104,000 19,500 1,30,000 - 6,500 Case3 56,000 14,000 70,000 Nil Nil Casea | — 1,00,000 0 99,000 10,000 - (3) On 31.03.20X2 in each case the following amount shall be added or deducted from the balance of holding Co.'s Retained earnings. % Retained Retained Retained Amount to be Share | earningsason| earningsas | earnings | added/(deducted) from Holding —31.03.20X1. on post- holding’s Retained IK} i} consolidation | acquisition earnings Date [MI] | [x)= [m1] - [4 10] = [1] x INT 1 90% 50,000, 70,000 20,000 18,000 2 | 85% 30,000 20,000 (10,000) (8,500) 3 80% 20,000, 20,000 Nil Nil 4 100% 40,000 56,000 16,000 16,000 Question 16 A parent owns 60% of a subsidiary. The subsidiary sells some inventory to the parent for & 35,000 and makes a profit of € 15,000 on the sale. The inventory is in the parent’s balance sheet at the year end, Examine the treatment of intra-group transaction and pass the necessary journal entry. Note: Present amount in € thousand in Journal entry. Answer ‘The parent must eliminate 100% of the unrealized profit on consolidation. The inventory will, therefore, be carried in the group's balance sheet at € 20,000 (€ 35,000 ~ € 15,000). The consolidated income statement will show a corresponding reduction in profit of 8 15,000, 000 Dr. cr. Consolidated revenue Dr. 35 BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.45Consolidated and Separate Financial Statements of Group Entities To Cost of sales 20 To Inventory 15 ‘The reduction of group profit of € 15,000 is allocated between the parent company and non-controlling. interest in the ratio of their interests 60% and 40%. Question 17 A parent ows 60% ofa subsidiary. The parent sells some inventory to the subsidiary for 35,000 and makes a profit of € 15,000. On the sale the inventory is in the subsidiary’s balance sheet at the year end. Examine the treatment of intra-group transaction and pass the necessary journal entry. Note: Present amount in € thousand in Journal entry. Answer The parent must eliminate 100% of the unrealized profit on consolidation. ‘The inventory will, therefore, be carried in the group's balance sheet at % 20,000. (% 35,000 ~ & 15,000). The consolidated income statement will show a corresponding reduction in profit of & 15,000. The double entry on consolidation is as follows: 000 Dr. Cr. Consolidated revenue Dr. 35 To Cost of sales 20 To Inventory 18 In this case, since it is the parent that has made the sale, the reduction in profit of & 15,000 is allocated entirely to the parent company. Question 18 A Ltd. (which Is involved in the business of selling capital equipment) a parent company sold a capital equipment costing % 100 lakh to its 80% subsidiary B Ltd, at € 120 lakh, The capital equipment is recorded as PPE by B Ltd. The useful life of the PPE on the date of transfer was 10 years. Show the necessary adjustment in the consolidated financial statements (CFS). Note: Present all calculations in € lakh Answer A Ltd, shall reduce the value of PPE of ¢ 120 lakh of B Ltd, by % 20 lakh in CFS. This will increase expenses and reduce consolidated profit by € 20 lakh, Further, A Ltd. should also reduce the depreciation charge of B Ltd. to the extent of value of PPE reduced as above. Hence, A Ltd, should reduce the depreciation by & 2 lakh (& 20 lakh + 10 years). Further, the sales and cost of goods sold recorded by parent A Ltd, shall also be eliminated. ‘The double entry on consolidation is as follows: BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.46Consolidated and Separate Financial Statements of Group Entities Dr. cr. Consolidated revenue Dr. 120 ‘To Cost of sales 100 To PPE 18 To Depreciation 2 Question 19 Airtel Telecommunications Ltd. owns 100% share capital of Airtel Infrastructures Pvt. Ltd, On 1 April 20X1 Airtel Telecommunications Ltd. acquired a building from Airtel Infrastructures Pvt. Ltd, for & 11,00,000 that the group plans to use as its new headquarters office. Airtel Infrastructures Pvt. Ltd. had purchased the building from a third party on 1 April 20X0 for % 10,25,000. At that time the building was assessed to have a useful life of 21 years and a residual value of % 5,00,000, On 1 April 20X1 the carrying amount of the building was & 10,00,000 in Airtel Infrastructures Pvt. Ltd.'s individual accounting records. ‘The estimated remaining useful life of the building measured from 1 April 20X1 is 20 years and the residual value of the building is now estimated at % 350,000, The method of depreciation is straight- line. Pass necessary accounting entries in individual and consolidation situations. Answer Journal Entries in Airtel Infrastructures Pvt. Ltd. 1, | Assets (Building) A/c Dr. 10,25,000 To cash 10,25,000 2, | Depreciation (P/L) A/c Dr. 25,000 ‘To Asset (Building) 25,000 3. | CashA/e Dr. 11,00,000 ‘To Asset (Building) 10,00,000 ‘To Gain on sale of asset (P/L) 1,00,000 Journal Entries in Airtel Telecommunications Ltd, 1, | Assets (Building) A/c Dr. 11,00,000 To cash 11,00,000 2, | Depreciation (P/L) Ae Dr, 37/500 ‘To Assets (Building) 37,500 Journal entry for consolidation: 1. | Gain on sale of asset (P/L) Dr, 1,00,000 ‘To Asset (Building) A/c 1,00,000 2. | Asset (Building) A/c Dr. | 5,000 (WN 1) ‘To Consolidated P&L. 5,000 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.47Consolidated and Separate Financial Statements of Group Entities Working Note: ‘To be depreciated on original value (10,00,000 ~ 3,50,000)/20 32,500 Depreciation charged (11,00,000 ~ 3,50,000)/20 37,500 Reversal of depreciation 5,000 Particulars Consolidated Individual Financial statements Laeger Airtel Airtel Infrastructures statements | Telecommunications Ltd. Pvt. Ltd. 31® March 20X1 10,00,000 0 10,00,000 1 April 20X1 purchase sale 0 11,00,000 (10,00,000) Depreciation (32,500) (37,500) 0 31* March 20X2 9,67,500 10,62,500 o Question 20 Entity A acquired 60% of entity B two years ago for & 6,000. At the time entity B’s fair value was & 10,000. Ithad net assets with a fair value of & 6,000 (which is assumed same as book value). Goodwill of © 2,400 was recorded [being 8 6,000 - (60% x € 6,000)]. On 1 October 20X0, entity A acquires a further 20% interest in entity B, taking its holding to 80%. At that time the fair value of entity B is & 20,000 and entity A pays & 4,000 for the 20% interest: At the time of the purchase the fair value of entity B’s net assets Is € 12,000 and the carrying amount of the non-controlling interest is & 4,000, Pass journal entries to record the transaction in consolidated financial statements. Answer ‘The accounting entry recorded for the purpose of the non-controlling interest is as follows: z Non-controlling interest Dr. 2,000 Other Equity (Loss on acquisition of interest in subsidiary) | Dr. 2,000 To Cash 4,000 {As per para B96 of Ind AS 110, where proportion of the equity of NCI changes, then group shall adjust controlling and non-controlling interest and any difference between NCI (% 2,000) is adjusted and fair value of consideration received (€ 4,000) to be attributed to parent in other equity ie. € 2,000. Question 24 A Ltd. acquired 10% additional shares of its 70% subsidiary. The following relevant information is available in respect of the change in non-controlling interest on the basis of Balance sheet finalized as 0n 31,3.20X0: in thousand BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.48Consolidated and Separate Financial Statements of Group Entities Separate financial statements As on 31.3.20X0 Investment in subsidiary (70% interest) — at cost 14,000 Purchase price for additional 10% interest 2,600 Consolidated financial statements Non-controlling interest (30%) 6,600 Consolidated profit & loss account balance 2,000 Goodwill 600 ‘The reporting date of the subsidiary and the parent is 31 March, 20X0. Pass Journal Entry in CFS showing adjustment for change of non-controlling interest. Should goodwill be adjusted for the change? Note: Present all calculations in € thousand Answer ‘The following accounting entries are passed: e000 Non-controlling interest (6,600 + 30) x 10] Dr. 2,200 Other Equity (Loss on acquisition of interest in subsidiary) | Dr. 400 To Cash 2.600 As per para B96 of Ind AS 110, where proportion of the equity of NCI changes, then group shalll adjust controlling and non-controlling interest and any difference between NCI (® 22,00,000) is adjusted and fair value of consideration received (% 26,00,000) to be attributed to parent in other equity Le. % 4,00,000. Consolidated goodwill is not adjusted. Question 22 A Ltd. acquired 70% of shares of B Ltd. On 1.4.20X0 when fair value of net assets of B Ltd. was % 200 lakh, During 20X0-20X1, B Ltd. made profit of € 100 lakh. Individual and consolidated balance sheets as. on 31.3.20X1 areas follows: takh A B Group Assets Goodwill 10 PPE 627 200 827 Financial Assets: Investments 150 Cash 200 30 230 Other Current Assets 23 70 93, 1,000 300 1,160 SSS... AIRACA Career Institute (ACI) Page 14.49Consolidated and Separate Financial Statements of Group Entities Equity and Liabilities Share Capital 200 100 200 Other Equity 800 200 870 Non-controlling interest = = 90 1,000 300 1,160 A td. acquired another 10% stake in B Itd on 1.4.20X1 at € 32 lakh. The proportionate carrying amount of the non-controlling interest is € 30 lakh, Show the individual and consolidated balance sheet of the group immediately after the change in non-controlling interest, Note: Present all calculations in ® lakh Answer lakh A B Workings Group Assets Goodwill 10 PPE 627 200 827 Financial Assets: Investments (150 + 32) 192 Cash* (200-32) 168 30| (200430) - 32 198, Other Current Assets 23 70 93 1,000 300 1,128 Equity and Liabilities Share Capital 200 100 200 Other Equity 800 200 870-2 868 Non-controlling interest 90-30 60 1,000 300 1,128 “Cash has been adjusted through Individual Balance Sheet. Journal entry lakh Non-controlling interest (90 x 10/30) Dr. 30 Other Equity (Loss on acquisition of interest in subsidiary) | Dr. 2 To Cash 32 Question 23 Entity P sells a 20% interest in a wholly-owned subsidiary to outside investors for 100 lakh in cash. ‘The carrying value of the subsidiary’s net assets is € 300 lakh, including goodwill of € 65 lakh from the a SPR UN POPR R BY CA AJAY AGARWAL (AL 4) AIRICA Career Institute (ACI) Page 14.50Consolidated and Separate Financial Statements of Group Entities subsidiary’s initial acquisition. Pass journal entries to record the transaction in consolidated financial statements. Note: Present all calculations in & lakh Answer ‘The accounting entry recorded on the disposition date for the 20% interest sold as follows: lakh Cash. Dr. 100 ‘To Non-controlling interest (20% x 300 lakh) 60 ‘To Other Equity (Gain on sale of interest in subsidiary) 40 As per para B96 of Ind AS 110, where proportion of the equity of NCI changes, then group shall adjust controlling and non-controlling interest and any difference between NCI (60 lakh) is adjusted and fair value of consideration received (100 lakh) to be attributed to parent in other equity 1c, 40 lakh, Question 24 Entity A sells 30% interest in its wholly-owned subsidiary to outside investors in an arm's length transaction for € 500 crore in cash and retains a 70% controlling interest in the subsidiary. At the time of the sale, the carrying value of the subsidiary’s net assets in the consolidated financial statements of Entity A is € 1,300 crore, additionally, there is a goodwill of % 200 crore that arose on the subsidiary’s acquisition, Entity A initially accounted for NCI representing present ownership interests in the subsidiary at fair value and it recognises subsequent changes in NCI in the subsidiary at NCI’s proportionate share in aggregate of net identifiable assets and associated goodwill. How should Entity Aaccount forthe transaction? Pass Journal Entry in the consolidated financial statements. Note: Presentall calculations in & crore Answer As per paragraph 23 of Ind AS 110, changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions (ie. transactions with owmers in their capacity as owners). Thus, changes in ownership interest that do not result in loss of control do not impact goodwill associated with the subsidiary or the statement of profit and loss. Paragraph B96 of Ind AS 110 states that when the proportion of the equity held by non-controlling interests changes, an entity shall adjust the carrying amounts of the controlling and non-controlling interests to reflect the changes in their relative interests in the subsidiary. The entity shall recognise directly in equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received, and attribute it to the owners of the parent, Thus, at the time of sale of 30% of its equity Interest, consolidated financial statements Include an amount of € 1,500 crore in respect of the subsidiary. Accordingly, in the present case, the accounting entry on the date of sale of the 30% interest would be as follows: tin crore BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.51Consolidated and Separate Financial Statements of Group Entities Cash Dr. 500 ‘To Non-controlling interest (1,500 x 30%) 450 To Other Equity (Gain on sale of interest in subsidiary) 50 Question 25, Amla Ltd. purchased a 100% subsidiary for € 10,00,000 at the end of 20X1 when the fair value of the subsidiary Lal Ltd.'s net asset was € 8,00,000, ‘The parent sold 40% of its investment in the subsidiary in March 20X4 to outside investors for & 9,00,000. The parent still maintains a 60% controlling interest in the subsidiary. The carrying value of the subsidiary’s net assets is € 18,00,000 (including net assets of € 16,00,000 & goodwill of & 2,00,000).. Calculate gain/loss on sale of interest in subsidiary in parent's separate and consolidated financial statements as on 31s March 20X4. Also pass the journal entry to record the transaction in consolidated financial statements. Note: Present all calculations in & thousand Answer As per Ind AS 110, a change in ownership that does not result in a loss of control. The identifiable net assets (Including goodwill) remain unchanged and any difference between the amount by which the non-controlling interest is recorded (including the non-controlling interest portion of goodwill) and a fair value of the consideration received is recognized directly in equity and attributed to the controlling, interest, For disposals that do not result in the loss of control, the change in the non-controlling interest {s recorded at its proportionate interest of the carrying value of the subsidiary. Gain on the sale of the investment of € 5,00,000 in parent's separate financial statements calculated as follows: 000 Sale proceeds 900 Less: Cost of investment in subsidiary (% 10,00,000 x 40%) (400) Gain on sale in the parent's separate financial statement 500 As discussed above, the group's consolidated income statement for 31* March 20X4 would show no gain on the sale of the interest in the subsidiary. Instead, the difference between the fair value of the consideration received and the amount by which the non-controlling interest is recorded ts recognized directly in equity, e000 Sale proceeds 900 Less: Recognition of non-controlling interest (€ 18,00,000 x 40%) (720) Credit to other equity 180 ‘The entry recognized in the consolidated accounts under Ind AS 110 iss ‘vo00 5 BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.52Consolidated and Separate Financial Statements of Group Entities Cash Dr 900 ‘To Non-controlling interest (1,800 x 40%) 720 To Other Equity (Gain on sale of interest on subsidiary) 180 ‘The difference between the gain in the parent's income statement and the increase reported in the group's consolidated equity Is € 3,20,000. This difference represents the share of post-acquisition profits retained in the subsidiary % 3,20,000 [(that is, 18,00,000 ~ 10,00,000) x 40%] that have been reported in the group's income statement upto the date of sale. Question 26 AT Ltd, purchased a 100% subsidiary for € 50,00,000 on 31 March 20X1 when the fair value of the net assets of BT Ltd. was € 40,00,000. Therefore, goodwill is € 10,00,000. AT Ltd. sold 60% of its investment in BT Ltd.on 31% March 20X3 for & 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 © 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 € 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 31 March 20X3. Note: Present all calculations in & lakh Answer AT Lids standalone statement for profit or loss of 20X2-20X3 would show a gain on the sale of investment of 8 37,50,000 calculated as follows: lakh Sale proceeds 675 Less: Cost on investment in subsidiary (% 50,00,000 x 60%) (30.0) Gain on sale in the parent's account 375 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: V lakh Sale proceeds 675 Fair value of 40% interest retained 45.0 1125 Less: Net assets disposed, including goodwill (80,00,000 + 10,00,000) (90.0) Gain on sale in the group's financial statements 225 ‘The gain on loss of control would be recorded in consolidated statement of profit and loss. The gain or loss includes the gain of € 13,50,000 [8 67,50,000 - (8 90,00,000 x 60%)] on the portion sold. However, —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.53Consolidated and Separate Financial Statements of Group Entities it also includes a gain on remeasurement of the 40% retained interest of € 9,00,000 (% 36,00,000* to & 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, € 9,00,000. *90,00,000 x 40% = 36,00,000 Question 27 AT Ltd. purchased a 100% subsidiary for € 50,00,000 on 31* March 20X1 when the fair value of the net assets of BT Ltd. was € 40,00,000. Therefore, goodwill is € 10,00,000. AT Ltd. sold 90% of its investment in BY Ltd, on 31% March 20X3 for & 85,50,000, leaving the AT Ltd. with a 10% investment. At the date of disposal, the carrying value of net assets of BT Ltd, excluding goodwill is ¥ 80,00,000. The fair value of the remaining interest in BT Ltd. is € 9,50,000 (assumed for simplicity to be pro rata to the fair value of, the 90% sold). Calculate gain or loss on sale of proportion of BT Ltd. in AT Ltd.'s separate and consolidated financial statements as on 31s March 20X3. Note: Present all calculations in € lakh Answer ‘The parent's AT Ltd. income statement in its separate financial statements for 20X3 would show a gain on the sale ofthe investment of € 40,50,000 calculated as follows: Vlakh Sale proceeds 855 Less: Cost on investment in subsidiary (% 50,00,000 x 90%) (45.0) Gain on sale in the parent's account 405 In the consolidated financial statements, all of the assets, including goodwill are derecognized when control is lost. This is compared to the proceeds received and the fair value of the investment retained. V lakh Sale proceeds 855 Fair value of 10% interest retained 95. 95.0 Less: Net assets disposed, including goodwill (80,00,000 + 10,00,000) (90.0) Gain on sale in the group's financial statements 50 ‘The gain on loss of control would be recorded in profit or loss. The gain or loss includes the gain of & 4,50,000 related to the 90% portion sold [¥ 85,50,000 - (% 90,00,000 x 90%)] as well as € 50,000 related to the remeasurement to fair value of 10% retained interest (X 9,00,000 to € 9,50,000). Question 28 A parent purchased an 80% interest in a subsidiary for & 1,60,000 on 1 April 20X1 when the fair value of the subsidiary’s net assets was % 1,75,000, Goodwill of € 20,000 arose on consolidation under the a BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.54Consolidated and Separate Financial Statements of Group Entities partial goodwill method. An impairment of goodwill of € 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 & 2,00,000. The book value of the subsidiary’s net assets in the consolidated financial statements on the date of the sale was & 2,25,000 {not including goodwill of € 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 in its separate financial statements 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 31+ March 20X4, Note: Present all calculations in € thousand Answer ‘The parent's separate statement of profit and loss for 20X3-20X4 would show a gain on the sale of investment of & 40,000 calculated as follow: ¥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 € 8,000 calculated as follows: ¥ 000 Sale proceeds 200 Less: Share of net assets at date of disposal (€ 2,25,000 x 80%) (180) Goodwill on consolidation at date of sale (W.N) a2) (sz) Gain on sale in the group's account 8 Working Note ‘The goodwill on consolidation (assuming partial goodwill method) is calculated as follows: ¥ 000 Fair value of consideration at the date of acquisition 160 Non-controlling interest measured at proportionate share of the 35 acquiree's identifiable net assets (1,75,000 x 20%) Less: Fair value of net assets of subsidiary at date of acquisition 475) (140) Goodwill arising on consolidation 20 Impairment at 31 March 20X3 (3) Goodwill at 31 March 20x4 12 —- BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.55Consolidated and Separate Financial Statements of Group Entities Question 29 In March 20X1 a group had a 60% interest in subsidiary with share capital of 50,000 ordinary shares, ‘The carrying amount of goodwill is € 20,000 at March 20X1 calculated using the partial goodwill method, On 31 March 20X1, an option held by the minority shareholders exercised the option ta subscribe for a further 25,000 ordinary shares in the subsidiary at % 12 per share, raising € 3,00,000. ‘The net assets of the subsidiary in the consolidated balance sheet prior to the option’s exercise were & 4,50,000, excluding goodwill. Assume that the fair value per share of subsidiary company is equal to the subscription price at which the option held by the minority shareholders are exercised. Calculate gain or loss on loss of interest in subsidiary due to option exercised by minority shareholder in consolidated financial statements. Note: Present all calculations in & thousand. Answer Before After Shareholdings No % No % Group 30,000 60 30,000 40 Other party 20,000 40 45,000 60. 50,000 100 75,000 100 Net assets ¥000 % ¥ 000 % Group's share 270 60 300 40 Other party's share 180 40 450 60. 450 100 750 100 Calculation of group gain on deemed disposal ¥ 000 Fair value of 40% interest retained (8 12 x 30,000) 360 Less: Net assets derecognized (450) Non-controlling interest derecognized (8 4,50,000 x 40%) 180 Goodwill (20) Gain on deemed disposal 70 As control of the subsidiary is lost, the retained interest Is recognized at its fair value at the date control {s lost. The resulting remeasurement gain is recognized in profitand loss. Question 30 MN Ltd, was holding 80% stake in UV Ltd, Now, MN Ltd. has disposed of the entire stake in UV Ltd, in two different transactions as follows: * Transaction 1: Sale of 25% stake for a cash consideration of € 2,50,000 es BY CA AJAY AGARWAL (AIR-1) AIRICA Career Institute (ACI) Page 14.56