CA Inter P1 · Chapter 8 · Question 10 of 10
Case: Pavan Ltd acquired 75% of Ruhi Ltd when Ruhi's reserves were ₹6,00,000. At the consolidated balance sheet date, Pavan's reserves are ₹20,00,000 and Ruhi's reserves are ₹10,00,000. Pavan's reserves include unrealised profit of ₹40,000 on goods sold by Pavan to Ruhi that remain in Ruhi's closing inventory. Consolidated reserves (attributable to the parent) under AS 21 are:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) ₹22,60,000
Explanation
Parent's share of post-acquisition reserves of the subsidiary = 75% x (10,00,000 - 6,00,000) = 3,00,000; pre-acquisition reserves are taken to cost of control. Since the parent is the seller, the unrealised profit 40,000 is eliminated in full from the parent's reserves. Consolidated reserves = 20,00,000 + 3,00,000 - 40,000 = ₹22,60,000.
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