NITIN GOEL

❏ CHARTERED ACCOUNTANT

❏ All India Rankholder

(CPT-9, Inter-7 , Final-9)
❏ Gold Medalist

❏ Educator: CA Inter Accounts

& Advanced Accounts
❏ 3 Years Experience with ITC Ltd.
8 years Teaching Experience

Use Code: CANITIN to get 10% Discount

 The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 CONSOLIDATED FINANCIAL
STATEMENTS
As per Section 2(46) of the Companies Act, 2013,
Holding “Holding company”, in relation to one or more other companies, means
Company a company of which such companies are subsidiary companies.

Section 2(87) of the Companies Act, 2013 defines “subsidiary company”

as a company in which the holding company -
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than 50% of voting power either at its
own or together with 1 or more of its subsidiary companies

Section 19 prohibits a subsidiary company from holding shares in the

holding company. According to this section, no company shall, either
by itself or through its nominees, hold any shares in its holding company
and no holding company shall allot or transfer its shares to any of its
Subsidiary
subsidiary companies and any such allotment or transfer of shares of a
Company
company to its subsidiary company shall be void.

However, a subsidiary may continue to be a member of its holding

company when
(a) the subsidiary company holds such shares as legal representative of
a deceased member of the holding company; or
(b) the subsidiary company holds such shares as a trustee; or
(c) the subsidiary company is a shareholder even before it became a
subsidiary company of the holding company.

Section 129 (3) of the Companies Act, 2013 mandated the companies
having one or more subsidiaries, to prepare Consolidated Financial
Statements.
Purpose Of According to this section, where a company has one or more
Preparing the subsidiaries, it shall, in addition to separate financial statements will
prepare a consolidated financial statement of the company and of all
Consolidated
the subsidiaries in the same form and manner as that of its own.
Financial
Statements Accounting Standard (AS) 21 also lays down the accounting principles
and procedures for preparation and presentation of consolidated
financial statements.

As per AS 21, consolidated financial statements normally include

Components Of ❖ Consolidated Balance Sheet
Consolidated ❖ Consolidated Statement of Profit and Loss Account
❖ Consolidated Cash Flow Statement (in case parent presents cash
Financial
flow statement) and
Statements ❖ Notes and statements and explanatory schedules that form the
integral part thereof.
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Question 1 RTP May 2020 (Similar) / ICAI Study Material
From the following summarized balance sheets of H Ltd. and its subsidiary S Ltd. drawn up at 31st
March, 2020, prepare a consolidated balance sheet as at that date, having regard to the following:

a) Reserves and Profit and Loss Account of S Ltd. stood at ₹25,000 and ₹ 15,000 respectively on the date
of acquisition of its 80% shares by H Ltd. on 1st April, 2019.
b) Machinery (Book-value ₹ 1,00,000) and Furniture (Book value ₹ 20,000) of S Ltd. were revalued at ₹
1,50,000 and ₹ 15,000 respectively on 1st April, 2019 for the purpose of fixing the price of its shares.
[Rates of depreciation computed on the basis of useful lives: Machinery 10%, Furniture 15%.]
Summarised Balance Sheet of H Ltd. as on 31st March, 2020
Note No. H Ltd. S Ltd.
Equity & Liabilities
(1) Shareholders' Funds
(a) Share Capital 1 6,00,000 1,00,000
(b) Reserves and Surplus 2 3,00,000 1,00,000
(2) Current Liabilities
(a) Trade Payables 1,50,000 57,000
10,50,000 2,57,000
Assets
(1) Non-Current Assets
(a) Property, Plant & Equipment & Intangible Assets
i. Property, Plant & Equipment 3 4,50,000 1,07,000
(b) Non Current Investments 4 6,00,000 1,50,000
10,50,000 2,57,000

Notes to Accounts:
H Ltd. S Ltd.
1. Share Capital
6,000 equity shares of 100 each, fully paid up 6,00,000
1,000 equity shares of 100 each, fully paid up 1,00,000
6,00,000 1,00,000
2. Reserves & Surplus
General Reserve 2,00,000 75,000
Profit and Loss A/c 1,00,000 25,000
3,00,000 1,00,000
3. Property, Plant & Equipment
Machinery 3,00,000 90,000
Furniture 1,50,000 17,000
4,50,000 1,07,000
4. Non Current Investments
Non Current Investments 4,40,000 1,50,000
Shares in S Ltd.: 800 shares at ₹ 200 each 1,60,000
6,00,000 1,50,000

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Question 2 Inter Nov 2019 (5 Marks) / RTP Nov 2020 / ICAI Study Material
From the following data, determine Minority interest on the date of acquisition and on the date of
consolidation in each case:
Date of acquisition Consolidation Date
%
Subsidiary 01.01.2019 31.12.2019
Case shares Cost
Company Share Profit & Share Profit &
owned
Capital Loss A/c Capital Loss A/c
Case A X 90% 2,00,000 1,50,000 75,000 1,50,000 85,000
Case B Y 75% 1,75,000 1,40,000 60,000 1,40,000 20,000
Case C Z 70% 98,000 40,000 20,000 40,000 20,000
Case D M 95% 75,000 60,000 35,000 60,000 55,000
Case E N 100% 1,00,000 40,000 40,000 40,000 65,000

Solution

% Minority % Minority interest as at Minority interest as at

Subs.
Case Shares shares owned date of acquisition date of consolidation
Com.
owned {E} [E]x [A+B] [E]x [C+D]
Case A X 90% 10% 22,500 23,500
Case B Y 75% 25% 50,000 40,000
Case C Z 70% 30% 18,000 18,000
Case D M 95% 5% 4,750 5,750
Case E N 100% Nil Nil Nil

Minority Interest = Equity attributable to minorities

Equity is the residual interest in the assets of an enterprise after deducting all its liabilities i.e. in this case,
it should be equal to Share Capital + Profit & Loss A/c
A = Share Capital as on 01.01.2019
B = Profit & Loss Account Balance on 01.01.2019
C = Share Capital as on 31.12.2019
D = Profit & Loss Account Balance on 31.12.2019

Question 3 ICAI Study Material

A Ltd. acquired 1,600 ordinary shares of ₹100 each of B Ltd. on 1st July, 2020. On 31st December, 2020
the summarized balance sheets of the two companies were as given below:
Equity & Liabilities A Ltd. B Ltd. Assets A Ltd. B Ltd.

Capital (Shares of ₹ 100 5,00,000 2,00,000 Land & Building 1,50,000 1,80,000
each fully paid)
Reserves 2,40,000 1,00,000 Plant & Machinery 2,40,000 1,35,000
Profit & Loss A/c 57,200 82,000 Investment in B Ltd. at 3,40,000 -
cost
Bank Overdraft 80,000 - Inventory 1,20,000 36,400
Trade Payable 47,100 17,400 Trade Receivable 59,800 40,000
Cash 14,500 8,000
9,24,300 3,99,400 9,24,300 3,99,400
The Profit & Loss Account of B Ltd. showed a credit balance of ₹30,000 on 1 January, 2020 out of
st

which a dividend of 10% was paid on 1st August, 2020; A Ltd. credited the dividend received to its Profit
& Loss Account. The Plant & Machinery which stood at ₹ 1,50,000 on 1st January, 2020 was considered
as worth ₹ 1,80,000 on 1st July, 2020; this figure is to be considered while consolidating the Balance
Sheets. The rate of depreciation on plant & machinery is 10% (computed on the basis of useful lives).
Prepare consolidated Balance Sheet as on 31st December, 2020.
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Question 4 ICAI Study Material
On 31st March, 2020 summarized Balance Sheets of H Ltd. and its subsidiary S Ltd. stood as follows:
H Ltd. S Ltd.
(in Lakhs) (in Lakhs)
Liabilities
Share Capital:
Authorized 15,000 6,000
Issued and Subscribed:
Equity Shares of ₹ 10 each, fully paid up 12,000 4,800
General Reserve 2,784 1,380
Profit and Loss Account 2,715 1,620
Bills Payable 372 160
Trade Payables 1,461 854
Provision for Taxation 855 394
Dividend payable 1,200 -
21,387 9,208
Assets
Land and Buildings 2,718 -
Plant and Machinery 4,905 4,900
Furniture and Fittings 1,845 586
Investments in shares in S Ltd. 3,000 -
Stock 3,949 1,956
Trade Receivables 2,600 1,363
Cash and Bank Balances 1,490 204
Bills Receivable 360 199
Sundry Advances 520 -
21,387 9,208
The following information is also provided to you:
a) H Ltd. purchased 180 lakh shares in S Ltd. on 31st March, 2019 when the balances of General
Reserve and Profit and Loss Account of S Ltd. stood at ₹ 3,000 lakh and ₹ 1,200 lakh respectively.
b) On 1st April, 2019, S Ltd. declared a dividend @ 20% for the year ended 31st March, 2019. H Ltd.
credited the dividend received by it to its Profit and Loss Account.
c) On 1st January, 2020, S Ltd. issued 3 fully paid-up bonus shares for every 5 shares held out of
balances of its general reserve as on 31st March, 2019.
d) On 31st March, 2020, all the bills payable in S Ltd.’s balance sheet were acceptances in favour of H
Ltd. But on that date, H Ltd. held only ₹ 45 lakh of these acceptances in hand, the rest having been
endorsed in favour of its trade payables.
e) On 31st March, 2020, S Ltd.’s inventory included goods which it had purchased for ₹ 100 lakh from H
Ltd. which made a profit @ 25% on cost.
Prepare a Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. as at 31st March, 2020.

Question 5 ICAI Study Material

XYZ Ltd. purchased 80% shares of ABC Ltd. on 1st January, 2020 for ₹ 1,40,000. The issued capital of
ABC Ltd., on 1st January, 2020 was ₹ 1,00,000 and the balance in the Profit & Loss Account was ₹
60,000. During the year ended 31st December, 2020, ABC Ltd. earned a profit of ₹ 20,000 and at year
end, declared and paid a dividend of ₹ 15,000.
Show by an entry how the dividend should be recorded in the books of XYZ Ltd.
What is the amount of minority interest as on 1st January, 2020 and 31st December, 2020?
Also compute Goodwill/Capital reserve at the date of acquisition.

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Question 6 Inter May 2019 (10 Marks)
H Ltd. acquire 70% of equity share of S Ltd. as on 1st January, 2013 at a cost of ₹ 5,00,000 when S Ltd.
had an equity share capital of ₹ 5,00,000 and reserves and surplus of ₹ 40,000. Both the companies follow
calendar year as the accounting year.
In the four consecutive years, S Ltd. performed badly and suffered losses of ₹ 1,25,000, ₹ 2,00,000, ₹
2,50,000 and ₹ 60,000 respectively. Thereafter in 2017, S Ltd. experienced turnaround and registered an
annual profit of ₹ 25,000. In the next two years i.e. 2018 and 2019, S Ltd. recorded annual profits of ₹
50,000 and ₹ 75,000 respectively.
Show the Minority Interests and Cost of Control at the end of each year for the purpose of consolidation.

Solution

Year Profit / (Loss) Minority Consolidated Minority's Share of Cost of

Interest P & L (Dr.) losses borne by H Ltd. Control
(30%) or Cr. Amount Balance
On
1.1.2013 1,62,000
2013 (1,25,000) (37,500) (87,500) 1,22,000
Balance 1,24,500
2014 (2,00,000) (60,000) (1,40,000) 1,22,000
Balance 64,500
2015 (2,50,000) (75,000) (1,75,000) 1,22,000
(10,500)
Loss of minority 10,500 (10,500) 10,500 10,500
borne by Holding Co
Balance Nil (1,85,500)
2016 (60,000) (18,000) (42,000) 1,22,000
Loss of minority 18,000 (18,000) 18,000 28,500
borne by Holding Co
Balance Nil (60,000)
2017 25,000 7,500 17,500 1,22,000
Profit share of (7,500) 7,500 (7,500) 21,000
minority adjusted
against losses of
minority absorbed by
Holding
Balance Nil 25,000
2018 50,000 15,000 35,000 1,22,000
Profit share of (15,000) 15,000 (15,000) 6,000
minority adjusted
against losses of
minority absorbed by
Holding
Balance Nil 50,000
2019 75,000 22,500 52,500 1,22,000
Profit share of (6,000) 6,000 (6,000) Nil
minority adjusted
against losses of
minority absorbed by
Holding
Balance 16,500 58,500

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Working Note:
Calculation of Minority interest and Cost of control on 1.1.2013
Share of Holding Co. Minority Interest
100% 70% 30%
Share Capital 5,00,000 3,50,000 1,50,000
Reserve 40,000 28,000 12,000
Less: Cost of investment (5,00,000)
Goodwill 1,22,000
The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the
equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted
against the majority interest except to the extent that the minority has a binding obligation to, and is able
to, make good the losses. If the subsidiary subsequently reports profits, all such profits are allocated to the
majority interest until minority's share of losses previously absorbed by the majority has been recovered.

Question 7 Inter Nov 2019 (10 Marks)

Consider the following summarized Balance Sheets of subsidiary MNT Ltd.
Liabilities 2018-19 2019-20
Amount in ₹ Amount in ₹
Share Capital
Issued and subscribed
7500 Equity Shares of ₹100 each 7,50,000 7,50,000
Reserve and Surplus
Revenue Reserve 2,14,000 5,05,000
Securities Premium 72,000 2,07,000
Current Liabilities and Provisions
Trade Payables 2,90,000 2,46,000
Bank Overdraft - 1,70,000
Provision for Taxation 2,62,000 4,30,000
15,88,000 23,08,000
Assets
Property, Plant & Equipment (Cost) 9,20,000 9,20,000
Less: Accumulated Depreciation (1,70,000) (2,82,500)
7,50,000 6,37,500
Investment at Cost - 5,30,000
Current Assets
Inventory 4,12,300 6,90,000
Trade Receivable 2,95,000 3,43,000
Prepaid expenses 78,000 65,000
Cash at Bank 52,700 42,500
15,88,000 23,08,000
Other Information:
1) MNT Ltd. is a subsidiary of LTC Ltd.
2) LTC Ltd. values inventory on FIFO basis, while MNT Ltd. used LIFO basis. To bring MNT Ltd.'s
inventories values in line with those of LTC Ltd., its value of inventory is required to be reduced by ₹
5,000 at the end of 2018-2019 and increased by ₹ 12,000 at the end of 2019-2020. (Inventory of 2018-
19 has been sold out during the year 2019-20)
3) MNT Ltd. deducts 2% from Trade Receivables as a general provision against doubtful debts.
4) Prepaid expenses in MNT Ltd. include Sales Promotion expenditure carried forward of ₹ 25,000 in
2018-19 and ₹ 12,500 in 2019-20 being part of initial Sales Promotion expenditure of ₹37,500 in 2018-
19, which is being written off over three years. Similar nature of Sales Promotion expenditure of LTC
Ltd. has been fully written off in 2018-19.

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Restate the balance sheet of MNT Ltd. as on 31st March, 2020 after considering the above information
for the purpose of consolidation. Such restatement is necessary to make the accounting policies adopted
by LTC Ltd. and MNT Ltd. uniform.

Solution
Working Note:
Adjusted revenue reserves of MNT Ltd.:
Particulars Amount Amount
Revenue reserves as given 5,05,000
Add: Provision for doubtful debts [3,43,000 X 2/98) 7,000
Add: Increase in value of inventory 12,000 19,000
5,24,000
Less: Sales Promotion expenditure to be written off (12,500)
Adjusted revenue reserve 5,11,500

Restated Balance Sheet of MNT Ltd. as at 31st March, 2020

Particulars Note No. Amount
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 7,50,000
(b) Reserves and Surplus 1 7,18,500
(2) Current Liabilities
(a) Short term borrowings 2 1,70,000
(b) Trade Payables 2,46,000
(c) Short-term provision 3 4,30,000
Total 23,14,500
II. Assets
(1) Non-current assets
(a) Property, Plant & Equipment & Intangible Assets
i) Property, Plant & Equipment 4 6,37,500
(b) Non-current Investment 5,30,000
(2) Current assets
(a) Inventories (6,90,000 +12,000) 5 7,02,000
(b) Trade Receivables (343000/98X100) 3,50,000
(c) Cash & Cash Equivalents 42,500
(d) Other current assets 6 52,500
Total 23,14,500

Notes to Accounts
Particulars Amount
1 Reserves and Surplus
Revenue Reserve (refer W.N.) 5,11,500
Securities Premium 2,07,000 7,18,500
2 Short term borrowings
Bank overdraft 1,70,000
3 Short-term provision
Provision for taxation 4,30,000
4 Property, Plant and Equipment
Cost 9,20,000
Less: Depreciation to date (2,82,500) 6,37,500

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 5 Inventories 6,90,000
Increase in value as per FIFO 12,000 7,02,000
6 Other current assets
Prepaid expenses (After adjusting sales 52,500
promotion expenses to be written off each year)
(65,000 -12,500)

Question 8 RTP May 2021

A Ltd. acquired 70% equity shares of B Ltd. @ ₹20 per share (Face value - ₹10) on 31st March, 2021 at a
cost of ₹140 lakhs. Calculate the amount of share of A Ltd. and minority interest in the net assets of B
Ltd. on this date.
Also compute goodwill/capital reserve for A Ltd. on acquisition of shares of B Ltd. from the following
information available from the balance sheet of B Ltd. as on 31st March, 2021
₹ in Lakhs
Property, Plant & Equipment 360
Investments 90
Current Assets 140
Loans & Advances 30
15% Debentures 180
Current Liabilities 100

Solution
Revalued net assets of B Ltd. as on 31st March, 2020
In Lakhs
Property, Plant & Equipment 360
Investments 90
Current Assets 140
Loans & Advances 30
15% Debentures (180)
Current Liabilities (100)
Equity/Net Worth 340
Share of Minority Interest in Net Assets (340*30%) 102
A Ltd.’s share of net assets (70% of 340) 238
A Ltd.’s cost of acquisition of shares of B Ltd (140)
Capital Reserve 98

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Question 9 Inter Nov 2018 (10 Marks)
The Profit and Loss Accounts of A Ltd. and its subsidiary B Ltd. for the year ended 31st March, 2020
are given below:
₹ in Lakhs
Incomes
A Ltd. B Ltd.
Sales and other income 7,500 1,500
Increase in Inventory 1,500 300
Total 9,000 1,800
Expenses
Raw material consumed 1,200 300
Wages and Salaries 1,200 225
Production expenses 300 150
Administrative expenses 300 150
Selling and distribution expenses 300 75
Interest 150 75
Depreciation 150 75
Total 3,600 1,050
Profit before tax 5,400 750
Provision for tax 1,800 300
Profit after tax 3,600 450
Dividend paid 1,800 225
Balance of Profit 1,800 225
The following information is also given:
a) A Ltd sold goods of ₹ 180 Lakhs to B Ltd at cost plus 25%. (1/6 of such goods were still in inventory
of B Ltd at the end of the year)
b) Administrative expenses of B Ltd include ₹ 8 Lakhs paid to A Ltd as consultancy fees.
c) Selling and distribution expenses of A Ltd include ₹15 Lakhs paid to B Ltd as commission.
d) A Ltd holds 72% of the Equity Capital of B Ltd. The Equity Capital of B Ltd prior to 2018-19 is
₹1,500 Lakhs
Prepare a consolidated Profit and Loss Account for the year ended 31st March, 2020.

Solution
Consolidated Profit & Loss Account of A Ltd. & its subsidiary B Ltd. the year ended on 31st March, 20
Particulars Note No. ₹ in Lacs
I. Revenue from operations 1 8,797
Total Income 8,797
II. Expenses
Cost of Material purchased/Consumed 3 1,770
Changes of Inventories of finished goods 2 (1,794)
Employee benefit expense 4 1,425
Finance cost 6 225
Depreciation and amortization expense 7 225
Other expenses 5 802
Total expenses 2,653
Profit before Tax (II-III) 6,144
III. Tax Expenses 8 2,100
Profit After Tax 4,044

Notes to Accounts
₹ in Lacs ₹ in Lacs
1. Revenue from Operations
Sales and other income
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 A Ltd. 7,500
B Ltd. 1,500
9,000
Less: Inter-company Sales (180)
Consultancy fees received by A Ltd. from B Ltd. (8)
Commission received by B Ltd. from A Ltd. (15) 8,797
2. Increase in Inventory
A Ltd. 1,500
B Ltd. 300
1,800
Less: Unrealised profits ₹ 180×1/6 x 25/125 (6) 1,794
3. Cost of Material purchased/consumed
A Ltd. 1,200
B Ltd. 300
1,500
Less: Purchases by B Ltd. from A Ltd. (180) 1,320
Direct Expenses
A Ltd. 300
B Ltd. 150 450
1,770
4. Employee benefits and expenses
Wages and Salaries:
A Ltd. 1,200
B Ltd. 225 1,425
5. Other Expenses
Administrative Expenses
A Ltd. 300
B Ltd. 150
450
Less: Consultancy fees received by A Ltd. from BLtd. (8) 442
Selling and Distribution Expenses:
A Ltd. 300
B Ltd. 75
375
Less: Commission received from B Ltd. from A Ltd. (15) 360
802
6. Finance Cost
Interest:
A Ltd. 150
B Ltd. 75 225
7. Depreciation and Amortisation
Depreciation:
A Ltd. 150
B Ltd. 75 225
8. Provision for tax
A Ltd. 1800
B Ltd. 300 2100

Note:
It is assumed that dividend adjustment has not been done in sales & other income of A Ltd i.e. dividend
received from B Ltd is not included in other income of A Ltd. Alternative answer is possible considering
otherwise.
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 Practice Questions
Question 1 Inter May 2018 (20 Marks) / RTP Nov 2019
The following summarised Balance Sheets of H Ltd. and its subsidiary S Ltd. were prepared as on 31st
March, 2020:
H Ltd. S Ltd.
Equity & Liabilities
Shareholders' Funds
Equity Shares of ₹ 10 each, fully paid up 12,00,000 2,00,000
Reserves and Surplus
General Reserve 4,35,000 1,55,000
Profit and Loss Account 2,80,000 65,000
Current Liabilities
Trade Payables 3,22,000 1,23,000
22,37,000 5,43,000
Assets
Non-Current Assets
Property, Plant & Equipment
Machinery 6,40,000 1,80,000
Furniture 3,75,000 34,000
Non-Current Investments
Shares in S Ltd. - 16,000 shares @ ₹ 20 each 3,20,000 -
Current Assets
Inventories 2,68,000 62,000
Trade Receivables 4,70,000 2,35,000
Cash and Bank 1,64,000 32,000
22,37,000 5,43,000
H Ltd. acquired the 80% shares of S Ltd. on 1st April, 2019. On the date of acquisition, General Reserve
and Profit Loss Account of S Ltd. stood at ₹ 50,000 and ₹ 30,000 respectively.
Machinery (book value ₹ 2,00,000) and Furniture (book value ₹ 40,000) of S Ltd. were revalued at ₹
3,00,000 and ₹ 30,000 respectively on 1st April, 2019 for the purpose of fixing the price of its shares (rates
of depreciation computed on the basis of useful lives : Machinery 10% and Furniture 15%). Trade
Payables of H Ltd. includes ₹ 35,000 due to S Ltd. for goods supplied since the acquisition of the shares.
These goods are charged at 10% above cost. The inventories of H Ltd. includes goods costing ₹ 55,000
purchased from S Ltd.
You are required to prepare the Consolidated Balance Sheet as at 31st March, 2020.

Question 2 Inter Jan 2021 (20 Marks)

On 31st March, 2020 the summarised Balance Sheets of H Ltd. and its subsidiary S Ltd. stood as follows:
H Ltd. S Ltd.
Equity & Liabilities
Shareholders' Funds
Equity Shares of ₹ 10 each, fully paid up 13,40,000 2,40,000
Reserves and Surplus 4,80,000 1,80,000
Profit and Loss Account 2,40,000 60,000
Secured Loans
12% Debentures 1,00,000 -
Current Liabilities
Trade Payables 2,00,000 1,22,000
Bank Overdraft 1,00,000 -
Bills Payable 60,000 14,800
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 25,20,000 6,16,800
Assets
Non-Current Assets
Property, Plant & Equipment
Machinery 7,20,000 2,16,000
Furniture 3,60,000 40,800
Non-Current Investments
Shares in S Ltd. - 19,200 shares @ ₹ 20 each 3,84,000 -
Current Assets
Inventories 6,00,000 2,00,000
Trade Receivables 3,00,000 90,000
Bills Receivables 1,00,000 30,000
Cash at Bank 56,000 40,000
25,20,000 6,16,800
The following information is also provided to you:
(a) H Ltd. purchased 19,200 shares of S Ltd. on 1st April, 2019, when the balances of Reserves &
Surplus and Profit & Loss Account of S Ltd. stood at ₹ 60,000 and ₹ 36,000 respectively.
(b) Machinery (Book value ₹ 2,40,000) and Furniture (Book value ₹ 48,000) of S Ltd were revalued at ₹
3,60,000 and ₹ 36,000 respectively on 1st April, 2019, for the purpose of fixing the price of its shares.
(Rates of depreciation computed on the basis of useful lives: Machinery 10%, Furniture 15%).
(c) On 31st March, 2020, Bills payable of ₹ 12,000 shown in S Ltd.'s Balance Sheet had been accepted in
favour of H Ltd.
You are required to prepare Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as at 31 st
March, 2020.

Question 3 ICAI Study Material

Hemant Ltd. purchased 80% shares of Power Ltd. on 1st January, 2020 for ₹ 2,10,000. The issued capital
of Power Ltd., on 1st January, 2020 was ₹ 1,50,000 and the balance in the Profit & Loss Account was ₹
90,000. During the year ended 31st December, 2020, Power Ltd. earned a profit of ₹ 30,000 and at year
end, declared and paid a dividend of ₹ 22,500.
What is the amount of minority interest as on 1st January, 2020 and 31st December, 2020? Also compute
goodwill/ capital reserve at the date of acquisition.

Question 4 ICAI Study Material

King Ltd. acquires 70% of equity shares of Queen Ltd. as on 31st March, 2020 at a cost of ₹ 140 lakhs.
The following information is available from the balance sheet of Queen Ltd. as on 31st March, 2020:
₹ in Lakhs
Property, Plant & Equipment 240
Investments 110
Current Assets 140
Loans & Advances 30
15% Debentures 180
Current Liabilities 100
The following revaluations have been agreed upon (not included in the above figures): Property, plant
and equipment- up by 20% and Investments- down by 10%. King Ltd. purchased the shares of Queen
Ltd. @ ₹20 per share (Face value - ₹10).
Calculate the amount of goodwill/capital reserve on acquisition of shares of Queen Ltd.

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 1

CONSOLIDATED FINANCIAL STATEMENTS

Solution 1
Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as at 31st March, 2020
Particulars Note No. Amount
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 12,00,000
(b) Reserves and Surplus 2 8,16,200
(2) Minority Interest 99,300
(3) Current Liabilities
(a) Trade Payables 3 4,10,000
Total 25,25,500
II. Assets
(1) Non-current assets
(a) Property, Plant & Equipment & Intangible Assets
(i) Property, Plant & Equipment 4 13,10,500
(ii) Intangible assets 5 24,000
(2) Current assets
(a) Inventories 6 3,25,000
(b) Trade Receivables 7 6,70,000
(c) Cash at Bank 8 1,96,000
Total 25,25,500

Notes to Accounts
1 Share Capital
1,20,000 equity shares of ₹ 10 each 12,00,000
2 Reserves and Surplus
General Reserves 4,35,000
Add: 80% share of S Ltd.’s post-acquisition reserves 84,000 5,19,000
Profit and Loss Account 2,80,000
Add: 80% share of S Ltd.’s post-acquisition profits 17,200 2,97,200
8,16,200
3 Trade Payables
H Ltd. 3,22,000
S Ltd. 1,23,000
Less: Mutual transaction (35,000) 4,10,000
4. Property, Plant & Equipment
Machinery
H Ltd. 6,40,000
S Ltd. 2,00,000
Add: Appreciation 1,00,000
3,00,000
Less: Depreciation (20,000+10,000) (30,000) 2,70,000 9,10,000
Furniture
H Ltd. 3,75,000
S Ltd. 40,000
Less: Decrease in value (10,000)
30,000
Less: Depreciation (6,000-1,500) (4,500) 25,500 4,00,500
13,10,500

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 2
5. Intangible Assets
Goodwill 24,000
6. Inventories
H Ltd. 2,68,000
S Ltd. 62,000 3,30,000
Less: Inventory reserve (5,000)
3,25,000
7. Trade Receivables
H Ltd. 4,70,000
S Ltd. 2,35,000
Less: Mutual transaction (35,000) 6,70,000
8. Cash and Bank
H Ltd. 1,64,000
S Ltd. 32,000 1,96,000

Working Notes:
1. Profit or loss on revaluation of assets in the books of S Ltd. and their book values as on 1.4.2019
Machinery
Revaluation as on 1.4.2019 3,00,000
Less: Book value as on 1.4.2019 (2,00,000)
Profit on revaluation 1,00,000
Furniture
Revaluation as on 1.4.2019 30,000
Less: Book value as on 1.4.2019 (40,000)
Loss on revaluation (10,000)

2. Calculation of short/excess depreciation

Machinery Furniture
Upward/ (Downward) Revaluation 1,00,000 (10,000)
Rate of depreciation 10% 15%
Difference [(short)/excess] (10,000) 1,500

3. Analysis of reserves and profits of S Ltd. as on 31.03.2020

Pre-acquisition Post-acquisition
Gen reserve P&L
General reserve as on 31.3.2020 50,000 1,05,000
Profit and loss account as on 31.3.2020 30,000 35,000
Upward Revaluation of machinery as on 1,00,000
1.4.2019
Downward Revaluation of Furniture as on (10,000)
1.4.2019
Short depreciation on machinery (10,000)
Excess depreciation on furniture 1,500
Less: Unrealised Profit (55,000*10/110) (5,000)
1,70,000 1,05,000 21,500
4. Minority Interest
Paid-up value of (2,00,000 x 20%) 40,000
Add: 20% share of pre-acquisition profits [(20% of 1,70,000) 34,000
20% share of post-acquisition reserves 21,000
20% share of post-acquisition profit 4,300
99,300
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 3
5. Cost of Control or Goodwill
Cost of Investment 3,20,000
Less: Paid-up value of 80% shares 1,60,000
80% share of pre-acquisition profits 1,36,000 (2,96,000)
Cost of control or Goodwill 24,000

Solution 2

Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as at 31st March, 2020
Particulars Note No. Amount
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 13,40,000
(b) Reserves and Surplus 2 8,27,040
(2) Minority Interest 1,15,560
(3) Non Current Liabilities
(a) Long Term Borrowings (12% Debentures) 1,00,000
(3) Current Liabilities
(a) Trade Payables 3 3,84,800
(b) Short Term Borrowings (Bank Overdraft) 1,00,000
Total 28,67,400
II. Assets
(1) Non-current assets
(a) Property, Plant & Equipment & Intangible Assets
(i) Property, Plant & Equipment 4 14,34,600
(ii) Intangible assets 5 28,800
(2) Current assets
(a) Inventories 8,00,000
(b) Trade Receivables 6 5,08,000
(c) Cash at Bank 96,000
Total 28,67,400

Notes to Accounts
1 Share Capital
1,34,000 equity shares of ₹ 10 each 13,40,000
2 Reserves and Surplus
Reserves 4,80,000
Add: 80% share of S Ltd.’s post-acquisition reserves 96,000 5,76,000
Profit and Loss Account 2,40,000
Add: 80% share of S Ltd.’s post-acquisition profits 11,040 2,51,040
8,27,040
3 Trade Payables
H Ltd. 2,00,000
S Ltd. 1,22,000 3,22,000
Bill Payables
H Ltd. 60,000
S Ltd. 14,800
Less: Mutual transaction (12,000) 62,800 3,84,800
4. Property, Plant & Equipment
Machinery
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 4
H Ltd. 7,20,000
S Ltd. 2,40,000
Add: Appreciation 1,20,000
3,60,000
Less: Depreciation (24,000+12,000) (36,000) 3,24,000 10,44,000
Furniture
H Ltd. 3,60,000
S Ltd. 48,000
Less: Decrease in value (12,000)
36,000
Less: Depreciation (7,200-1,800) (5,400) 30,600 3,90,600
14,34,600
5. Intangible Assets
Goodwill 28,800
6. Trade Receivables
H Ltd. 3,00,000
S Ltd. 3,90,000 3,90,000
Bills Receivables
H Ltd. 1,00,000
S Ltd. 30,000
Less: Mutual transaction (12,000) 1,18,000 5,08,000

Working Notes:
1. Profit or loss on revaluation of assets in the books of S Ltd. and their book values as on 1.4.2019
Machinery
Revaluation as on 1.4.2019 3,60,000
Less: Book value as on 1.4.2019 (2,40,000)
Profit on revaluation 1,20,000
Furniture
Revaluation as on 1.4.2019 36,000
Less: Book value as on 1.4.2019 (48,000)
Loss on revaluation (12,000)

2. Calculation of short/excess depreciation

Machinery Furniture
Upward/ (Downward) Revaluation 1,20,000 (12,000)
Rate of depreciation 10% 15%
Difference [(short)/excess] (12,000) 1,800

3. Analysis of reserves and profits of S Ltd. as on 31.03.2020

Pre-acquisition Post-acquisition
Gen reserve P&L
General reserve as on 31.3.2020 60,000 1,20,000
Profit and loss account as on 31.3.2020 36,000 24,000
Upward Revaluation of machinery as on 1.4.2019 1,20,000
Downward Revaluation of Furniture as on 1.4.2019 (12,000)
Short depreciation on machinery (12,000)
Excess depreciation on furniture 1,800
2,04,000 1,20,000 13,800

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 5
4. Minority Interest
Paid-up value of (2,40,000 x 20%) 48,000
Add: 20% share of pre-acquisition profits [(20% of 2,04,000) 40,800
20% share of post-acquisition reserves 24,000
20% share of post-acquisition profit 2,760
1,15,560

5. Cost of Control or Goodwill

Cost of Investment 3,84,000
Less: Paid-up value of 80% shares (2,40,000*80%) 1,92,000
80% share of pre-acquisition profits (2,04,000*80%) 1,63,200 (3,55,200)
Cost of control or Goodwill 28,800

Solution 3
Total dividend paid is ₹ 22,500 (out of post-acquisition profits), hence dividend received by Hemant will
be credited to P & L account. Hemant Ltd.’s share of dividend = ₹ 22,500 X 80% = ₹ 18,000
Amount Amount
Goodwill on consolidation (at the date of acquisition):
Cost of shares 2,10,000
Less: Face value of capital i.e. 80% of capital 1,20,000
Add: Share of capital profits [90,000 X 80 %] 72,000 (1,92,000)
Goodwill 18,000
Minority interest on:
- 1st January, 2020:
20% of ₹ 2,40,000 [1,50,000 + 90,000] 48,000
- 31st December, 2020:
20% of ₹2,47,500 [1,50,000 + 90,000 + 30,000 – 22,500] 49,500

Solution 4
Revalued net assets of Queen Ltd. as on 31st March, 2020
In Lakhs
Property, Plant & Equipment (240*20%) 288
Investments (110*90%) 99
Current Assets 140
Loans & Advances 30
15% Debentures (180)
Current Liabilities (100)
Equity/Net Worth 277
King Ltd.’s share of net assets (70% of 277) 193.9
King Ltd.’s cost of acquisition of shares of Queen Ltd (140)
Capital Reserve 53.90

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