Professional Documents
Culture Documents
Unit 8: Disclosures: 8.1 in Separate Financial Statements
Unit 8: Disclosures: 8.1 in Separate Financial Statements
UNIT 8 :
DISCLOSURES
Following are the increases on comparison of Fair value as per respective Ind AS with Book
value as on 1st 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.
2. Also assume that the Other Reserves of both the companies as on 31st March 20X2 are
the same as was on 1 st April 20X1.
3. All fair value adjustments have not yet started impacting consolidated post-acquisition
profits.
Prepare consolidated Balance Sheet as on March 31, 20X2.
2. Ram Ltd. acquired 60% ordinary shares of ` 100 each of Krishan Ltd. on 1st 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
Land & Buildings 3,00,000 3,60,000
Plant & Machinery 4,80,000 2,70,000
Investment in Krishan Ltd. 8,00,000 -
Inventory 2,40,000 72,800
Financial Assets
Trade Receivables 1,19,600 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 1,14,400 1,64,000
Financial Liabilities
Bank Overdraft 1,60,000 -
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 1st April 20X1
out of which a dividend of 10% was paid on 1st November; Ram Ltd. has credited the dividend
received to its Retained earnings; Fair Value of P& M as on 1 st 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 1st 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. It may 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 31st March 20X2 are the same as was on
1st April 20X1.
Prepare consolidated Balance Sheet as on March 31, 20X2.
3. 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 statements of financial position of Blue Heavens Ltd. and
Orange County Ltd. and the fair values of the assets and liabilities recognised on Orange
County Ltd. statement of financial position were:
Blue Heavens Ltd. Orange County Ltd.
Carrying Amount Carrying Fair Value
(` in lakh) Amount (` in lakh)
(` in lakh)
Assets
Non-current assets
Building and other PPE 7,000 3,000 3,300
Investment in Orange County Ltd. 6,000
Current assets
Inventories 700 500 600
Trade receivables 300 250 250
Cash 1,500 700 700
Total assets 15,500 4,450
What would be the accounting treatment on loss of control in the consolidated financial
statements of AB Limited?
Answers
1 Consolidated Balance Sheet of DEF Ltd. and its subsidiary, XYZ Ltd.
as on 31st March, 20X2
Particulars Note No. `
I. Assets
(1) Non-current assets
(i) Property Plant & Equipment 1 86,00,000
(2) Current Assets
(i) 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
II. Equity and Liabilities
(1) Equity
(i) Equity Share Capital 5 50,00,000
(ii) Other Equity 6 49,92,000
(2) Current Liabilities
(i) Financial Liabilities
(a) Trade Payables 7 7,45,000
(b) Short term borrowings 8 8,00,000
Total Equity & Liabilities 1,15,37,000
Notes to Accounts
`
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. 5,14,000 17,14,000
3. Trade Receivables
DEF Ltd. 5,98,000
XYZ Ltd. 4,00,000 9,98,000
4. Cash & Cash equivalents
DEF Ltd. 1,45,000
XYZ Ltd. 80,000 2,25,000
7. Trade payable
DEF Ltd. 4,71,000
XYZ Ltd. 2,74,000 7,45,000
8. Shorter-term borrowings
Bank overdraft 8,00,000
Statement of Changes in Equity:
5. Equity share Capital
Balance at the Changes in Equity share Balance at the end of the
beginning of the capital during the year reporting period
reporting period
50,00,000 0 50,00,000
6. Other Equity
Share Equity Reserves & Surplus Total
application component
Capital Retained Other
money of
reserve Earnings Reserves
pending compound
allotment financial
instrument
Balance at the
beginning 0 24,00,000 24,00,000
Total
comprehensive
income for the
year 0 5,72,000 5,72,000
Dividends 0 (2,00,000) (2,00,000)
Total
comprehensive
income
attributable to
parent 0 3,35,000 3,35,000
Gain on
Bargain
purchase 18,85,000 18,85,000
Balance at the
end of reporting
period 18,85,000 7,07,000 24,00,000 49,92,000
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
recognised directly in capital reserve. If, however, there exists such a clear evidence,
the bargain purchase gain would be recognised 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
1st 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. `
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) i.e.
` 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
5. No Non-controlling Interest as 100% shares of XYZ Ltd. are held by DEF Ltd.
6. Gain on Bargain Purchase `
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
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 Ltd. existing at the balance
sheet date does not result in need for any write-down.
2 Consolidated Balance Sheet of Ram Ltd. and its subsidiary, Krishan Ltd.
as on 31 st March, 20X2
Particulars Note No. `
I. Assets
(1) Non-current assets
(i) Property, Plant & Equipment 1 17,20,000
(ii) Goodwill 2 1,65,800
(2) Current Assets
(i) Inventories 3 3,42,800
(ii) Financial Assets
(a) Trade Receivables 4 1,99,600
(b) Cash & Cash equivalents 5 45,000
Total Assets 24,73,200
II. Equity and Liabilities
(1) Equity
(i) Equity Share Capital 6 10,00,000
(ii) Other Equity 7 7,30,600
(2) Non-controlling Interest (WN 5) 4,33,600
(3) Current Liabilities
(i) 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
`
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. 1,02,800 3,42,800
4. Trade Receivables
Ram Ltd. 1,19,600
Krishan Ltd. 80,000 1,99,600
5. Cash & Cash equivalents
Ram Ltd. 29,000
Krishan Ltd. 16,000 45,000
8. Trade Payables
Ram Ltd. 94,200
Krishan Ltd. 54,800 1,49,000
9. Short-term borrowings
Bank overdraft 1,60,000
7. Other Equity
Share Equity Reserves & Surplus Total
application component Capital Retained Other
money reserve Earnings Reserves
Balance at the
beginning of the
reporting period 0 6,00,000 6,00,000
Total
comprehensive
income for the
year 0 1,14,400 1,14,400
Dividends 0 (24,000) (24,000)
Total
comprehensive
income
attributable to
parent 0 40,200 40,200
Gain on Bargain 0 0
purchase
Balance at the
end of reporting
period 1,30,600 6,00,000 7,30,600
Working Notes:
1. Adjustments of Fair Value
The Plant & Machinery of Krishan Ltd. would stand in the books at ` 2,85,000 on
1 st 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.
2. Acquisition date profits of Krishan Ltd.
Reserves on 1.4. 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; upto 1.10. 20X1 72,000
Total Appreciation 3,25,000
Total 6,57,000
Holding Co. Share (60%) 3,94,200
4. Non-controlling Interest
Par value of 1600 shares 160,000
Add: 2/5 Acquisition date profits (6,57,000 – 40,000) 2,46,800
2/5 Post-acquisition profits [WN 4] 26,800
4,33,600
5. Goodwill:
Amount paid for 2,400 shares 8,00,000
Par value of shares 2,40,000
Acquisition date profits share of Ram Ltd. 3,94,200 (6,34,200)
Goodwill 1,65,800
Consolidation involves:
• Adding the statement of financial position 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.
1. Working for goodwill: (` in lakhs)
Consideration paid 6,000
Less: Acquisition date fair value of Orange County Ltd. net assets (4,700)
Goodwill 1,300
2. Working for the acquisition date fair value of Orange County Ltd. net assets:
Acquisition date fair value of acquiree (Orange County Ltd.) 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
4. Non-controlling interest
= 25 % × Orange County Ltd. identifiable net assets at fair value of ` 4,700
= ` 1,175.
Blue Heavens Ltd. consolidated statement of financial position at 31 March 20X2 will be
calculated as follows:
(in lakhs)
Blue Heavens Orange Consolidation Consolidated
Ltd. County Ltd. 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
4,500 (4,500)
Orange
County Ltd.
Current
assets
Inventories 700 500 100 1,300
Financial
Assets
Trade
receivables 300 250 550
Cash 3,000 700 3,700
Total assets 15,500 4,450 16,825
Equity and
liabilities
Equity
Share capital 5,000 2,000 (2,000) 5,000
Other Equity 10,200 2,300 (2,300) 10,200
Non-
controlling 1,175 1,175
interest
Current
liabilities
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 example, Blue Heavens Ltd.
paid ` 1,500 less to acquire Orange County Ltd. (ie ` 6,000 less ` 4,500).
1. Working for goodwill: (` in lakhs)
Consideration paid 4,500
Non- controlling interest 1,175
Less: Acquisition date fair value of Orange County Ltd. net assets 4,700
(cal. as above)
Goodwill 975
(Goodwill recognised in the consolidated statement of financial position relates solely to
the acquirer’s proportion of the subsidiary; it does not include the non-controlling
interest’s share).
Total
comprehensive
income for the year 800 550 1,137
Total comprehensive income attributable to:
Owners of the parent (75%) 1,028
Non-controlling interest (25%) 109
1,137
Consolidation involves:
• Adding the statement of comprehensive income 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 statement of financial position at 31 March 20X3 will be
computed as follows: (` in lakh)
Blue Orange Consolidation Consolidated
Heavens County Ltd. adjustments Blue Heavens
Ltd. Ltd.
Carrying Carrying
amount amount
Assets
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)
Current assets
Inventories 800 550 1,350
Financial Assets
Trade receivables 380 300 680
Cash 4,170 1420 5,590
Total assets 16,350 5,020 18,032
Equity and
liabilities
Equity
Consolidation involves:
• Adding the statement of financial position 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 amortisation, which this year
is amortisation for one year, ` 98 approx. (ie ` 975 ÷ 10 years) = ` 877.
(4) Working for building consolidation adjustment:
The fair value adjustment at 31 March 20X2 in respect of Orange County Ltd. building
was ` 300, that is, the carrying amount at 31 March 20X2 was ` 300 lower than was
Notes to accounts:
(` in millions)
1. Property Plant & Equipment
Land & Building 3,240
Less: S Pvt. Ltd. (1,340) 1,900
2. Goodwill 380
Less: S Pvt. Ltd. (180) 200
3. Inventories
Group 140
Less: S Pvt. Ltd. (40) 100
4. Trade Receivables
Group 1,700
Less: S Pvt. Ltd. (900) 800
8. Trade Payables
Group 2,700
Less: S Pvt. Ltd. 900 1,800
Statement of changes in Equity:
6. Equity share Capital
Balance at the Changes in Equity Balance at the end of the
beginning of the share capital during reporting period
reporting period the year
1600 0 1600
7. Other Equity
Share Equity Reserves & Surplus Total
application component
money Capital Retained Securities
reserve Earnings Premium
Balance at the 4,260 4,260
beginning
Total 0
comprehensive
income for the
year
Dividends 0
Total 0
comprehensive
income
attributable to
parent
Gain on 440 440
disposal of S
Pvt. Ltd.
Balance at the 0 4,700 4,700
end of reporting
period
Working Notes:
1. When sold, the carrying amount of all assets and liabilities attributable to S Pvt. Ltd.
were eliminated from the consolidated statement of financial position.
2. Cash on hand (in millions):
Cash before disposal of S Pvt. Ltd. 3,100
Less: S Pvt. Ltd. Cash (1,000)
Add: Cash realized from disposal 3,000
Cash on Hand 5,100
3. Gain/ Loss on disposal of entity (in millions):
Proceeds from disposal 3,000
Less: Net assets of S Pvt. Ltd. (2,560)
Gain on disposal 440
4. Retained Earnings (in millions):
Retained Earnings before disposal 4,260
Add: Gain on disposal 440
Retained earnings after disposal 4,700
Notes to accounts:
(` In ‘000)
1. Property Plant & Equipment
Land & Building 1620
Less: Reliance Jio Infocomm Ltd. (670) 950
2. Goodwill 190
Less: Reliance Jio Infocomm Ltd. (90) 100
3. Investments
Investment in Reliance Jio Infocomm Ltd. (WN 2) 128 128
4. Inventories
Group 70
Less: Reliance Jio Infocomm Ltd. (20) 50
5. Trade Receivables
Group 850
Less: Reliance Jio Infocomm Ltd. (450) 400
8. Cash & Cash equivalents
Group (WN 3) 2,050 2,050
Trade Payables
Group 1,350
Less: Reliance Jio Infocomm Ltd. 450 900
7. Other Equity
Share Equity Reserves & Surplus Total
application component Capital Retained Securities
money reserve Earnings Premium
Balance at the 2,130 2,130
beginning
Total 0
comprehensive
income for the
year
Dividends 0
Total 0
comprehensive
income
attributable to
parent
Loss on (152) (152)
disposal of
Reliance Jio
Infocomm Ltd.
Balance at the 0 1,978 1,978
end of reporting
period
Working Notes:
1. When 90% being sold, the carrying amount of all assets and liabilities attributable to
Reliance Jio Infocomm Ltd. were eliminated from the consolidated statement of financial
position and further financial asset is recognized for remaining 10%.
2. Fair value of remaining investment (in ‘000):
Net Assets of Reliance Ltd. 1,280
Less: 90% disposal (1152)
Financial Asset 128
9. Paragraph 25 of Ind AS 110 states that if a parent loses control of a subsidiary, the parent:
(a) derecognises the assets and liabilities of the former subsidiary from the consolidated
balance sheet.
(b) recognises any investment retained in the former subsidiary at its fair value when control
is lost and subsequently accounts for it and for any amounts owed by or to the former
subsidiary in accordance with relevant Ind ASs. That fair value shall be regarded as the
fair value on initial recognition of a financial asset in accordance with Ind AS 109 or, when
appropriate, the cost on initial recognition of an investment in an associate or joint venture.
(c) recognises the gain or loss associated with the loss of control attributable to the former
controlling interest.”
Paragraph B98(c) of Ind AS 110 states that on loss of control over a subsidiary, a parent
shall reclassify to profit or loss, or transfer directly to retained earnings if required by other
Ind AS, the amounts recognised in other comprehensive income in relation to the subsidiary
on the basis specified in paragraph B99.
As per paragraph B99, if a parent loses control of a subsidiary, the parent shall account for
all amounts previously recognised in other comprehensive income in relation to that
subsidiary on the same basis as would be required if the parent had directly disposed of the
related assets or liabilities.
Therefore, if a gain or loss previously recognised in other comprehensive income would be
reclassified to profit or loss on the disposal of the related assets or liabilities, the parent shall
reclassify the gain or loss from equity to profit or loss (as a reclassification adjustment) when
it loses control of the subsidiary. If a revaluation surplus previously recognised in other
comprehensive income would be transferred directly to retained earnings on the disposal of
the asset, the parent shall transfer the revaluation surplus directly to retained earnings when
it loses control of the subsidiary.
In view of the basis in its consolidated financial statements, AB Limited shall:
(a) re-classify the FVOCI reserve in respect of the debt investments of ` 5.4 crore (90% of `
6 crore) attributable to the owners of the parent to the statement of profit or loss in
accordance with paragraph B5.7.1A of Ind AS 109, Financial Instruments which requires
that the cumulative gains or losses previously recognised in OCI shall be recycled to profit
and loss upon derecognition of the related financial asset. This is reflected in the gain on
disposal. Remaining 10% (i.e., ` 0.6 crore) relating to non-controlling interest (NCI) is
included as part of the carrying amount of the non-controlling interest that is derecognised
in calculating the gain or loss on loss of control of the subsidiary;
(b) transfer the reserve relating to the net measurement losses on the defined benefit liability
of ` 2.7 crore (90% of ` 3 crore) attributable to the owners of the parent within equity to
retained earnings. It is not reclassified to profit or loss. The remaining 10% (i.e., ` 0.3
crore) attributable to the NCI is included as part of the carrying amount of NCI that is
derecognised in calculating the gain or loss on loss of control over the subsidiary. No
amount is reclassified to profit or loss, nor is it transferred within equity, in respect of the
10% attributable to the non-controlling interest.
(c) reclassify the cumulative gain on fair valuation of equity investment of ` 3.6 crore (90%
of ` 4 crore) attributable to the owners of the same parent from OCI to retained earnings
under equity as per paragraph B5.7.1 of Ind AS 109, Financial Instruments, which
provides that in case an entity has made an irrevocable election to recognise the changes
in the fair value of an investment in an equity instrument not held for trading in OCI, it may
subsequently transfer the cumulative amount of gains or loss within equity. Remaining
10% (i.e., ` 0.4 crore) related to the NCI are derecognised along with the balance of NCI
and not reclassified to profit and loss.
(d) reclassify the foreign currency translation reserve of ` 7.2 crore (90% × ` 8 crore)
attributable to the owners of the parent to statement of profit or loss as per paragraph 48
of Ind AS 21, The Effects of Changes in Foreign Exchange Rates, which specifies that the
cumulative amount of exchange differences relating to the foreign operation, recognised
in OCI, shall be reclassified from equity to profit or loss on the disposal of foreign
operation. This is reflected in the gain on disposal. Remaining 10% (i.e., ` 0.8 crore)
relating to the NCI is included as part of the carrying amount of the NCI that is
derecognised in calculating the gain or loss on the loss of control of subsidiary, but is not
reclassified to profit or loss in pursuance of paragraph 48B of Ind AS 21, which provides
that the cumulative exchange differences relating to that foreign operation attributed to
NCI shall be derecognised on disposal of the foreign operation, but shall not be
reclassified to profit or loss.
The impact of loss of control over BC Limited on the consolidated financial statements of
AB Limited is summarised below:
(Rupees in crore)
Particular Amount Amount PL RE
(Dr) (Cr) Impact Impact
Gain / Loss on Disposal on
Investments
Bank 56
Non-controlling interest 6
(Derecognised)
Investment at FV (20% Retained) 16
Gain on Disposal (PL) balancing figure 18 18
De-recognition of total net assets of 60
subsidiary
Reclassification of FVTOCI reserve on
debt instruments to profit or loss
FVTOCI reserve on debt instruments 5.4
(6 cr. x 90%)
To Profit and loss 5.4 5.4