Chapter 10: Consolidated Financial Statements - Test 2: answer key

Question 1 · 2 marks · Chapter 10: Consolidated Financial Statements · medium

Scenario. Sterling Garments Ltd. (SGL), an Indian apparel manufacturer, acquired 80% of the voting equity shares of Eastern Weaves Ltd. (EWL) on 1 October 2026 for ₹69 lakh. EWL's financial year ends on 31 March 2027. The following information is available from EWL's books and acquisition records (₹ lakh): equity share capital on 1 April 2026, 50; general reserve on that date, 10; and opening balance of profit and loss account, 6. EWL earned a profit of ₹12 lakh evenly throughout 2026-27. No dividend was declared or paid during the year, and there were no other changes in reserves. At the acquisition date, EWL owned a production plant with a carrying amount of ₹30 lakh. Its fair value on 1 October 2026 was ₹36 lakh, and its remaining useful life on that date was six years. The difference has not been recorded in EWL's separate books; SGL proposes to recognise the fair value adjustment only for consolidation purposes. Depreciation is charged on a straight-line basis, with no residual value. All other assets and liabilities were fairly stated at the acquisition date and at 31 March 2027. At 31 March 2027, EWL's standalone balance sheet shows share capital of ₹50 lakh, general reserve of ₹10 lakh and profit and loss account balance of ₹18 lakh. The reported closing reserves include the full-year profit of ₹12 lakh. There are no preference shares, contingent liabilities, inter-company balances or other consolidation adjustments. SGL's audit team must determine EWL's acquisition-date net assets, cost of control, post-acquisition profit after the additional depreciation arising from the fair value uplift, and the minority interest in closing net assets.

What is the total value of EWL's net assets on the date of acquisition by SGL, after considering the acquisition-date fair value adjustment?

1. ₹72 lakh
2. ₹78 lakh (correct answer)
3. ₹84 lakh
4. ₹90 lakh

Answer: B — ₹78 lakh

Explanation. Pre-acquisition net assets comprise share capital ₹50 lakh, opening general reserve ₹10 lakh, opening P&L ₹6 lakh and profit earned up to acquisition (₹12 lakh × 6/12) of ₹6 lakh. The plant's fair value uplift adds ₹6 lakh. Therefore, adjusted acquisition-date net assets are ₹50 + ₹10 + ₹6 + ₹6 + ₹6 = ₹78 lakh. The ₹72 lakh distractor omits the fair value uplift, while using the entire annual profit would incorrectly include post-acquisition earnings.

Where it goes wrong. Omitting the fair value uplift or including the entire annual profit in pre-acquisition reserves.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Sections 1.13 and 1.14(A)

Question 2 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Determine the goodwill or capital reserve arising on consolidation of EWL in SGL's consolidated financial statements.

1. Goodwill of ₹5.4 lakh
2. Goodwill of ₹6 lakh
3. Capital reserve of ₹6.6 lakh
4. Goodwill of ₹6.6 lakh (correct answer)

Answer: D — Goodwill of ₹6.6 lakh

Explanation. SGL's share in adjusted acquisition-date net assets is ₹78 lakh × 80% = ₹62.40 lakh. The cost of investment is ₹69 lakh. Since investment cost exceeds the parent's share of acquisition-date net assets, the excess is goodwill: ₹69 lakh − ₹62.40 lakh = ₹6.60 lakh. The capital reserve option reverses the comparison, while calculating goodwill on the subsidiary's entire net assets instead of the parent's proportionate interest is also incorrect.

Where it goes wrong. Comparing purchase consideration with all of subsidiary net assets instead of the parent's share at acquisition.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Section 1.13

Question 3 · 2 marks · Chapter 10: Consolidated Financial Statements · medium

What is the additional depreciation arising from the acquisition-date fair value uplift of EWL's production plant for the year ended 31 March 2027?

1. ₹0.50 lakh (correct answer)
2. ₹0.25 lakh
3. ₹1.00 lakh
4. ₹6.00 lakh

Answer: A — ₹0.50 lakh

Explanation. The additional depreciation is calculated on the fair value uplift of ₹6 lakh, not on the entire fair value of ₹36 lakh. Annual additional depreciation is ₹6 lakh divided by six years, i.e. ₹1 lakh. Since SGL obtained control on 1 October 2026, only six months' additional depreciation is attributable to the post-acquisition period. Accordingly, ₹1 lakh × 6/12 = ₹0.50 lakh. Charging a complete year's additional depreciation would ignore the acquisition date.

Where it goes wrong. Charging a full year's additional depreciation instead of restricting the adjustment to the post-acquisition period.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Section 1.14(A)

Question 4 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Calculate the minority interest attributable to EWL's outside shareholders as at 31 March 2027.

1. ₹15.00 lakh
2. ₹16.00 lakh
3. ₹16.70 lakh (correct answer)
4. ₹20.90 lakh

Answer: C — ₹16.70 lakh

Explanation. SGL holds 80%, leaving 20% as minority interest. EWL's adjusted closing net assets are share capital ₹50 lakh + general reserve ₹10 lakh + closing P&L ₹18 lakh + fair value uplift ₹6 lakh − additional depreciation ₹0.50 lakh = ₹83.50 lakh. Minority interest is therefore ₹83.50 lakh × 20% = ₹16.70 lakh. The calculation must include the minority's share of both pre-acquisition and post-acquisition net assets, including the remaining fair value adjustment.

Where it goes wrong. Calculating minority interest only on the subsidiary's share capital or omitting the consolidation-only fair value adjustment.

Authority. AS 21, para 13(c); Study Material, Chapter 10, Sections 1.12, 1.13 and 1.14(A)

Question 5 · 2 marks · Chapter 10: Consolidated Financial Statements · medium

Scenario. Zenith Technologies Pvt. Ltd. (ZTPL), a manufacturer of industrial batteries, acquired 70% of the equity shares of Northstar Batteries Ltd. (NBL) on 1 July 2026 for ₹32 lakh. Both companies close their books on 31 March 2027. NBL's equity share capital on 1 April 2026 was ₹30 lakh; its general reserve was ₹8 lakh and its profit and loss account had an opening credit balance of ₹4 lakh. NBL earned a profit of ₹16 lakh during 2026-27, evenly throughout the year. No dividend was declared, and the reserve balances were otherwise unchanged. On 1 July 2026, NBL's machinery had a carrying amount of ₹20 lakh and a fair value of ₹25 lakh. The machinery's remaining useful life was five years, with no residual value, and straight-line depreciation is used. NBL has not recorded this uplift in its separate financial statements. For consolidation, ZTPL proposes to recognise the ₹5 lakh difference at the acquisition date and to provide additional depreciation for the period from 1 July 2026 to 31 March 2027. No other asset or liability requires a fair value adjustment. At 31 March 2027, NBL's reported balances are equity share capital ₹30 lakh, general reserve ₹8 lakh and profit and loss account ₹20 lakh, the latter including the full-year profit. The companies have no preference share capital, no pre-acquisition dividend, and no other capital or revenue reserve movement. Assume the stated profits are after normal depreciation but before any additional depreciation arising from the consolidation-only fair value uplift. The finance controller asks for the pre-acquisition profit, the acquisition-date net assets, the resulting capital reserve or goodwill, the additional depreciation and the minority interest in NBL's post-acquisition profit.

What portion of NBL's current-year profit should be classified as pre-acquisition profit for the purpose of calculating cost of control?

1. ₹3 lakh
2. ₹8 lakh
3. ₹12 lakh
4. ₹4 lakh (correct answer)

Answer: D — ₹4 lakh

Explanation. NBL earned ₹16 lakh evenly over twelve months. ZTPL acquired control on 1 July 2026, so the period from 1 April to 30 June represents three months of pre-acquisition operations. Pre-acquisition profit is therefore ₹16 lakh × 3/12 = ₹4 lakh. The remaining ₹12 lakh relates to the post-acquisition period and is revenue profit. Using six months instead of three would incorrectly shift part of the post-acquisition period into capital profits.

Where it goes wrong. Using an incorrect acquisition-period split when determining pre-acquisition and post-acquisition profits.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Section 1.13

Question 6 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

What is the cost of control arising on ZTPL's acquisition of NBL?

1. Goodwill of ₹3.70 lakh
2. Capital reserve of ₹3.70 lakh (correct answer)
3. Capital reserve of ₹5.70 lakh
4. Goodwill of ₹5.70 lakh

Answer: B — Capital reserve of ₹3.70 lakh

Explanation. Adjusted acquisition-date net assets comprise share capital ₹30 lakh + general reserve ₹8 lakh + opening P&L ₹4 lakh + pre-acquisition profit ₹4 lakh + machinery fair value uplift ₹5 lakh = ₹51 lakh. ZTPL's 70% share is ₹35.70 lakh. Investment cost is ₹32 lakh. Since the parent's share in adjusted net assets exceeds investment cost, capital reserve arises: ₹35.70 lakh − ₹32 lakh = ₹3.70 lakh. Goodwill would arise only if investment cost were higher.

Where it goes wrong. Reversing the direction of the cost-of-control comparison and recognising goodwill instead of capital reserve.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Sections 1.13 and 1.14(A)

Question 7 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Calculate the additional depreciation charge arising from the fair value uplift of NBL's machinery for the post-acquisition period.

1. ₹0.50 lakh
2. ₹0.60 lakh
3. ₹0.75 lakh (correct answer)
4. ₹1.00 lakh

Answer: C — ₹0.75 lakh

Explanation. The acquisition-date fair value adjustment is ₹25 lakh − ₹20 lakh = ₹5 lakh. Remaining useful life is five years, resulting in additional annual depreciation of ₹1 lakh. ZTPL acquired control on 1 July 2026, leaving nine months until 31 March 2027. Accordingly, additional depreciation is ₹1 lakh × 9/12 = ₹0.75 lakh. The ₹1 lakh option incorrectly charges twelve months, while ₹0.50 lakh understates the period for which ZTPL controlled NBL.

Where it goes wrong. Applying twelve months' depreciation instead of nine months from the acquisition date.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Section 1.14(A)

Question 8 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

What amount of NBL's adjusted post-acquisition profit is attributable to minority shareholders and separately allocated in the consolidated statement of profit and loss?

1. ₹3.375 lakh (correct answer)
2. ₹2.250 lakh
3. ₹3.600 lakh
4. ₹4.800 lakh

Answer: A — ₹3.375 lakh

Explanation. NBL's post-acquisition profit covers nine months and equals ₹16 lakh × 9/12 = ₹12 lakh. The additional depreciation on the fair value uplift is ₹0.75 lakh. Adjusted post-acquisition profit is therefore ₹11.25 lakh. Minority shareholders hold 30%, so their share is ₹11.25 lakh × 30% = ₹3.375 lakh. Applying 30% to the full-year profit or ignoring additional depreciation would overstate the minority allocation.

Where it goes wrong. Allocating minority interest on unadjusted full-year profit instead of adjusted post-acquisition profit.

Authority. AS 21, para 13(b) and para 16; Study Material, Chapter 10, Sections 1.12 to 1.14(A)

Question 9 · 2 marks · Chapter 10: Consolidated Financial Statements · medium

Scenario. Vardhan Chemicals Ltd. (VCL) acquired 75% of the equity shares of Nova Resins Ltd. (NRL) on 1 January 2027 for ₹64 lakh. The acquisition gave VCL control from that date. NRL's financial year ends on 31 March 2027. Its equity share capital on 1 April 2026 was ₹40 lakh, general reserve was ₹10 lakh and profit and loss account had an opening credit balance of ₹5 lakh. NRL earned a profit of ₹20 lakh during 2026-27, evenly throughout the year. No dividend was declared or paid, and no other reserve movements occurred. At the acquisition date, a machine owned by NRL had a carrying amount of ₹18 lakh but a fair value of ₹24 lakh. Its remaining useful life was three years, with no residual value. NRL uses straight-line depreciation and has not recorded the uplift in its separate books. VCL will record the acquisition-date fair value difference only in the consolidated financial statements and will provide additional depreciation for the three months from 1 January to 31 March 2027. The profit of ₹20 lakh is stated before this consolidation-only additional depreciation. At 31 March 2027, NRL's standalone equity comprises share capital of ₹40 lakh, general reserve of ₹10 lakh and profit and loss account of ₹25 lakh. The closing profit and loss balance includes both the opening balance and the entire current-year profit. There are no preference shares, pre-acquisition dividends, contingent liabilities or other fair value adjustments. Assume all other assets and liabilities are fairly stated. VCL's consolidation team must segregate capital and revenue profits, compute the acquisition-date difference between cost and its share of adjusted net assets, recognise the consequential depreciation, and determine minority interest at the reporting date.

Determine the pre-acquisition profit of NRL for the purpose of computing the goodwill arising on acquisition by VCL.

1. ₹10 lakh
2. ₹12 lakh
3. ₹15 lakh (correct answer)
4. ₹5 lakh

Answer: C — ₹15 lakh

Explanation. VCL acquired control on 1 January 2027. The pre-acquisition period runs from 1 April 2026 to 31 December 2026, representing nine months. Since NRL earned ₹20 lakh evenly throughout the year, the pre-acquisition profit is ₹20 lakh × 9/12 = ₹15 lakh. The remaining ₹5 lakh is post-acquisition revenue profit. The ₹20 lakh full-year amount cannot be treated entirely as capital profit because three months' profit arose after VCL obtained control.

Where it goes wrong. Treating the entire year's profit as pre-acquisition profit instead of splitting it according to the acquisition date.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Section 1.13

Question 10 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Calculate the goodwill or capital reserve arising on consolidation of NRL.

1. Goodwill of ₹7 lakh (correct answer)
2. Goodwill of ₹4 lakh
3. Capital reserve of ₹7 lakh
4. Goodwill of ₹9 lakh

Answer: A — Goodwill of ₹7 lakh

Explanation. NRL's adjusted acquisition-date net assets are ₹40 lakh share capital + ₹10 lakh general reserve + ₹5 lakh opening P&L + ₹15 lakh pre-acquisition profit + ₹6 lakh plant fair value uplift = ₹76 lakh. VCL's 75% share is ₹57 lakh. Investment cost is ₹64 lakh. Therefore, goodwill is ₹64 lakh − ₹57 lakh = ₹7 lakh. The ₹4 lakh option omits part of pre-acquisition equity, while capital reserve would arise only if the parent's share exceeded investment cost.

Where it goes wrong. Omitting opening accumulated profits or the acquisition-date fair value adjustment when determining the parent's share in net assets.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Sections 1.13 and 1.14(A)

Question 11 · 2 marks · Chapter 10: Consolidated Financial Statements · medium

What amount of NRL's adjusted post-acquisition profit should be considered for the year ended 31 March 2027 after recognising the additional depreciation on the fair value uplift?

1. ₹4.00 lakh
2. ₹4.75 lakh
3. ₹5.00 lakh
4. ₹4.50 lakh (correct answer)

Answer: D — ₹4.50 lakh

Explanation. NRL's post-acquisition profit covers January to March, or three months. The profit for that period is ₹20 lakh × 3/12 = ₹5 lakh. The fair value uplift is ₹6 lakh, and annual additional depreciation is ₹6 lakh/3 years = ₹2 lakh. For three months, additional depreciation is ₹0.50 lakh. Thus, adjusted post-acquisition profit is ₹5 lakh − ₹0.50 lakh = ₹4.50 lakh. Using the full-year profit would include pre-acquisition results.

Where it goes wrong. Failing to deduct additional depreciation from post-acquisition profit or including the pre-acquisition period in the consolidated result.

Authority. AS 21, para 13(a) and para 16; Study Material, Chapter 10, Section 1.14(A)

Question 12 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Calculate minority interest in NRL's net assets as at 31 March 2027 after considering the fair value adjustment and additional depreciation.

1. ₹18.50 lakh
2. ₹20.125 lakh (correct answer)
3. ₹20.50 lakh
4. ₹25.00 lakh

Answer: B — ₹20.125 lakh

Explanation. VCL owns 75%, leaving minority shareholders with 25%. NRL's adjusted closing net assets are share capital ₹40 lakh + general reserve ₹10 lakh + closing P&L ₹25 lakh + fair value uplift ₹6 lakh − additional depreciation ₹0.50 lakh = ₹80.50 lakh. Minority interest is ₹80.50 lakh × 25% = ₹20.125 lakh. The acquisition-date goodwill is not added again to the subsidiary's net assets while calculating minority interest.

Where it goes wrong. Adding goodwill to subsidiary net assets or failing to deduct the additional post-acquisition depreciation.

Authority. AS 21, para 13(c); Study Material, Chapter 10, Sections 1.12, 1.13 and 1.14(A)

Question 13 · 2 marks · Chapter 10: Consolidated Financial Statements · medium

Scenario. Orion Ltd. acquired 80% of the equity shares of Vega Ltd. on 1 December 2026. Vega Ltd. earned an annual profit of ₹18 lakh during the year ended 31 March 2027, evenly throughout the year. What amount of this profit should be classified as pre-acquisition profit?

Orion Ltd. acquired 80% of the equity shares of Vega Ltd. on 1 December 2026. Vega Ltd. earned an annual profit of ₹18 lakh during the year ended 31 March 2027, evenly throughout the year. What amount of this profit should be classified as pre-acquisition profit?

1. ₹12 lakh (correct answer)
2. ₹6 lakh
3. ₹10 lakh
4. ₹14 lakh

Answer: A — ₹12 lakh

Explanation. The acquisition took place on 1 December 2026. The pre-acquisition period is April to November, representing eight months of the financial year. Since profit accrues evenly, the pre-acquisition profit is ₹18 lakh × 8/12 = ₹12 lakh. The balance of ₹6 lakh belongs to the post-acquisition period. Applying the parent's 80% share at this stage would be inappropriate because the question asks for the subsidiary's total pre-acquisition profit before ownership allocation.

Where it goes wrong. Applying the parent's ownership percentage before dividing the subsidiary's total profit into capital and revenue portions.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Section 1.13

Question 14 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Scenario. Aster Ltd. acquired 75% of the equity shares of Beacon Ltd. for ₹38 lakh. At the acquisition date, Beacon Ltd. had paid-up equity share capital of ₹40 lakh, general reserve of ₹12 lakh and a credit balance in profit and loss account of ₹4 lakh. All reserves and profits existed before acquisition. No fair value adjustments were required. Determine the resulting cost of control.

Aster Ltd. acquired 75% of the equity shares of Beacon Ltd. for ₹38 lakh. At the acquisition date, Beacon Ltd. had paid-up equity share capital of ₹40 lakh, general reserve of ₹12 lakh and a credit balance in profit and loss account of ₹4 lakh. All reserves and profits existed before acquisition. No fair value adjustments were required. Determine the resulting cost of control.

1. Goodwill of ₹4 lakh
2. Capital reserve of ₹4 lakh (correct answer)
3. Capital reserve of ₹18 lakh
4. Goodwill of ₹14 lakh

Answer: B — Capital reserve of ₹4 lakh

Explanation. Beacon's acquisition-date net assets are ₹40 lakh + ₹12 lakh + ₹4 lakh = ₹56 lakh. Aster's 75% share is ₹42 lakh. The consideration paid is ₹38 lakh. Since the parent's share of net assets exceeds the investment cost, capital reserve arises to the extent of ₹42 lakh − ₹38 lakh = ₹4 lakh. The goodwill option reverses the calculation, while ₹18 lakh incorrectly treats the entire reserves as the capital reserve attributable to the parent.

Where it goes wrong. Recognising goodwill when the parent's share in acquisition-date net assets is greater than the acquisition cost.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Section 1.13

Question 15 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Scenario. Meridian Ltd. acquired 80% of the equity shares of Summit Ltd. for ₹61 lakh. At acquisition, Summit Ltd. had equity share capital ₹50 lakh, pre-acquisition general reserve ₹15 lakh and accumulated profit ₹5 lakh. A building was undervalued by ₹4 lakh, while an unrecorded liability with a fair value of ₹2 lakh was identified. Calculate goodwill arising on consolidation.

Meridian Ltd. acquired 80% of the equity shares of Summit Ltd. for ₹61 lakh. At acquisition, Summit Ltd. had equity share capital ₹50 lakh, pre-acquisition general reserve ₹15 lakh and accumulated profit ₹5 lakh. A building was undervalued by ₹4 lakh, while an unrecorded liability with a fair value of ₹2 lakh was identified. Calculate goodwill arising on consolidation.

1. ₹5.00 lakh
2. ₹1.80 lakh
3. ₹3.40 lakh (correct answer)
4. ₹2.20 lakh

Answer: C — ₹3.40 lakh

Explanation. Adjusted net assets at acquisition are ₹50 lakh + ₹15 lakh + ₹5 lakh + ₹4 lakh building uplift − ₹2 lakh unrecorded liability = ₹72 lakh. Summit's adjusted net assets attributable to Meridian are ₹72 lakh × 80% = ₹57.60 lakh. Goodwill is ₹61 lakh − ₹57.60 lakh = ₹3.40 lakh. Omitting the unrecorded liability would produce goodwill of only ₹1.80 lakh, which overstates the acquired net assets.

Where it goes wrong. Ignoring an identifiable acquisition-date liability when calculating adjusted net assets and goodwill.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Sections 1.13 and 1.14(A)

Question 16 · 2 marks · Chapter 10: Consolidated Financial Statements · medium

Scenario. Pioneer Ltd. acquired 70% of the equity shares of Quest Ltd. on 1 April 2026. Quest Ltd. earned post-acquisition profit of ₹8 lakh during the financial year. What amount should be added to Pioneer's consolidated reserves as its share of Quest's post-acquisition revenue profit?

Pioneer Ltd. acquired 70% of the equity shares of Quest Ltd. on 1 April 2026. Quest Ltd. earned post-acquisition profit of ₹8 lakh during the financial year. What amount should be added to Pioneer's consolidated reserves as its share of Quest's post-acquisition revenue profit?

1. ₹8.00 lakh
2. ₹2.40 lakh
3. ₹4.80 lakh
4. ₹5.60 lakh (correct answer)

Answer: D — ₹5.60 lakh

Explanation. Quest's entire ₹8 lakh profit is post-acquisition because Pioneer acquired control on 1 April 2026. The parent's share is ₹8 lakh × 70% = ₹5.60 lakh. This portion is added to the parent's consolidated reserves, whereas the remaining ₹2.40 lakh represents the minority's share. Including the full ₹8 lakh in the parent's reserves would improperly attribute the outside shareholders' interest to the parent.

Where it goes wrong. Adding all of the subsidiary's post-acquisition profit to the parent's reserves instead of only the parent's attributable share.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Section 1.13

Question 17 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Scenario. Apex Ltd. owns 75% of Delta Ltd. At the reporting date, Delta Ltd. has equity share capital of ₹40 lakh, pre-acquisition accumulated reserves of ₹5 lakh, post-acquisition profits and reserves of ₹12 lakh, and an acquisition-date fair value uplift of ₹3 lakh on property. Additional depreciation of ₹1 lakh has arisen on this uplift since acquisition. Calculate minority interest in Delta Ltd.'s closing net assets.

Apex Ltd. owns 75% of Delta Ltd. At the reporting date, Delta Ltd. has equity share capital of ₹40 lakh, pre-acquisition accumulated reserves of ₹5 lakh, post-acquisition profits and reserves of ₹12 lakh, and an acquisition-date fair value uplift of ₹3 lakh on property. Additional depreciation of ₹1 lakh has arisen on this uplift since acquisition. Calculate minority interest in Delta Ltd.'s closing net assets.

1. ₹14.75 lakh (correct answer)
2. ₹13.25 lakh
3. ₹12.50 lakh
4. ₹15.00 lakh

Answer: A — ₹14.75 lakh

Explanation. The minority owns 25% of Delta Ltd. The adjusted closing net assets are ₹40 lakh equity share capital + ₹5 lakh pre-acquisition reserves + ₹12 lakh post-acquisition reserves + ₹3 lakh fair value uplift − ₹1 lakh additional depreciation = ₹59 lakh. Minority interest is ₹59 lakh × 25% = ₹14.75 lakh. Excluding pre-acquisition reserves would understate minority interest because outsiders' interests in acquisition-date net assets remain part of the closing minority balance.

Where it goes wrong. Including only post-acquisition reserves in minority interest and overlooking the minority's share of acquisition-date equity.

Authority. AS 21, para 13(c); Study Material, Chapter 10, Sections 1.12 to 1.14(A)

Question 18 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Scenario. Nova Ltd. acquired a 70% interest in Crystal Ltd. At the acquisition date, minority interest in Crystal's net assets was ₹4.50 lakh. During the subsequent financial year, Crystal incurred a post-acquisition loss of ₹20 lakh. Minority shareholders have no binding obligation to contribute additional funds or make good losses. What is the appropriate treatment of minority interest?

Nova Ltd. acquired a 70% interest in Crystal Ltd. At the acquisition date, minority interest in Crystal's net assets was ₹4.50 lakh. During the subsequent financial year, Crystal incurred a post-acquisition loss of ₹20 lakh. Minority shareholders have no binding obligation to contribute additional funds or make good losses. What is the appropriate treatment of minority interest?

1. Recognise a closing debit minority interest of ₹1.50 lakh and allocate all minority losses to outsiders.
2. Reduce minority interest to nil and allocate the excess loss of ₹1.50 lakh to the majority interest. (correct answer)
3. Retain the opening minority interest of ₹4.50 lakh and allocate no loss to outsiders.
4. Recognise a closing debit minority interest of ₹6 lakh without considering the opening balance.

Answer: B — Reduce minority interest to nil and allocate the excess loss of ₹1.50 lakh to the majority interest.

Explanation. Minority shareholders hold 30% and their share of the post-acquisition loss is ₹20 lakh × 30% = ₹6 lakh. The opening minority interest is only ₹4.50 lakh. Since there is no binding obligation on minority shareholders to make good the excess, their interest is reduced to nil and the shortfall of ₹1.50 lakh is adjusted against the majority interest. A debit minority balance would be recognised only where the specified obligation exists.

Where it goes wrong. Automatically allocating minority losses beyond the existing minority interest without checking whether outsiders have a binding obligation.

Authority. AS 21, paras 13(b)-(c); Study Material, Chapter 10, Section 1.12

Question 19 · 2 marks · Chapter 10: Consolidated Financial Statements · medium

Scenario. On acquisition of 80% of a subsidiary on 1 October 2026, the parent identifies an upward fair value adjustment of ₹12 lakh on machinery having a remaining useful life of six years. Depreciation is charged on the straight-line basis. What additional depreciation should be charged in consolidated results for the six months ended 31 March 2027?

On acquisition of 80% of a subsidiary on 1 October 2026, the parent identifies an upward fair value adjustment of ₹12 lakh on machinery having a remaining useful life of six years. Depreciation is charged on the straight-line basis. What additional depreciation should be charged in consolidated results for the six months ended 31 March 2027?

1. ₹2 lakh
2. ₹0.50 lakh
3. ₹1 lakh (correct answer)
4. ₹6 lakh

Answer: C — ₹1 lakh

Explanation. The additional depreciation relates only to the fair value uplift of ₹12 lakh. Annual additional depreciation is ₹12 lakh/6 years = ₹2 lakh. The parent acquired control on 1 October 2026, so the consolidated statement includes six months' additional depreciation, amounting to ₹2 lakh × 6/12 = ₹1 lakh. The ₹2 lakh option charges a full year and incorrectly includes depreciation attributable to the period before the parent obtained control.

Where it goes wrong. Charging a complete year's additional depreciation even though the acquisition occurred halfway through the financial year.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Section 1.14(A)

Question 20 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Scenario. Parent Ltd. owns 75% of Subsidiary Ltd. After the acquisition date, the carrying value of a subsidiary asset suffers a permanent reduction of ₹8 lakh. What amount of this post-acquisition loss is attributable to minority shareholders, assuming no other adjustments?

Parent Ltd. owns 75% of Subsidiary Ltd. After the acquisition date, the carrying value of a subsidiary asset suffers a permanent reduction of ₹8 lakh. What amount of this post-acquisition loss is attributable to minority shareholders, assuming no other adjustments?

1. ₹8 lakh
2. ₹6 lakh
3. ₹4 lakh
4. ₹2 lakh (correct answer)

Answer: D — ₹2 lakh

Explanation. The fall in asset value occurred after acquisition, so the ₹8 lakh loss is treated as a revenue loss rather than an acquisition-date capital loss. Minority shareholders own 25%, and their attributable share is ₹8 lakh × 25% = ₹2 lakh. The remaining ₹6 lakh is attributable to the parent. Treating the entire decrease as a pre-acquisition adjustment would wrongly alter the cost of control and ignore the timing of the loss.

Where it goes wrong. Treating a post-acquisition asset value reduction as a capital adjustment instead of a revenue loss shared between parent and minority.

Authority. AS 21, para 13(b)-(c); Study Material, Chapter 10, Sections 1.12 and 1.14(A)

Question 21 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Scenario. Falcon Ltd. acquired 80% of the equity shares of Robin Ltd. for ₹50 lakh. After acquisition, Robin declared and paid a dividend of ₹10 lakh entirely out of profits accumulated before the acquisition date. Falcon received its proportionate dividend of ₹8 lakh. What adjusted investment cost should be considered for calculating goodwill or capital reserve?

Falcon Ltd. acquired 80% of the equity shares of Robin Ltd. for ₹50 lakh. After acquisition, Robin declared and paid a dividend of ₹10 lakh entirely out of profits accumulated before the acquisition date. Falcon received its proportionate dividend of ₹8 lakh. What adjusted investment cost should be considered for calculating goodwill or capital reserve?

1. ₹42 lakh (correct answer)
2. ₹50 lakh
3. ₹58 lakh
4. ₹40 lakh

Answer: A — ₹42 lakh

Explanation. The dividend is expressly paid from pre-acquisition profits. Accordingly, Falcon's receipt of ₹8 lakh represents a recovery of investment cost rather than revenue income. The adjusted cost of investment for calculating cost of control is ₹50 lakh − ₹8 lakh = ₹42 lakh. Retaining ₹50 lakh would fail to adjust the pre-acquisition dividend, while adding the dividend would incorrectly treat a capital receipt as additional consideration.

Where it goes wrong. Crediting a dividend from pre-acquisition profits to current income instead of reducing the effective investment cost.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Section 1.13 and Illustration 8

Question 22 · 2 marks · Chapter 10: Consolidated Financial Statements · medium

Scenario. Pioneer Ltd. acquired 75% of the voting equity shares of Saturn Ltd. on 1 October 2026. Saturn earned a profit of ₹24 lakh evenly throughout the financial year ended 31 March 2027. What is Pioneer's share of Saturn's post-acquisition profit to be included in consolidated reserves?

Pioneer Ltd. acquired 75% of the voting equity shares of Saturn Ltd. on 1 October 2026. Saturn earned a profit of ₹24 lakh evenly throughout the financial year ended 31 March 2027. What is Pioneer's share of Saturn's post-acquisition profit to be included in consolidated reserves?

1. ₹18 lakh
2. ₹9 lakh (correct answer)
3. ₹12 lakh
4. ₹6 lakh

Answer: B — ₹9 lakh

Explanation. Post-acquisition profit covers six months from 1 October 2026 to 31 March 2027. Saturn's post-acquisition profit is ₹24 lakh × 6/12 = ₹12 lakh. Pioneer's attributable portion is ₹12 lakh × 75% = ₹9 lakh. The balance of ₹3 lakh belongs to minority shareholders. Including ₹12 lakh in the parent's reserves would incorrectly attribute the outsiders' share to Pioneer.

Where it goes wrong. Adding the subsidiary's entire post-acquisition profit rather than only the parent's proportionate share to consolidated reserves.

Authority. AS 21, paras 13(a) and 16; Study Material, Chapter 10, Section 1.13

Question 23 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Scenario. Parent Ltd. owns 75% of the equity share capital of Subsidiary Ltd. The subsidiary has equity share capital of ₹40 lakh, 8% preference share capital of ₹10 lakh entirely held by outsiders, and accumulated reserves of ₹12 lakh at the reporting date. Calculate minority interest, assuming no dividend arrears or other adjustments and that the outside equity shareholders hold 25% of the equity share capital.

Parent Ltd. owns 75% of the equity share capital of Subsidiary Ltd. The subsidiary has equity share capital of ₹40 lakh, 8% preference share capital of ₹10 lakh entirely held by outsiders, and accumulated reserves of ₹12 lakh at the reporting date. Calculate minority interest, assuming no dividend arrears or other adjustments and that the outside equity shareholders hold 25% of the equity share capital.

1. ₹13 lakh
2. ₹20 lakh
3. ₹23 lakh (correct answer)
4. ₹26 lakh

Answer: C — ₹23 lakh

Explanation. Minority interest includes outside shareholders' share capital and their share of the subsidiary's reserves. Outside equity share capital is ₹40 lakh × 25% = ₹10 lakh. Preference share capital of ₹10 lakh is entirely held by outsiders and is therefore included in full. Their share of reserves is ₹12 lakh × 25% = ₹3 lakh. Total minority interest is ₹10 lakh + ₹10 lakh + ₹3 lakh = ₹23 lakh. Applying 25% to preference capital would understate the minority interest.

Where it goes wrong. Applying the equity shareholders' 25% holding to preference share capital that is entirely owned by outsiders.

Authority. AS 21, para 13(c); Study Material, Chapter 10, Sections 1.12 and 1.13

Question 24 · 2 marks · Chapter 10: Consolidated Financial Statements · hard

Scenario. Crest Ltd. acquired 60% of the equity shares of Falcon Industries Ltd. on 1 October 2026. Falcon's profits for the year ended 31 March 2027 were ₹10 lakh during April to September and ₹15 lakh during October to March. What amount of current-year profit should be treated as pre-acquisition capital profit?

Crest Ltd. acquired 60% of the equity shares of Falcon Industries Ltd. on 1 October 2026. Falcon's profits for the year ended 31 March 2027 were ₹10 lakh during April to September and ₹15 lakh during October to March. What amount of current-year profit should be treated as pre-acquisition capital profit?

1. ₹12.50 lakh
2. ₹15 lakh
3. ₹25 lakh
4. ₹10 lakh (correct answer)

Answer: D — ₹10 lakh

Explanation. Falcon's actual earnings are separately provided for the two periods. The profit earned from April to September, before Crest acquired control on 1 October 2026, is ₹10 lakh and constitutes pre-acquisition profit. The ₹15 lakh earned from October to March is post-acquisition revenue profit. The time-apportionment alternative of ₹12.50 lakh is inappropriate because actual period-wise profit information is available and should be used instead of assuming even accrual.

Where it goes wrong. Using time apportionment despite the question providing actual profit figures for the pre-acquisition and post-acquisition periods.

Authority. AS 21, para 13(a); Study Material, Chapter 10, Section 1.13

Question 25 · 2 marks · Chapter 10: Consolidated Financial Statements · medium

Scenario. Crown Ltd. acquired 70% of the equity shares of Summit Ltd. At the acquisition date, Summit had equity share capital of ₹60 lakh, accumulated reserves of ₹8 lakh and pre-acquisition profit of ₹4 lakh. An unrecorded liability with a fair value of ₹1 lakh was also identified. Calculate the minority interest in Summit's net assets at the acquisition date.

Crown Ltd. acquired 70% of the equity shares of Summit Ltd. At the acquisition date, Summit had equity share capital of ₹60 lakh, accumulated reserves of ₹8 lakh and pre-acquisition profit of ₹4 lakh. An unrecorded liability with a fair value of ₹1 lakh was also identified. Calculate the minority interest in Summit's net assets at the acquisition date.

1. ₹21.30 lakh (correct answer)
2. ₹18.90 lakh
3. ₹24.00 lakh
4. ₹20.70 lakh

Answer: A — ₹21.30 lakh

Explanation. Crown owns 70%, leaving 30% as minority interest. Summit's adjusted acquisition-date net assets are ₹60 lakh share capital + ₹8 lakh accumulated reserves + ₹4 lakh pre-acquisition profit − ₹1 lakh unrecorded liability = ₹71 lakh. Minority interest at acquisition is ₹71 lakh × 30% = ₹21.30 lakh. The unrecorded liability must reduce the net assets before calculating minority interest; ignoring it would incorrectly produce ₹21.60 lakh.

Where it goes wrong. Calculating minority interest on unadjusted book net assets without recognising the acquisition-date fair value of an unrecorded liability.

Authority. AS 21, para 13(c); Study Material, Chapter 10, Sections 1.12 to 1.14(A)