R Limited is a subsidiary of Z Limited. Their respective balance sheet as at 31 st March, 2025 is as under: Note No. Z Ltd. (in lakhs) R Ltd. (in…

Consolidated Balance Sheet of Z Ltd. as at 31 st March 2025 Notes No. ₹ Assets Non-current assets (i) Property, plant and equipment 1 6,83,75,000 (ii) Intangible assets 1 75,00,000 (iii) Financial assets a. Investments 1 89,75,000 Current assets (i) Inventories 1 1,50,00,000 (ii) Financial assets a. Trade receivables 1 2,26,00,000 b. Cash and cash equivalents 1 2,20,00,000 Total 14,44,50,000 Equity and Liabilities Equity (i) Share capital 2 7,20,00,000 (ii) Other equity 3 3,79,96,875 (iii) Non-controlling interest (W.N.3) 1,07,53,125 Current Liabilities (i) Financial liabilities a. Bank overdraft 1 75,00,000 b. Trade payables 1 1,62,00,000 Total 14,44,50,000 Notes to Accounts Note 1: Assets and Liabilities Particulars Z Ltd. R Ltd. Adjustments ₹ Property, Plant and Equipment 4,50,00,000 2,48,00,000 -15,00,000 + 75,000 6,83,75,000 Intangible Assets 75,00,000 45,00,000 -45,00,000 75,00,000 Investments 3,75,00,000 68,00,000 -1,44,00,000 - 1,55,25,000 - 54,00,000 89,75,000 Inventories 75,00,000 75,00,000 1,50,00,000 Trade Receivables 1,10,00,000 1,20,00,000 -4,00,000 2,26,00,000 Cash and Cash Equivalents 85,00,000 1,35,00,000 2,20,00,000 Bank Overdraft 45,00,000 30,00,000 75,00,000 Trade Payables 90,00,000 76,00,000 -4,00,000 1,62,00,000 Note 2: Share Capital Particulars ₹ 60 lakhs Equity shares of 10each, fully paid 6,00,00,000 10%, 12 lakhs Preference Share of 10each fully paid 1,20,00,000 7,20,00,000 Note 3: Consolidated Other Equity Particulars ₹ General Reserve W.N.1 1,29,56,250 Retained Earnings W.N.1 2,17,78,125 Capital Reserve W.N.2 32,62,500 3,79,96,875 Working Notes: 1. Consolidated Other Equity Particulars General Reserve Retained Earnings Standalone - Z Ltd. 1,20,00,000 1,95,00,000 Add: Fair Value gain of existing stake [(12 lakh x 14) – 144 lakhs] 24,00,000 Less: Loss on cancellation of preference shares (54 lakhs - 22.5 lakhs) (31,50,000) Add: Share in post-acquisition Profits (W.N.4(i)) 9,56,250 (W.N.4(ii)) 30,28,125 1,29,56,250 2,17,78,125 2. Computation of bargain purchase i.e. capital reserve (i) Computation of net worth (net identifiable assets) as on 1 st January 2025 Particulars ₹ Share Capital 3,00,00,000 Pre-acquisition Retained Earnings (after adjusting downward revaluation of machinery) 1,00,12,500 Pre-acquisition General Reserve 63,75,000 Adjustment for Goodwill since it has no fair value (45,00,000) Net worth or Net Identifiable assets 4,18,87,500 (ii) Computation of bargain purchase i.e. capital reserve Particulars ₹ Net worth or Net identifiable assets 4,18,87,500 Purchase consideration (155.25 lakhs + 168 lakhs) 3,23,25,000 NCI [30 lakhs shares x 15% x 14] 63,00,000 (3,86,25,000) Bargain purchase (capital reserve) 32,62,500 3. Non-Controlling Interest A/c (at Fair Value) Particulars ₹ NCI at fair value as on 1 st January 2025 63,00,000 Post-acquisition General Reserve (W.N.4(i)) 1,68,750 Post-acquisition Retained Earnings (W.N.4(ii)) 5,34,375 Preference share capital (60 lakh – 22.50 lakh) 37,50,000 NCI at fair value as on 31 st March 2025 1,07,53,125 4. Analysis of Other Equity (i) General Reserve Particulars ₹ Closing balance as on 31 st March 2025 75,00,000 Less: Opening Balance (45.00 - 36.00) pre (30,00,000) Net Profit transferred during the year 45,00,000 For 9 months till 31 st December 2024 pre 33,75,000 For 3 months from 1 st Jan. 2025 to 31 st Mar. 2025 post 11,25,000 Total pre-acquisition reserve (30.00 lakh+33.75 lakh) pre 63,75,000 Share of Z Ltd. in post-acquisition reserve (85%) post 9,56,250 Share of NCI in post-acquisition reserve (15%) post 1,68,750 (ii) Retained Earnings (RE) Particulars ₹ Closing balance as on 31 st March, 2025 1,50,00,000 Less: Opening balance 45,00,000 Less: Dividend @12% (300 lakhx12%) (36,00,000) Pre (9,00,000) During the year 1,41,00,000 For 9 months till 31 st December, 2024 Pre 1,05,75,000 For 3 months from 1 st Jan. 2025 to 31 st Mar. 2025 Post 35,25,000 Add: Saving in Depreciation for 3 months (from 1 st January 2025 to March 2025) 37,500 Net post-acquisition RE Post 35,62,500 Total pre-acquisition RE (9.00 + 105.75) Pre 1,14,75,000 Less: Downward revaluation of machinery (15,00,000) Add: Saving in depreciation for 3 months (from 1 st October 2024 to 31 st December 2024) 37,500 Pre 1,00,12,500 Share of Z Ltd. in post-acquisition RE (85%) Post 30,28,125 Share of NCI in post-acquisition RE (15%) Post 5,34,375 Note: 1. At page 4 of the Question Paper under additional information (a) the second acquisition of 13,50,000 equity shares on 1 st January 2025 has been done at 1,55,25,000. This implies that fair value per share is 11.50 (1,55,25,000/13,50,000). However, in the last para of the question at the same page, the fair value of R Ltd.'s share is mentioned as 14 per share on the date of acquisition. The above solution has been drawn considering fair value of R Ltd.'s share as 14 per share for the purpose of computation of gain or loss on existing stake and bargain purchase. However, alternatively one can draw a solution considering fair value of R Ltd.'s share as 11.5 per share for the purpose of computation of gain or loss on existing stake and bargain purchase only. In such a case, the amount of consolidated retained earnings and bargain purchase i.e. capital reserve will be - 1,87,78,125 and - 62,62,500 respectively. 2. Furthermore, the above solution has been drawn considering goodwill being residuary in nature, has no fair value. However, one may draw a solution considering goodwill as an identifiable asset.