On 1st April 2024, A Limited acquired 80% of the equity share capital of S Limited. On the said date, the share capital and other equity…

CA Final · Financial Reporting · PYQS · January 2026
On 1st April 2024, A Limited acquired 80% of the equity share capital of S Limited. On the said date, the share capital and other equity (represented entirely by retained earnings) of S Limited were - 10.00 lakhs and - 2.50 lakhs respectively. To the selling shareholders, A Limited: paid initial cash consideration of 20.00 lakhs;issued fresh 4,00,000 equity shares of a nominal value of 1 per share at current market price of 2 per share;agreed to pay a further - 6.00 lakhs after 3 years i.e. on 31st March 2027. A Limited's cost of capital is 10% per annum. The appropriate discount factor for 1 @ 10% per annum receivable at the end of: 1 st year is 0.91; 2 nd year is 0.83; 3 rd year is 0.75. Both A Limited and S Limited prepare their financial statements as per the Companies (Indian Accounting Standards) Rules, 2015. The Balance Sheet of A Limited and S Limited as at 31st March 2025 is as under: (All amounts in ₹ in lakhs) Particulars A Limited S Limited ASSETS Non-current assets Property, plant and equipment 60.00 30.00 Financial assets Investment (in S Limited at cost) 20.00 - Current assets Inventories 7.00 12.00 Financial assets Trade receivables 4.50 10.00 Cash and cash equivalents 2.00 4.00 Total Assets 93.50 56.00 EQUITY AND LIABILITIES EQUITY Equity share capital (1 per share) 40.00 10.00 Other equity Retained earning 15.00 6.00 LIABILITIES Non-current liabilities Financial liabilities Borrowings 25.00 25.00 Current liabilities Financial liabilities Trade payables 13.50 15.00 Total Equity and Liabilities 93.50 56.00 The following additional information is provided: Since its incorporation, S Limited has been selling some of its products under the brand name 'BLISS'. At the acquisition date, A Limited valued this brand at 8.00 lakhs with a remaining life of 10 years with NIL residual value. A Limited amortizes its intangible assets on straight line method. The brand is not recognized in S Limited's Balance Sheet;As at 31st March 2025, goodwill recognized on consolidation is to be impaired by 25%;A Limited Group measures the non-controlling interest at fair value;Equity shares of S Limited were quoted at 4 per share on the date of acquisition;Immediately after acquisition i.e. on 1st April 2024, A Limited (which also sells capital equipment) sold a capital equipment costing - 4.00 lakhs to S Limited at 5.00 lakhs. This capital equipment is recorded as Property, Plant and Equipment by S Limited. The useful life of the equipment on the date of transfer was 10 years with NIL residual value. The equipment is depreciated on straight line method.A Limited is yet to record issuance of shares and deferred consideration in its books of account. You are required to prepare Consolidated Balance Sheet of A Limited as at 31st March 2025. Workings should form part of your answer.

Suggested Answer and Working Notes:

Consolidated Balance Sheet of A Ltd. and its subsidiary, S Ltd. as at 31st March 2025 Particulars Note No. ₹ in lakhs I. Assets (1) Non-Current Assets (i) Property Plant & Equipment 1 89.10 (ii) Goodwill (W.N.3) 15.00 (iii) Intangible Asset - Brand 1 7.20 (2) Current Assets (i) Inventories 1 19.00 (ii) Financial Assets (a) Trade Receivables 1 14.50 (b) Cash & Cash Equivalents 1 6.00 Total Assets 150.80 II. Equity and Liabilities (1) Equity (i) Equity Share Capital 2 44.00 (ii) Other Equity 3 15.79 (2) Non-Controlling Interest (W.N.5) 7.56 (3) Non-Current Liabilities (i) Financial Liabilities (a) Borrowings 1 50.00 (b) Other - Contingent Consideration 1 4.95 (4) Current Liabilities (i) Financial Liabilities (a) Trade Payables 1 28.50 Total Equity & Liabilities 150.80 Note: It is assumed that depreciation on capital equipment has already been accounted for by S Ltd. for the year 2024-2025 based on its purchase price. Notes to Accounts 1. Assets and Liabilities ₹ in lakhs Particulars A Ltd. S Ltd. Adjustments Total Property, Plant and Equipment 60.00 30.00 -1.00+0.10 89.10 Intangible Assets (Brand) - - +8.00-0.80 7.20 Investments 20.00 - - 20.00 - Inventories 7.00 12.00 19.00 Trade Receivables 4.50 10.00 14.50 Cash and Cash Equivalents 2.00 4.00 6.00 Borrowings 25.00 25.00 50.00 Other Non-current financial liability (Deferred consideration) (W.N.7) - - 4.95 4.95 Trade Payables 13.50 15.00 28.50 2. Equity Share Capital ₹ in lakhs 44 lakhs equity shares of 1each, fully paid 44.00 (Out of which 4 lakh equity shares of 1each, fully paid issued for consideration other than cash) 44.00 3. Consolidated Other Equity ₹ in lakhs Retained Earnings (W.N.6) 11.79 Securities Premium (4,00,000 shares x 1) 4.00 15.79 Working Notes: 1. Calculation of purchase consideration at the acquisition date i.e. 1st April 2024 ₹ in lakhs Payment made by A Ltd. to S Ltd. Cash 20.00 Equity shares (4,00,000 shares x 2.00) 8.00 Present value of deferred consideration (₹ 6,00,000 x 0.75) 4.50 Total consideration 32.50 2. Calculation of net assets i.e. net worth at the acquisition date i.e. 1st April, 2024 ₹ in lakhs Share capital of S Ltd. 10.00 Retained Earnings of S Ltd. 2.50 Fair value increase due to identifiable asset - Brand 8.00 Net worth on acquisition date 20.50 3. Calculation of Goodwill at the acquisition date (1st April 2024) and 31st March 2025 ₹ in lakhs Purchase consideration (W.N.1) 32.50 Non-controlling interest at fair value (10,00,000 x 20% x 4) 8.00 40.50 Less: Net worth (W.N.2) (20.50) Goodwill as on 1st April 2024 20.00 Less: Impairment @ 25% (5.00) Goodwill as on 31st March 2025 15.00 4. Calculation of Property, Plant and Equipment as on 31st March 2025 ₹ in lakhs A Ltd. 60.00 S Ltd. 30.00 Less: Elimination of gain on mutual transaction (5.00 – 4.00) (1.00) 29.00 Add: Excess depreciation on gain on mutual transaction [(5.00 – 4.00)/10 years] 0.10 29.10 89.10 5. Calculation of post-acquisition gain (after adjustment of impairment on goodwill) and value of NCI as on 31st March 2025 ₹ in lakhs NCI (20%) A Ltd. (80%) Acquisition date balance (10,00,000 shares x 20% x 4) 8.00 Closing balance of Retained Earnings 6.00 Less: Pre-acquisition balance (2.50) Post-acquisition Retained Earnings before adjustments 3.50 Less: Amortisation of Brand (8/10 years) (0.80) Add: Excess depreciation on PPE (1.00 x 1/10) (W.N.4) 0.10 Post-acq. Retained Earnings after adjustments 2.80 0.56 2.24 Less: Impairment on Goodwill (20 x 25%) in 20:80 (1.00) (4.00) 7.56 (1.76) 6. Consolidated Retained Earnings as on 31st March 2025 ₹ in lakhs A Ltd. 15.00 Less: A Ltd.'s share of post-acquisition loss in S Ltd. (W.N.5) (1.76) Less: Finance cost on deferred consideration (W.N.7) (0.45) Less: Gain on sale of capital equipment (5.00 – 4.00) (1.00) Retained Earnings as on 31st March 2025 11.79 7. Calculation of value of deferred consideration as on 31st March 2025 ₹ in lakhs Value of deferred consideration as on 1st April 2024 (W.N.1) 4.50 Add: Finance cost for the year 2024-2025 (4.50 x 10%) 0.45 Deferred consideration as on 31st March 2025 4.95

Topics: Ind AS 110

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