Page 4 - 17. COMPILER QB - INDAS 110

SOLUTION

i) As per Ind AS 27, on the date of change, ie, 1st April, 20X2, PP Ltd (the parent) becoming an
investment entity, its investment in Praja Ltd (the subsidiary) shall be at fair value through profit and
loss in accordance with Ind AS 109. Accordingly, the new carrying amount will be Rs. 10,00,000.
ii) The difference between the new carrying amount and the carrying amount of the investment on the date

of change will be recognised in the profit and loss. Hence, PP Ltd will recognise an amount of Rs.
2,00,000 (Rs. 10,00,000 – Rs. 8,00,000) in profit and loss as gain.
iii) Any fair value adjustments previously recognised in OCI in respect of subsidiary i.e. Praja Ltd. shall be
treated as if the investment entity had disposed off the subsidiary at the date of change in status Ind AS
27.

Further, as per Ind AS 109, amounts presented in other comprehensive income shall not be subsequently
transferred to profit or loss. However, the entity may transfer the cumulative gain or loss within equity.
Therefore, the company shall not reclassify the fair value gains or losses to profit or loss on change in
classification from FVTOCI to FVTPL. However, the company may transfer the fair value gains or losses from
one component to the other within equity.
Moreover, Ind AS 107, requires disclosure of any transfers of the cumulative gain or loss within equity during

the period and the reason for such transfers. Accordingly, PP Ltd. shall provide the disclosures if it transfers
the cumulative gain or loss from one component to the other within equity.

Particulars Rs.

Carrying amount of investment in Praja Ltd [as per (i) above] 10,00,000
Amounts recognised in profit and loss relating to investment in
Praja Ltd [as per (ii) above] 2,00,000

Q3. (Nov 21)

Solar Limited has an 80% interest in its subsidiary, Mars Limited. Solar Limited holds a direct interest of
25% in Venus Limited. Mars Limited also holds a 30% interest in Venus Limited. The decisions concerning
relevant activities of Venus Limited require a simple majority of votes. How should Solar Limited account for
its investment in Venus Limited in its consolidated financial statements?

SOLUTION
In the present case, Solar Limited controls Mars Limited (since it holds 80% of its voting rights).
Consequently, it also controls the voting rights associated with 30% equity interest held by Mars Limited in

Venus Limited. Solar Limited also has 25% direct equity interest and related voting power in Venus Limited.
Thus, Solar Limited controls 55% (30% + 25%) of the voting power of Venus Limited. As the decisions
concerning relevant activities of Venus Limited require a simple majority of votes. Solar Limited controls Venus
Limited and should therefore consolidate it in accordance with Ind AS 110.
Although Solar Limited controls Venus Limited, its entitlement to the subsidiary’s economic benefits is

determined on the basis of its actual ownership interest. For the purposes of the consolidated financial
statements, Solar Limited's share in Venus Limited is determined as 49% [25% + (80% × 30%)]. As a
result, 51% of profit or loss, other comprehensive income and net assets of Venus Limited shall be attributed
to the non-controlling interests in the consolidated financial statements (this comprises 6% attributable to

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