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QUESTIONS FROM PAST EXAM PAPERS

Q9. (Nov. 20 – 6 Marks)

Entity H holds a 20% equity interest in Entity S (an associate) that in turn has a 100% equity interest in
Entity T. Entity S recognised net assets relating to Entity T of ₹ 10,000 in its consolidated financial

statements. Entity S sells 20% of its interest in Entity T to a third party (a non-controlling shareholder) for
₹ 3,000 and recognises this transaction as an equity transaction in accordance with the provisions of Ind AS

110, resulting in a credit in Entity S's equity of ₹ 1,000.
The financial statements of Entity H and Entity S are summarised as follows before and after the

transaction:

Before
H's consolidated financial statements

Assets (₹) Liabilities (₹)
Investment in S 2,000 Equity 2,000
Total 2,000 Total 2,000

S's consolidated financial statements
Assets (₹) Liabilities (₹)

Assets (from T) 10,000 Equity 10,000
Total 10,000 Total 10,000

After
S's consolidated financial statements

Assets (₹) Liabilities (₹)
Assets (from T) 10,000 Equity 10,000
Cash 3,000 Equity transaction

Impact with non- 1,000
controlling interest
Equity attributable to 11,000

owners
Non-controlling' interest 2,000
Total 13,000 Total 13,000

Although Entity H did not participate in the transaction, Entity H's share of net assets in Entity S increased
as a result of the sale of S's ' 20% interest in T. Effectively, H's share in S's net assets is now ₹ 2,200

(20% off ₹ 11,000) i.e., ₹ 200 in addition to its previous share.
How is this equity transaction that is recognised in the financial statements of Entity S reflected in the

consolidated financial statements of Entity H that uses the equity method to account for its investment in
Entity S?

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