Page 254 - CA Final PARAM Digital Book.

accounted for in accordance with AS 13 “Accounting for Investments”.

Certain things that auditor should verify
In the case of an entity which is excluded from consolidation on the ground that the
relationship of parent with the other entity as subsidiary is temporary, the auditor should
verify that
• the intention of the parent, to dispose the subsidiary, in the near future, existed
at the time of acquisition of the subsidiary.
• The auditor should also verify that the reasons for exclusion are given in the
consolidated financial statements.

As per Ind AS 110 “Consolidated Financial Statements”, states
There is no such exemption for ‘temporary control’, or “for operation under severe long-
term funds transfer restrictions” and consolidation is mandatory for Ind AS compliant
financial statement in this case.
Part III – Case Discussion
➢ In the given case, Parent Ltd. has acquired 51% shares of Child Ltd. during the year ending
31.03.2016 and sold 20% shares during the year 2016-17. Parent Ltd. did not consolidate the
financial statements of Child Ltd. for the year ending 31.03.2016 and 31.03.2017.
Part IV – Conclusion
➢ The intention of Parent Ltd. is quite clear that the control in Child Ltd. is temporary as the former
company disposed off the acquired shares in the next year of its purchase.

AS 21 “Consolidated Financial Statements”
• Therefore, Parent Ltd. Is not required to prepare consolidated financial statement
as per AS 21
• However, for the compliance of provisions related to consolidation of financial
statements given under section 129(3) of the Companies Act, 2013, Parent Ltd. is
required to made disclosures in the financial statements as per the provisions
provided in Schedule III to the Companies Act’ 2013.

Ind AS 110 “Consolidated Financial Statements”
• However, if the Parent Ltd. is required to prepare its financial statements under
Ind AS, it shall have to prepare Consolidated Financial Statements in accordance
with Ind AS 110 as exemption for ‘temporary control’, or “for operation under
severe long -term funds transfer restrictions” is not available under Ind AS 110.
• Paragraph 20 of Ind AS 110 states that “Consolidation of an investee shall begin
from the date the investor obtains control of the investee and cease when the
investor loses control of the investee”.
Author’s Note

• Refer author’s note of QNO 436.300.

QNO Temporary Holding (AS) Old Course – (M6E, M8E, M15E, M15R, M16M, SM17,
436.100 TITANIUM CNO— GA.180 PM17, N18R, N18M, M18M, SM21)
R Ltd owns 51% voting power in S Ltd It however, holds and discloses all the shares as Stock-in-trade in
its accounts The shares are held exclusively with a view to their subsequent disposal in the near future R
Ltd represents that while preparing Consolidated Financial Statements, S Ltd can be excluded from the
consolidation As a Statutory Auditor, how would you deal?
OR
Moon Ltd. acquired 51% shares of Star Ltd. during the year ending 31-3-2017. During the financial year
2017-18 the 20% shares of Star Ltd. were sold by Moon Ltd. Moon Ltd. while preparing the financial

statements for the year ending 31-3-2017 and 31-3-2018 did not consider the financial statements of Star
Ltd. for consolidation. As a statutory auditor how would you deal with it?
OR
Ajanta Ltd. owns 51% voting power in Alora Ltd. It discloses all the shares as "Stock-in-trade" in its
accounts with a view to their subsequent disposal in the near future. Ajanta Ltd. represents that while
preparing Consolidated Financial Statements, Alora Ltd. can be excluded from the consolidation. As a
Statutory Auditor, how would you deal?
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