Doubt in consolidated financial statements

2149 views 18 replies

Guest

please help me...

i have doubt in intra group transactions between holding and subsidiary:

relating to stock......downstream and upstream transactions....

i studied that 100% of unrealised profit on downstream transaction should be deducted from holding company's share of profit WHILE unrealised profit on upstream transaction should be reduced from the share of holding as well as MINORITY'S INTEREST too on pro rata basis

NOW THE DOUBT IS ....WHETHER THE AFORESAID TREATMENT IS CORRECT OR NOT....IF NOT TELL ME THE CORRECT TREATMENT

SOLUTION PROVIDED ICAI IN PRACTICE MANUAL DO NOT DISTINGUISH UP / DOWN STREAM .....IT JUST DIRECTLY DEDUCTS 100% OF UNREALISED PROFITS FROM HOLDING COMPANY'S PROFIT EVEN IN CASE OF UPSTREAM ! ! !

PLEASE KNOWLEDGEABLE PERSONS HELP

Replies (18)

CA Ashish Pathak

Employed at Cipla Ltd.

2779 Points Joined April 2011

Yes Shruti, the solution provided in icai practise manuals is correct and you should follow the same. In case of upstream transaction (i.e where subsy has sold goods to holding), we need to deduct entire profit of subsidiary (as it is unrealised profit). I dont understand logic behind the treatment suggested by you for upstream transactions.

CA Ashish Pathak

Employed at Cipla Ltd.

2779 Points Joined April 2011

Unrealised profit in case of upstream transaction is to be deducted 100% from share of subsidiary (because subsidiary sold some stock to holding and the profit of subsy is over valued) Why should we reduce profits of both holding n subsy proportionately?

CA. JAIN

Chartered Accountant

466 Points Joined November 2011

Take date of investment also into consideration.

Guest

ASHISH PATHAK
hi thanks for reply

the logic most probably is that

in case of upstream transaction

subsidiary has accounted for unrealiesd profits and that has to be eliminated totally correct (as you said)

BUT IN THAT TOTAL....

holding and MINORITY both have their proportion of interest and hence it has to be deducted on pro rata basis from their respective shares......

Guest

waiting for more replies....

Guest

@ ASHISH

AM REALLY SORRY

BY MTSTAKE I WROTE "subsidiary" INSTEAD OF "minority interest"

I HAVE RECTIFIED SAME

NOW WILL YOU PLEASE GIVE YOUR OPINION AGAIN

CA Ashish Pathak

Employed at Cipla Ltd.

2779 Points Joined April 2011

Nope... Its only subsidiary s profit which is over valued because subsy sold goods to holding and earned some profit...thats it. Still...lets wait for more replies.

Guest

YES TRUE THAT IT IS SUBSIDIARY PROFIT ONLY

BUT WHILE CONSOLIDATING

WE DISTRIBUTE IT AMONG HOLDING AND MINORITY ON THE BASIS OF SHAREHOLDING

SO WHILE ELIMINATING IT

SAME SHOULD BE REDUCED FROM BOTH AND NOT ONLY FROM HOLDING

CA Lokesh Pokharna

CA (Ahmedabad Bhilwara Chittorgarh)

4128 Points Joined November 2009

100% of unrealised profit should be eliminated irreespective of its stream because its a group transaction & profit creation due to group transaction in CFS seems not logical....

CA Lokesh Pokharna

CA (Ahmedabad Bhilwara Chittorgarh)

4128 Points Joined November 2009

answers may vary at every where..you have to read both aspects exam point & correct...

Guest

Originally posted by : CA Lokesh Pokharna
	100% of unrealised profit should be eliminated irreespective of its stream because its a group transaction & profit creation due to group transaction in CFS seems not logical....