Nanda Kishore asked 5 years ago
Dear Sir, please answer the below question which came in MTP of May 2019
Brown Ltd is a holding company with 2 subsidiaries Black Ltd & White Ltd
It has been seen that black & brown adopt SLM method of depreciation for its assets whereas white ltd follows WDV method of depreciation
Which of the following adjustment would be considered as CORRECT in respect of CONSOLIDATED FS PREPARATION
a) White ltd is required to depreciate the assets adopting SLM which is adopted by brown ltd
b) Brown ltd is required to make suitable adjustments as to the depreciation charged by white ltd
c) Brown & Black ltd are required to depreciate the assets adopting WDV as to facilitate harmonization of accounting policies
d) No adjustment is required as there can be different method of calculation of depreciation for its assets for the group companies
ICAI Answer – (d)
However, we know that as per AS 21/Ind AS – in preparation of CFS – Accounting policies need to be harmonized between parent & its subsidiaries
If it is impracticable, then disclosure of such fact & proportion of amount is required in notes to CFS
So the right answer here should be – (b) – i.e adjustment of depreciation of white ltd(from WDV to SLM) while preparing CFS
Please explain,
Thank You
Ravi Staff answered 5 years ago
12. Brown Ltd is a holding company with two subsidiaries Black Ltd and White Ltd. You have been given the task of covering the valuation of non-current tangible assets in the consolidated financial statements. You note that Black Ltd and Brown Ltd. adopt straight line method of depreciation for its assets whereas White Ltd, follows written down method for calculating the depreciation. Which of the following adjustment would be considered as correct in respect of the consolidated financial statements preparation?
(a) White Ltd is required to depreciate the assets adopting straight line method of depreciation which is the method adopted by the holding company.
(b) Brown Ltd is required to make suitable adjustments as to the depreciation charged by White Ltd, at the time of consolidation.
(c) Brown Ltd and Black Ltd are required to depreciate the assets adopting written down value as to facilitate the harmonization of accounting policies.
(d) No adjustment is required as there can be different methods of calculation of depreciation for its assets for the group companies.
AS 21 Requirements
Para 20. Consolidated financial statements should be prepared using uniform accounting policies for like transactions and other events in similar circumstances. If it is not practicable to use uniform accounting policies in preparing the consolidated financial statements, that fact should be disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied.
Para 21. If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements when they are used in preparing the consolidated financial statements.
Ind AS 110 Requirements
Para 19 A parent shall prepare consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances.
Uniform accounting policies
Para B87 If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to that group member’s financial statements in preparing the consolidated financial statements to ensure conformity with the group’s accounting policies.
Conclusion from above it is clear that, adjustments are required for harmonization of accounting policy, further these adjustments are required while preparing consolidated financial statements and not in regular books of accounts.
So correct answer is (b) Brown Ltd is required to make suitable adjustments as to the depreciation charged by White Ltd, at the time of consolidation.