25 November 2009
How is unrealised loss presented in Consolidated FS as per AS-21..for ex: H Ltd (Holdding co) sells goods at 4,00,000 to S Ltd (Subsidiary) which are worth 5,00,000. The goods are lying in the stock of S Ltd.
How is this presented taking into account different values for recoverable value for this stock..?
25 November 2009
While doing consolidatin you need to pass adjustment entry (assuming that the cost of purchase and market value of goods is AED 500,000):
Dr Revenue 400,000 Dr. Stock 100,000 Cr. Production/ Purchase cost 500,000
As far as group is concerned during consolidation, we need to knock of intercompany transactions and hence the transaction of sale and purchase and unrealised loss is negated.
If you can give your query in detail, I can give you exact answer.
26 November 2009
Agreed with Madhusudan. Just to correct a little, Revenue and purchase shall be reduced by the same amount of Rs. 5L in CFS and the inventory is reduced by Rs. 1L.
28 November 2009
Hi Subrahmanyam, UR Q and Example do not MATCH. you r asking the treatment of unrealised loss and given the example of unrealised profit??? Going as per ur example, let us simplify it, while consolidating, we remove inter group purshase n sale transaction by passing the entry : Sales A/c Dr. 5,00,000 To purchase A/c 5,00,000 then for unrealised profit included in stock the following entry will be passed : consolidated P/L A/c Dr. 1,00,000 To Stock Reserve A/c 1,00,000 this stock reserve being the credit amount (real A/c) will appear into Consolidated balance sheet as deduction from stock and stock will appear at net figure of 4,00,000 (of S Ltd.). Keep in mind that for unrealised profit u can not pass direct entry in stock.Regards, CA Shakuntala Chhangani
29 November 2009
Ah, coming back at my above example the cost of purchase / manufacture for H ltd is 5,00,000. However it was sold to S Ltd for 4,00,000 only. I just wanted to understand the entry to be made at the time preparing CFS as per AS 21 when recoverable amount is either case 1 -equal to or greater than 5,00,000 & case 2 - recoverable amount is less than 5,00,000.
(Am i right to say that the unrealised loss is not recognised when recoverable amount of the stock lying with S Ltd is greater than 5 lacs
- to be recognised when it is less than 5 lacs)
Pls let me know the entry that has to be made to recognise the unrealised loss
29 November 2009
I hope there is no element of profit in it..hopefully i am conveying it correctly. In case if its still incorrect pls take a new example..
02 December 2009
Hi again subrahmanyam, your first Q was absolute right. i read it incorrectly. I regret the mistake. now, the solution to your query is : this question i have never experienced practically because of the following few reasons : a) as per AS 18, the transactions between related parties are supposed to be arms length transactions.if it is not so then full disclosure is required to be made. b) this course is simply diversion of profit from holding co. to subsidiary co. hence AO will add it to the income of holding co. if such situation is confronted then as per AS 21 then unrealised losses from intra intra group transaction should be eliminated UNLESS COST CAN NOT BE RECOVERED. HOWEVER, PURCHASE AND SALES IN THE ABOVE CASE WILL BE ELIMINATED BY RS. 4,00,000 and Rs. 1 lakh will be the provision for unrealised losses which will be shown as an addition to stock figure (ONLY IN CASES WHERE COST CAN BE RECOVERED). revert back in case u have any further doubt.Regards, CA Shakuntala Chhangani
11 December 2009
as per my discussion with other CA firms they take stock at gross first then value it at cost or market price whichever is less, but they agreed upon the following entry : unrealised loss A/c Dr. to P/L A/c Stock A/c Dr. To unrealised loss A/c Regards, Ca Shakuntala Chhangani
CAclubindia
