a 43 (a) A Machine costing Rs.3,50,000 has been sold by Z Ltd. to its subsidiary F Ltd. (FPL) for Rs.4,20,000. During the year F Ltd. has charged depreciation of Rs.3,50,000 on the machinery. Z Ltd. holds 80% of the Equity of F Ltd. Machinery Account balance as appearing in the books of Companies - Z Ltd. Rs.9,57,500; F Ltd. Rs.6,85,000. (b) C Ltd. sold 8 Workstations to its parents Ltd. at Rs.25,000 each. The total cost of the Workstations to C was Rs.9,75,000. S holds 70% of the Equity Capital in C. The balances in the Asset Account "Computer and Peripherals" were-C Rs.2,50,000;S Rs.5,00,000. Depreciation at 30% was charged by S on the Workstations purchased from C. Solution: Sold by Z Ltd. (Holding Co.) C Ltd. (Subsidiary Co.) Purchased by FLtd. (Subsidiary Co.) SLtd. (Holding Co.) Nature of transfer Downstream Transfer Upstream Transfer Sale Price Rs.4,20,000 Rs. 25,000 x 8 =Rs 2,00,000 Less: Cost to Seller Rs.3,50,000 Rs. 97,500 A. Profit on Transfer Rs. 70,000 Rs. 1,02,500 B. Rate of Depreciation 35,000/4,20,000 -8.33% 30% C. Depn.on profit element (AxB) 70,000 x 8.33% = Rs.5,831 1,02,500 x 30% = Rs.30,750 Unrealized Profit to be eliminated (A-C) Rs.64,169 Rs.71,750 - Adjusted against Holding Co's Reserves 100% x Rs.64,169 = Share of Holding Co. 70% Rs.64,169 Rs.71,750 = Rs.50,225 - Adjusted against Minority Interest Unrealized profits on downstream Share of Minority 30% transfer are adjusted fully against Rs.71,750 = Rs.21,525 Group Reserves only Consolidated Asset Balance (Holding Co. 9,57,500 + 6,85,000 - 64,169 2,50,000 + 5,00,000 - 71,750 bal + Subsidiary Co. bal. Less Unrealized = Rs.15,78,331 = Rs.6,78,250 Profit) Illustration 10: Elimination of Mutual Owings The following balances are extracted from the Balance Sheets of X Ltd. and Y Ltd. Particulars X Ltd. Y Ltd. Bills Payable 7,50,000 4,50,000 Trade Creditors 5,00,000 7,00,000 Bills Receivable 3,50,000 5,00,000 Trade Debtors 8,00,000 7,00,000 Contingent Liability for Bills Discounted 2,00,000 1,50,000 Additional Information- 1. X Ltd. is wholly owned subsidiary of Y Ltd. 2. Creditors of X Ltd. include Rs. 2,50,000 due to Y for goods supplied by it for Rs.3,00,000. Debtors of Xhowever shows a Debit balance of Rs.3,00,000 due from Y. Y had remitted Rs.50,000 by Demand Draft to X which was not received by X on the Balance Sheet date. 3. Bills payable of Y include Rs.3,00,000 drawn in favour of X Ltd. X had discounted bills worth Rs.1,20,000 with its bankers Determine how the above given balances will be disclosed in the Consolidated Balance Sheet of X Ltd