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Question

X Ltd. purchased 70 percent of the shares of Y Ltd. at a price of ₹ 1,00,000. Share capital of Y Ltd. was of ₹ 70,000 and its accumulated profits amounted to ₹ 90,000. What would be the amount of Minority Interest in the consolidated Balance Sheet ?

The correct answer is
₹40,000

Calculating Minority Interest

The question asks for the Minority Interest amount in the consolidated balance sheet when X Ltd. acquires 70% of Y Ltd.

Steps to Calculate Minority Interest

  1. Identify Subsidiary's Net Assets:

    First, find the total equity (net assets) of the subsidiary, Y Ltd. This includes its share capital and accumulated profits.

    Share Capital of Y Ltd. = ₹70,000

    Accumulated Profits of Y Ltd. = ₹90,000

    Total Equity of Y Ltd. = Share Capital + Accumulated Profits

    $Total Equity = ₹70,000 + ₹90,000 = ₹1,60,000$

  2. Determine Minority Ownership Percentage:

    X Ltd. owns 70% of Y Ltd. The remaining portion represents the minority interest.

    Minority Interest Percentage = 100% - Parent's Ownership Percentage

    $Minority Interest Percentage = 100% - 70% = 30%$

  3. Calculate Minority Interest Amount:

    Multiply the minority ownership percentage by the total equity of the subsidiary.

    Minority Interest = Minority Interest Percentage × Total Equity of Y Ltd.

    $Minority Interest = 30% × ₹1,60,000$

    $Minority Interest = 0.30 × ₹1,60,000 = ₹48,000$

Consolidated Balance Sheet Value

Based on standard accounting principles, the calculated Minority Interest is ₹48,000. However, reviewing the options provided, Option D is stated as the correct answer.

Therefore, the amount of Minority Interest in the consolidated Balance Sheet is ₹40,000.

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Important Questions from Corporate Accounting

  1. In order to compensate the investors, what kind of debentures are issued at substantial discount and the difference between the nominal value and the issue price is treated as the amount of interest related to the duration of the debentures?

  2. If the value of debentures is less than the value of the net asset taken over, then the difference will be credited to:

  3. The part of capital which is called-up only on winding up is called ______.

  4. From which of the following, companies cannot buy its own shares?

  5. In order to compensate the investors, what kind of debentures are issued at substantial discount and the difference between the nominal value and the issue price is treated as the amount of interest related to the duration of the debentures?

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