Consolidated profit is not all attributable to the parent

The case and its answers

Every question of this case, with its answer and why each other option is wrong.

A parent company earns ₹80 crore from its own operations, excluding all income from its subsidiary. The subsidiary earns ₹60 crore, and the parent owns 75% of it. There are no intercompany transactions or consolidation adjustments beyond attributing the subsidiary’s profit to parent and non-controlling shareholders. The parent has 10 crore ordinary shares. Of the parent’s own ₹80 crore profit, ₹20 crore is a one-off gain that the analyst excludes when estimating recurring earnings. Assume no tax adjustment to that gain is needed because all stated profits and the gain are already after tax. Keep consolidated total profit separate from profit attributable to the parent’s owners.

All people, firms, prices and contract terms are fictional.

Ignore taxes and transaction costs unless the case explicitly includes them.

1. Q1What is total consolidated profit before attribution to non-controlling interests?

   • A

     Option A. ₹125 crore

     Why it is wrong: This is profit attributable to the parent’s shareholders.

   • B

     Option B. ₹60 crore

     Why it is wrong: This includes only the subsidiary.

   • C

     Option C. ₹140 crore — Correct answer

   • D

     Option D. ₹80 crore

     Why it is wrong: This omits the subsidiary.

   Answer: C. ₹80 crore + ₹60 crore = ₹140 crore total consolidated profit. Remember: Consolidation and attribution are separate steps.

   Hint, shown before you answer in practice mode: Consolidate all of the controlled subsidiary before allocating ownership shares.

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2. Q2What profit is attributable to non-controlling shareholders?

   • A

     Option A. ₹45 crore

     Why it is wrong: This is the parent’s 75% share of subsidiary profit.

   • B

     Option B. ₹35 crore

     Why it is wrong: This applies 25% to total group profit rather than the subsidiary’s profit.

   • C

     Option C. ₹20 crore

     Why it is wrong: This is the parent’s separate one-off gain.

   • D

     Option D. ₹15 crore — Correct answer

   Answer: D. 25% × ₹60 crore = ₹15 crore. Remember: Non-controlling profit attribution follows the ownership of the relevant subsidiary.

   Hint, shown before you answer in practice mode: The non-controlling interest owns 25% of the subsidiary.

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3. Q3What is reported EPS attributable to the parent’s ordinary shareholders?

   • A

     Option A. ₹12.50 — Correct answer

   • B

     Option B. ₹14.00

     Why it is wrong: This allocates all consolidated profit to the parent’s shareholders.

   • C

     Option C. ₹10.50

     Why it is wrong: This is the recurring EPS after removing the one-off gain.

   • D

     Option D. ₹8.00

     Why it is wrong: This ignores the parent’s share of subsidiary profit.

   Answer: A. (₹80 crore + 75% × ₹60 crore)/10 crore shares = ₹12.50. Remember: EPS should use earnings attributable to the shareholders represented by its denominator.

   Hint, shown before you answer in practice mode: Use the profit attributable to the parent, not total group profit.

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4. Q4What is recurring EPS after excluding the stated one-off gain?

   • A

     Option A. ₹6.00

     Why it is wrong: This excludes all subsidiary earnings along with the gain.

   • B

     Option B. ₹12.50

     Why it is wrong: This retains the one-off gain.

   • C

     Option C. ₹10.50 — Correct answer

   • D

     Option D. ₹11.00

     Why it is wrong: This uses an inconsistent ownership adjustment.

   Answer: C. (₹80 − ₹20 + 75% × ₹60)/10 = ₹10.50 per share. Remember: Normalisation should identify the specific item removed and avoid double adjustments.

   Hint, shown before you answer in practice mode: Remove only the ₹20 crore one-off gain from attributable profit.

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