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consolidation of accounts

Shridhi Jain (Company Secretary) (1678 Points)

10 February 2011

Dear members,

What is the meaning of consolidation of accounts of subsi and holding ? Is it adding up profits/losses of subsi to profit/losses of holding ?or is it combining the figures of each item of subsi with each item of holding (fixed assets added to fixed assets, expenses added to expenses, income added to income). Consolidation is related to income or expenses only ? Kindly explain.

Is it necessary to consolidate the accounts of subsidiary with holding co. ?

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3 Replies

Jaideep (Service) (1368 Points)
Replied 10 February 2011

Hi Shridhi,

Tried explain in following way;

A consolidation of financial accounts is a financial reporting technique that helps a firm summarize all operating data under a single set of financial statements in accordance with industry standards, accounting principles and regulations. This technique covers all subsidiaries, segments and areas of which a corporation owns more than 50 percent.

Account consolidation is a financial accounting and reporting process that helps a company's top management, investors and regulators understand the economic standing of the company and its affiliates. This process covers all four corporate financial statements---balance sheet, statement of income, statement of cash flows and statement of retained earnings. For example, a company may consolidate the balance sheets of all affiliates into a single balance sheet.

No statue has made consolidation compulsory even AS 21. As per Sec 212 of Companies Act, financial statements of Holding company should include financial statement of subsidery also. It has not made consolidation compulsory.

However as per listing agreement Consolidation is required.

Thanks & Regards

Jaideep Pandya

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Shridhi Jain (Company Secretary) (1678 Points)
Replied 10 February 2011

Thanks Jaideep for sharing such information.

Is there any format of consolidation? I mean treating the profits/losses of subsi in holdling co. accounts is enough ?or we need to combine each item of subsi to its holding ?

As per MCA circular dated 8.2.2011, it talks about the general exemption u/s 212. The general conditions say that consolidated financial statements is to be presented in the annual report.

Kindly advice...