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Consolidation - practical issues

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Anil

1638 Points Posted on 26 September 2012

I have 2 questions regarding practical problem being faced while consolidating parent and subsidiary company. I could not find answers to these in AS 21. PLEASE QUOTE SOME AUTHORITATIVE SECTIONS/ CASE LAWS / AS/ GUIDANCE NOTE WHILE ANSWERING. The questions are:

1) After consolidating financial statements what happens to Notes of Accounts of Subsidiary company. Should it be included as part of Consolidated financial statement as it is (i.e.,all) or partially included, or not included at all

2) a) Suppose the intercompany balance does not get knocked off fully because there is some dispute between holding and subsidiary company how should the difference be treated ? Assume each company has its own justification for passing the entries in their books in a particular way.

b) How should Auditor deal with such differences?

Please answer each question separately.

Thanks.

Replies (1)

CA Harsh Lunia

Audit

81 Points Posted on 27 September 2012

The notes to accounts of the subsidiary company should also be incorporated in the notes to accounts of the consolidated financial statements. But not all notes have to be included. Only the ones that are material have to be included.

As far as inter company balances are concerned, it will depend on the nature of transaction. For example, subsidiary might have remitted a cheque in favour of holding and hence would have debited holding company in its books, but the same would not have reached the holding company on the date of balance sheet and hence no entry passed by hoding company in its books. In this case, while consolidating, a debit balance in the name of cheques in transit will arise in the consolidated financial statements.

A reconciliation statement should be prepared of such transactions for the purpose of audit