Have a look AS: 21...........

Accounting Standard 21:

Consolidated Financial Statements

·         To be applied in the preparation and presentation of consolidated financial statements (CFS) for a group of enterprises under the control of a parent. Consolidated Financial Statements are recommendatory. However, if consolidated financial statements are presented, these should be prepared in accordance with the standard. For listed companies preparing Consolidated Financial Statements is mandatory as per listing agreement.

·         Consolidated financial statements to be presented in addition to separate financial statements.

·         Control means the ownership of more than one half of the voting power of an enterprise or control of composition of the Board of Directors or such other governing body.

·         All subsidiaries, domestic and foreign to be consolidated except where control is intended to be temporary; i.e., intention at the time of investing is to dispose the relevant investment in the ‘near future’ or the subsidiary operates under severe long-term restrictions impairing transfer of funds to the parent. ‘Near future’ generally means not more than twelve months from the date of acquisition of relevant investments (ASI-8 Incorporated in (AS) 21 "Consolidated Financial Statements" as an explanation (b) below para 11. Also incorporated in (AS) 23"Accounting for Investments in Associates in Consolidated Financial Statements" as an explanation below para 7 and in (AS) 27 "Financial Reporting of Interests in Joint Ventures" as explanation below para 28). Control is to be regarded as temporary when an enterprise holds shares as ‘stock-in-trade’ and has acquired and held with an intention to dispose them in the near future (ASI-25 Incorporated in (AS) 21 "Consolidated Financial Statements" as an explanation (a) below para II.). Investments in subsidiary should be accounted in accordance.

·         CFS normally includes consolidated balance sheet, consolidated P & L, notes and other statements necessary for preparing a true and fair view. Cash flow only in case parent presents cash flow statement.

·         Consolidation to be done on a line by line basis by adding like items of assets, liabilities, income and expenses which involves:

·         Elimination of cost to the parent of its investment in each subsidiary and the parent’s portion of equity of each subsidiary at the date of investment. The difference to be treated as goodwill/capital reserve, as the case may be.

·         Minority interest in the net income to be adjusted against income of the group.

Minority interest in net assets to be shown separately as a liability.

Intra-group balances and intra-group transactions and resulting unrealised profits should be eliminated in full. Unrealised losses should also be eliminated unless cost cannot be recovered.

The tax expense (current tax and deferred tax) of the parent and its subsidiaries to be aggregated and it is not required to recompute the tax expense in context of consolidated information (ASI-26 Incorporated in (AS) 21 "Consolidated Financial Statements" as an explanation (a) below para 13).

The parent’s share in the post-acquisition reserves of a subsidiary is not required to be disclosed separately in the consolidated balance sheet. (ASI-28 Incorporated in (AS) 21 "Consolidated Financial Statements" as an explanation below para 13 and in (AS) 27 "Financial Reporting of Interests in Joint Ventures as an explanation below para 32).

·         Where two or more investments are made in a subsidiary, equity of the subsidiary to be generally determined on a step by step basis.

·         Financial statements used in consolidation should be drawn up to the same reporting date. If reporting dates are different, adjustments for the effects of significant transactions/events between the two dates to be made.

·         Consolidation should be prepared using same accounting policies. If the accounting policies followed are different, the fact should be disclosed together with proportion of such items.

·         In the year in which parent subsidiary relationship ceases to exist, consolidation of P & L account to be made up to date of cessation.

·         Disclosure is to be of all subsidiaries giving name, country of incorporation or residence, proportion of ownership interest and voting power held if different.

·         Also nature of relationship between parent and subsidiary if parent does not own more than one half of voting power, effect of the acquisition and disposal of subsidiaries on the financial position, names of the subsidiaries whose reporting dates are different than that of the parent.

·         When the consolidated statements are presented for the first time, figures for the previous year need not be given.

·         Notes forming part of the separate financial statements of the parent enterprise and its subsidiaries which are material to represent a true and fair view are required to be included in the notes to the consolidated financial statements.

(ASI-15 incorporated in (AS) 21 "Consolidated Financial Statements" as an explanation below para 6).