Prepared by CA Sandesh Mundra - An exhaustive presentation on Consolidation of Accounts covering the Standards - AS 21, AS23 and AS 27 with indepth analysis of the finer aspects involved.

1. PRACTICAL ASPECTS in Consolidation of Accounts

3. Applicable in – Preparation and presentation of CFS for a group of enterprises under the control of a parent – Accounting for investments in subsidiaries in the separate financial statements of a parent would be as per AS-13 – Follow other AS in CFS, as applicable

4. Applicability Effective in respect of accounting periods commencing on or after April 01, 2001 Applicable to enterprises that present consolidated financial statements:- – Mandatory for listed entities – Optional for other entities

5. Not Applicable to…….. Methods of accounting for amalgamations and their effects on consolidation, including goodwill arising on amalgamation – AS 14 Accounting for investments in associates - AS 23 Accounting for investments in joint ventures – AS 27

6. Key Definitions… Subsidiary – Enterprise controlled by another enterprise Control – The ownership, directly or indirectly through subsidiary (ies), of more than one-half of the voting power of an enterprise – Control of the composition of the board (in case of company) or the corresponding governing body (other enterprises) so as to obtain economic benefits from its activities (Control is established where there is power to appoint all or majority of directors/members without the consent or concurrence of any other person)

7. ...Key Definitions Minority interest – is that part of the net results of operations and of the net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiary(ies), by the parent. Equity – Residual interest in the assets of an enterprise after deducting all its liabilities i.e. net worth

9. Consolidate results of all subsidiaries (domestic / Foreign) Scope Subsidiary – Corporate or Non-Corporate – Control Prerequisite Exceptions: – Gratuity Trust, Provident Fund Trust – Not held for economic benefits definition of Control (supra) Section 25 Company or a Charitable Trust?

10. Scope:- Subsidiary to be excluded from consolidation when: – Control is intended to be temporary – It operates under severe long-term restrictions which significantly impair its ability to transfer funds to the parent AS 13 to be applied and CFS to disclose reasons for Exclusion Exclusion when activities are dissimilar?

11. Consolidation procedures… Line by line consolidation Elimination of parent’s investments and parent’s portion of equity determining goodwill (cost of investments > parent’s portion of equity); or capital reserve (cost of investments < parent’s portion of equity) arising on date of investment

12. Consolidation procedures… Determine minority interest – Profits – Net Assets Minority interests in the net assets consist of: the amount of equity attributable to minorities at the date on which investment in a subsidiary is made; and the minorities’ share of movements in equity since the date the parent-subsidiary relationship came in existence. Separate Disclosure?

13. ...Minority interests Where losses applicable to a minority exceed minority interest, the excess to be adjusted against the majority interest, unless the minority has a binding obligation to, and is able to make good the losses

14. Consolidation procedures… Elimination of intra group transactions including sales, expenses, dividends, and unrealized profits on sale of stocks / assets. Eliminate unrealized losses unless cost cannot be recovered. (Unrealized profits and loss on transactions relating to periods prior to April 2001 may not be eliminated if not practicable to determine)

15. … Consolidation procedures Same reporting date for financial statements used in consolidation; or If date of reporting differs, FS of the subsidiary for the immediately preceding period are used ( difference between reporting dates should not be more than six months) Apply uniform accounting policies and if different, disclose items where different policy applied No comparative figures for the previous period for the first year

17. Disclosures… List of all subsidiaries including name, country of incorporation, proportion of ownership interest and, if different, the proportion of voting power The nature of relationship between parent and subsidiary, if parent does not own one-half of the voting power The effect of the acquisition and disposal of subsidiaries on the financial position at the reporting date, the results for the reporting period and on the corresponding amounts for the preceding period The names of the subsidiaries of which the reporting dates are different from that of the parent and the difference in reporting dates

18. ASI 8 ‘ Near future’ Primarily depends on the facts and circumstances of each case Ordinarily, not more than twelve months Intention of disposal of relevant investment should be considered at the time of acquisition of the investment

19. ASI 15 All the notes of separate FS of parent and subsidiaries need not be included in the notes to CFS. Notes necessary for presenting a true and fair view of CFS notes involving items which are material Additional statutory information if material

20. ASI 24 Control Enterprise is controlled by two enterprises – Investment – Composition of Board Consolidation to be done by both