AS 21 Consolidated Financial Statements should be applied in preparing and presenting consolidated financial statements for a group of enterprises under the sole control of a parent enterprise.
This standard must be applied when accounting for investment in subsidiaries in a separate financial statement of the parent.
It is to be noted that while preparing a consolidated financial statement, other standards also stay relevant in a similar manner as for standalone statements.
This accounting standard doesn’t deal with:
A parent company presenting its consolidated financial statements must present these statements along with its standalone financial statements.
The users of financial statements of a parent company are typically concerned with and are required to be educated about, the results of operations and financial position of not only the company itself but also of that group together.
This requirement is served by offering the users of financial statements –
A parent company that presents its consolidated financial statements must consolidate all of its subsidiaries, foreign as well as domestic.
Where a company doesn’t have any subsidiary, however, has associates and/or joint ventures such company also needs to prepare consolidated financial statements as per Accounting Standard 23 – Accounting for Associates in Consolidated Financial Statements and Accounting Standard 27 – Financial Reporting of Interests in JVs respectively.
A Subsidiary must be excluded from the consolidation when:
In a consolidated financial statement, investments in such subsidiaries must be accounted for as per AS 13 – Accounting for Investments.
Reasons for which a subsidiary isn’t included in the consolidation must be disclosed in such consolidated financial statements.
While preparing a consolidated financial statement, the parent company’s financial statements and its subsidiaries must be combined line by line by totaling together similar items such as assets, liabilities, income, and expenses.
For consolidating financial statements in a way to present financial information about a group as that of a lone enterprise, the below-motioned steps must be taken:
In a parent company’s separate financial statements, the investments made in subsidiaries must be accounted for as per AS 13 – Accounting for Investments.
Following disclosures must be made w.r.t. AS 21 Consolidated Financial Statements:
|Particulars||Ind AS 110||AS 21|
|Preparation of Consolidated Financial Statements||Ind AS makes preparation of Consolidated Financial Statements compulsory for the parent company||AS 21 doesn’t mandate preparation of Consolidated Financial Statements by the parent company|
|Accounting for investments in subsidiaries||Ind AS provides guidance for accounting for investments in the subsidiaries, associates and jointly controlled entities in preparing separate financial statements||AS 21 doesn’t deal with the same|
|Exclusion from Consolidation||Ind AS 27 doesn’t give any such exemption from consolidation of financial statements||AS 21 excludes subsidiaries from consolidation when the control is intended to be transitory or when the subsidiaries operate under severe restrictions which are of long-term nature|
|Control||Ind AS defines control as the principle-based, that states that control, is power to govern the operating and financial policies of the entity for obtaining the benefits from its activities||AS 21 requires ownership, either directly or indirectly through the subsidiary, of more than half of voting power of the enterprise; or control of composition of BoD|
|Share Ownership||As per Ind AS 27, the existence and effect of prospective voting rights which are presently convertible or exercisable are considered while assessing whether the company has control over such subsidiary||As per AS 11, for considering ownership, the potential equity shares of investee held by the investor aren’t taken into account|
|Presentation of minority interest||According to Ind AS 27 non-controlling interests should be presented in consolidated balance sheet within the equity distinctly from parent shareholders’ equity||According to AS 21 minority interest must be showed in the consolidated balance sheet distinctly from equity and liabilities of the parent company|
|Uniform Accounting Policies||Ind AS 27 doesn’t recognize the situation of impracticality||AS 21 explicitly states that in case its impracticable to employ uniform accounting policies in presenting the consolidated financial statements, such fact must be disclosed along with the share of the items in a consolidated financial statement to which such different accounting policies are applied|
|Accounting for Income Tax||Ind AS 27 doesn’t deal with the same||AS 21 offers guidance with respect to accounting for taxes on income in consolidated financial statement|
|Consolidation of Special Purpose Entities (SPEs)||Ind AS 27 (Appendix A) offers guidance on consolidation SPEs (Special Purpose Entities)||AS 21 doesn’t offer guidance on the consolidation of SPEs (Special Purpose Entities)|
|The inclusion of notes which appears in the separate financial statement||Ind AS 27 doesn’t offer any clarification with respect to this||AS 21 offers clarification with respect to inclusion of notes which appears in separate financial statements of parent company and the subsidiary in consolidated financial statement|