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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.

In this article we cover the following topics:

  1. Applicability & Scope
  2. Presentation of Consolidated Financial Statements
  3. Scope of Consolidated Financial Statements
  4. Exclusion of Subsidiaries
  5. Consolidation Procedures
  6. Accounting for Investments in the Subsidiaries in Separate Financial Statement of the Parent
  7. Disclosure
  8. Major Differences between AS 21 and Ind AS 110

1. Applicability of AS 21 Consolidated Financial Statements

 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:
  • accounting methods for amalgamations and effects on consolidation, which includes goodwill which arises on amalgamation
  • accounting for investments in JVs (joint ventures)
  • accounting for investments in associates

Presentation of Consolidated Financial Statements

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) standalone financial statements of a parent; and

(b) consolidated financial statements that provide financial information about the business group as that of a lone enterprise without respect to the legal restrictions of the distinct legal entities

Scope of Consolidated Financial Statements

A parent company which 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.

Exclusion of Subsidiaries

A Subsidiary must be excluded from the consolidation when:
  • control is planned to be temporary since the subsidiary was taken over and was held exclusively for disposal in the near future; or
  • the subsidiary is operating under severe long-standing restrictions that considerably impair the subsidiary’s ability to transfer funds to its parent

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.

Consolidation Procedures

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:

  • Eliminate the cost to the parent of its investment made in each of its subsidiaries and such parent’s equity portion of each of its subsidiaries, at the date when the investment in such subsidiaries are made
  • any additional cost to the parent company of the investment in the subsidiary over the parent company’s share of the equity of subsidiary, at the date on which the investment in such subsidiary is done, must be shown as goodwill for recognizing as the asset in its consolidated financial statements
  • when the cost to the parent of the investment in the subsidiary is lower than the parent company’s share of the equity of subsidiary, a date on which the investment in such subsidiary is done, the difference must be treated as the capital reserve in its consolidated financial statements
  • a portion of minority interests in net income of the consolidated subsidiary for reporting period must be recognized and adjusted against income of the group for arriving at the net income which is attributable to owners of such parent company; and
  • a portion of minority interests in net assets of the consolidated subsidiaries must be recognized and provided for in consolidated balance sheet distinctly from the equity and liabilities of the parent company. Minority interests in net assets comprise of:

(i) amount of equity which is attributable to the minorities at the date on which such investment in the subsidiary is done; and

(ii) minorities’ share of the movements in equity from the date the relationship of parent-subsidiary came in to force

Where carrying investment amount in a subsidiary is different from the cost, such carrying amount is to be considered for the above calculations.

Accounting for Investments in the Subsidiaries in Separate Financial Statement of the Parent

In a parent company’s separate financial statements, the investments made in subsidiaries must be accounted for as per AS 13 – Accounting for Investments.

Disclosures in the Financial Statements

Following disclosures must be made w.r.t. AS 21 Consolidated Financial Statements:

(a) in the consolidated financial statements the list of all the subsidiaries of the parent company which includes the name, country of residence or incorporation, the share of ownership interest and, in case different, the share of voting power held

(b) In case the consolidation of particular subsidiary hasn’t been made according to the grounds permissible in the accounting standard, reasons for which such subsidiary isn’t included in the consolidation must be disclosed in such consolidated financial statements

(c) in the consolidated financial statements, where valid:

(i) type of relationship between a parent and its subsidiary, whether direct control or indirect control through the subsidiaries

(ii) effect of acquisition and disposal of the subsidiaries on financial position at the date of reporting results for the reporting period and on corresponding amounts for preceding period; and

(iii) Name of the subsidiary(s) of which reporting date(s) is different

Major Differences between AS 21 and Ind AS 110

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 arent 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 doesnt 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 doesnt 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 doesnt offer guidance on the consolidation of SPEs (Special Purpose Entities) 
The inclusion of notes which appears in the separate financial statement Ind AS 27 doesnt 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 
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