AS 21 - Consolidated Financial Statements

Objective: The aim of this Statement is to formulate principles and procedures for preparation and presentation of consolidated financial statements. The parent company also known as the holding enterprise, presents the Consolidated financial statements to provide financial information relating to the economic activities pertaining to its group. These statements are proposed to present financial information about a parent and its subsidiary(ies) as a single economic entity and to show the economic resources controlled by the group, the obligations of the group and results the group achieves with its resources.

Applicability: This statement comes into effect in respect of accounting periods commencing on or after 1st April, 2001.

Scope

This Statement should be applied for in the preparation and presentation of consolidated financial statements for a group of enterprises under the control of a parent. It also has to be applied in accounting for investments in subsidiaries in the separate financial statements of a parent. While preparing the financial statements, other Accounting Standards shall apply in the same form as they apply to the split financial statements.

However, this statement does not deal with:

1. methods of accounting for amalgamations and their effects on consolidation, including goodwill arising on amalgamation.
2. accounting for investments in associates.
3. accounting for investments in joint ventures.

Definitions

1. Control:
1. the ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of an enterprise; or
2. control of the composition of the Board of Directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities.
2. Subsidiary is an enterprise that is controlled by another enterprise (known as the parent).
3. Parent is an enterprise that has one or more subsidiaries.
4. Group is a parent and all its subsidiaries.
5. Consolidated Financial Statements are the financial statements of a group presented as those of a single enterprise.
6. Equity is the residual interest in the assets of an enterprise after deducting all its liabilities.
7. 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.

Composition of the Consolidated Financial Statements: The consolidated financial statements generally comprise of consolidated balance sheet, consolidated statement of profit and loss, notes, additional statements and explanatory material that outline an essential part thereof. Consolidated cash flow statement is presented where a parent presents its own cash flow statement. The consolidated financial statements are presented, to the extent possible, in the same format as adopted by the parent for its separate financial statements.

Scope

The consolidated financial statements are compiled on the basis of financial statements of parent and all enterprises that are controlled by the parent. The consolidated financial statement of a parent organisation should encompass all the subsidiaries, both domestic and foreign companies. However, the parent shall not include its subsidiaries when:

1. control is intended to be for a short-term because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future, or
2. it operates under severe long-term restrictions, which significantly impair its ability to transfer funds to the parent.

While preparing the consolidated financial statements, the investments in subsidiaries should be accounted for in compliance with the Accounting Standard 13. The reasons for not consolidating a subsidiary should be disclosed in the consolidated financial statements.

Consolidation Procedure

The financial statements of the parent and its subsidiaries should be combined on a one-to-one basis by grouping together the like items of assets, liabilities, income and expenses. In order that the consolidated financial statements present financial information about the group as that of a single enterprise, the following steps should be taken:

1. The holding company should eliminate its cost of investment in each of its subsidiaries and its portion of equity as on the date on which the investment is made in each subsidiary.
2. Any excess cost to the parent in the investment of its subsidiary over its portion of equity in the subsidiary as on the date on which investment is made in the subsidiary, should be described as goodwill and should be disclosed as an asset in the consolidated financial statements.
3. Where the cost of investment to the parent is less than the portion of its equity in its subsidiary as on the date on which investment is made in the subsidiary, the difference should be treated as a capital reserve in the financial statements.
4. Minority interests in the net income of consolidated subsidiaries for the reporting period should be identified and adjusted against the income of the group in order to arrive at the net income attributable to the owners of the parent.
5. Minority interests in the net assets of consolidated subsidiaries should be identified and presented in the consolidated balance sheet separately from liabilities and the equity of the parent's shareholders. Minority interests in the net assets consist of:
1. the amount of equity attributable to minorities at the date on which investment in a subsidiary is made, and
2. the minorities' share of movements in equity since the date the parent-subsidiary relationship came in existence.
6. The carrying amount shall be considered for the above computations if the carrying amount of the investment in the subsidiary is different from its cost.

Disclosures

1. The consolidated financial statements should disclose by way of a note - all subsidiaries including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held.
2. The consolidated financial statements should disclose the following wherever applicable:
1. The nature of the relationship between the parent and a subsidiary, if the parent does not own, directly or indirectly through subsidiaries, more than one-half of the voting power of the subsidiary.
2. The impact 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, and
3. The names of the subsidiary(ies) of which reporting date(s) is/are different from that of the parent and the difference in reporting dates.
3. Consolidated financial statements should be prepared using uniform accounting policies for similar transactions and other events under similar circumstances. In case such uniform accounting policies cannot be incorporated in preparation of consolidated financial statements the same shall be disclosed.
4. Intragroup balances and transactions and resulting unrealised profits should be wholly discarded.
5. The financial statements used in the consolidation should be drawn up to the same reporting date.
6. Minority interests should be presented in the consolidated balance sheet separately from liabilities and the equity of the parent's shareholders.

Transitional Provisions: When the consolidated financial statements are prepared and presented for the first time, comparative figures pertaining to the previous period need not be presented. The consolidated financial statements for the subsequent periods should disclose the complete comparative figures for the previous period.