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Accounting Standard (AS) 21 Notes

Accounting Standard (AS) 21: Accounting for Amalgamation


The objective of this Standard is to lay down principles and procedures for preparation and presentation of consolidated financial statements. Consolidated financial statements are presented by a parent/ holding enterprise to provide financial information about the economic activities of its group to show the economic resources controlled by the group, the obligations of the group and results the group achieves with its resources.


This Standard should be applied in the preparation and presentation of consolidated financial statements for a group of enterprises under the control of a parent.

It should also be applied in accounting for investments in subsidiaries in the separate financial statements of a parent.

In the preparation of consolidated financial statements, other Accounting Standards also apply in the same manner as they apply to the separate statements.

This Standard does not deal with:

(a) methods of accounting for amalgamations and their effects on consolidation, including goodwill arising on amalgamation;

(b) accounting for investments in associates; and

(c) accounting for investments in joint ventures.

Relevant Terms


(a) the ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of an enterprise; or

(b) 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.


Subsidiary is an enterprise that is controlled by another enterprise.


A parent is an enterprise that has one or more subsidiaries.


A group is a parent and all its subsidiaries.

Consolidated financial statements

These are the financial statements of a group presented as those of a single enterprise.


It is the residual interest in the assets of an enterprise after deducting all its liabilities.

Minority Interest

It 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.

Consolidated financial statements normally include consolidated balance sheet, consolidated statement of profit and loss, and notes, other statements and explanatory material that form an integral part thereof. Consolidated cash flow statement is presented in case a parent presents its own cash flow statement.

Presentation of Consolidated Financial Statements

Users of the financial statements of a parent are usually concerned with, and need to be informed about, the financial position and results of operations of not only the enterprise itself but also of the group as a whole. For this the parent should present a separate financial statement of the parent and consolidated financial statements, which present financial information about the group as that of a single enterprise without regard to the legal boundaries of the separate legal entities.

Scope of Consolidated Financial Statements

A parent should consolidate all subsidiaries, domestic as well as foreign.

A subsidiary should be excluded from consolidation when:

(a) control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future; or

(b) it operates under severe long-term restrictions which significantly impair its ability to transfer funds to the parent. In consolidated financial statements, investments in such subsidiaries should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments. The reasons for not consolidating a subsidiary should be disclosed in the consolidated financial statements.

Consolidation Procedures

In preparing consolidated financial statements, the financial statements of the parent and its subsidiaries should be combined on a line by line basis by adding together like items of assets, liabilities, income and expenses.

Steps of consolidation :

(a) the cost to the parent of its investment in each subsidiary and the parent’s portion of equity of each subsidiary, at the date on which investment in each subsidiary is made, should be eliminated;

(b) any excess of the cost of investment in a subsidiary over the parent’s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, should be described as goodwill to be recognised as an asset in the consolidated financial statements and in the reverse case the difference should be treated as a capital reserve in the consolidated financial statements;

(c) Minority interest: should be calculated and shown in the consolidated financial statements separately in separate head. It means the portion of net assets of subsidiary on the date of consolidation not controlled by the parent or through its subsidiary.

Minority interest = paid up equity capital held by outsider + share of reserve and surplus on the date of consolidation. Preference share capital not held by parent or group is also considered.

(d) 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;

(e) When minority interest comes in negative, this should be adjusted against majority interest. In other words, negative minority interest will not be shown in consolidated balance sheet. If the subsidiary subsequently reports profits, all such profits should be allocated to majority interest until minority share of losses previously absorbed by the majority is recovered.

(f) If an enterprise makes two or more investments in another enterprise at different dates and eventually obtains control of the other enterprise, the consolidated financial statements are presented only from the date on which holding-subsidiary relationship comes in existence. If small investments are made over a period of time and then an investment is made that results in control, the date of the latest investment, as a practicable measure, may be considered as the date of investment.

(g) Intragroup balances and intragroup transactions and resulting unrealised profits should be eliminated in full. Unrealised losses resulting from intragroup transactions are also eliminated unless cost cannot be recovered.

(h) Intragroup balances and intragroup transactions, including sales, expenses and dividends, are eliminated in full.

Consolidation at different reporting date

Financial statement of parents and its subsidiary used for consolidation are generally of same date, however when reporting dates are different and it is not practical to prepare the financial statements of subsidiary of the same date, the different reporting date financial statement can be consolidated making adjustment for the effects of significant transactions that occur between those dates and parent financial statements provided difference is not more than six months.

If parent and its subsidiaries are following different accounting policies, the consolidated financial statement should be prepared using uniform accounting policies, if it is not practicable, then the items in which different accounting policies have been followed should be disclosed.

Disposal of investment in a subsidiary

The difference between the proceeds from the disposal of investments in a subsidiary and the carrying amount of its assets less liabilities as of the date of disposal is recognized in the consolidated statement.

Successive purchase of shares in a subsidiary by the parent/ purchase in lot

If an enterprise purchases two or more times the investment of other enterprises and gradually obtains control of the other enterprise the consolidated financial statement is prepared from the date on which holding subsidiary relationship is established. Further, in such cases goodwill or capital reserve on consolidation should be determined on step by step basis, however if small investments are made over a period of time, then the date of latest major investment which resulted in control, should be considered as date of investment.

If there are arrears of cumulative preference share of a subsidiary then the holding company share of profits is calculated after charging the arrear of cumulative preference dividend of a subsidiary, whether declared or not.


(a) a list of all subsidiaries including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held;

(b) in consolidated financial statements, where applicable:

(i) the nature of the relationship between the parent and a subsidiary, if the parent does not own, directly or indirectly through subsidiaries, more than 50% of the voting power of the subsidiary;

(ii) 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; and

(iii) 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.

Transitional Provisions

On the first occasion that consolidated financial statements are presented, comparative figures for the previous period need not be presented. In all subsequent years full comparative figures for the previous period should be presented in the consolidated financial statements.

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