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Quick Reference on Accounting Standard (AS) 21

Download Quick Reference on Accounting Standard (AS) 21 Consolidated Financial Statements

The objective of this Standard is to lay down principles and procedures for preparation and presentation of consolidated financial statements. These statements are intended to present financial information about a parent and its subsidiary(ies) as a single economic entity to show the economic resources controlled by the group, obligations of the group and results the group achieves with its resources.

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

Subsidiary is an enterprise that is controlled by another enterprise (known as the parent).

Parent is an enterprise that has one or more subsidiaries.

Group is a parent and all its subsidiaries.

Control

(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

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

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.

A parent which presents consolidated financial statements should present these statements in addition to its separate financial statements.

A parent which presents consolidated financial statements should consolidate all subsidiaries, domestic as well as foreign, other than the following exclusions.

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 the consolidated financial statements, investments in such subsidiaries should be accounted for in accordance with AS 13.

Reasons for not consolidating a subsidiary should be disclosed in the consolidated financial statements.

Where an enterprise does not have a subsidiary but has an associate and/or a joint venture such an enterprise should also prepare consolidated financial statements in accordance with AS 23, Accounting for Associates in Consolidated Financial Statements, AS 27, Financial Reporting of Interests in Joint Ventures, respectively.

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. The consolidated financial statements are presented, to the extent possible, in the same format as that adopted by the parent for its separate financial statements.

Consolidation Procedures

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.

Cost of parent’s investment in subsidiary and the parent’s portion of equity on date of investment should be eliminated.

Computation of goodwill/Capital Reserve

Goodwill – Costs of parent’s investment in subsidiary > Parent’s portion of equity on date of investment

Capital Reserve – Costs of parent’s investment in subsidiary < Parent’s portion of equity on date of investment

Minority Interests

  • 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.
  • 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.

Intragroup balances and intragroup transactions should be eliminated along with resulting unrealised profits in full. Unrealised losses resulting from intragroup transactions should also be eliminated unless cost cannot be recovered.

The financial statements used in the consolidation should be drawn up to the same reporting date. If it is not practicable, adjustments should be made for the effects of significant transactions or other events that occur between those dates and the date of the parent’s financial statements. In any case, the difference between reporting dates should not be more than six months.

Consolidated financial statements should be prepared using uniform accounting policies for like transactions and other events in similar circumstances. If not practicable, that fact should be disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied.

The tax expense (comprising current tax and deferred tax) to be shown in the consolidated financial statements should be the aggregate of the amounts of tax expense appearing in the separate financial statements of the parent and its subsidiaries.

Discontinuance of consolidation

The results of operations of a subsidiary with which parent-subsidiary relationship ceases to exist are included in the consolidated Statement of Profit and Loss until the date of cessation of the relationship.

The difference between the proceeds from the disposal of the investment in a subsidiary and the carrying amount of its assets and liabilities as of the date of disposal is recognised in the consolidated Statement of Profit and Loss as the profit or loss on the disposal of the investment in the subsidiary.

An investment in an enterprise should be accounted for in accordance with AS 13 from the date that the enterprise ceases to be a subsidiary and does not become an associate. The carrying amount of the investment at the date it ceases to be a subsidiary is regarded as cost thereafter.

Accounting for investment in subsidiaries in parent’s separate financial statements

In parent’s separate financial statements, investment in subsidiaries should be accounted for in accordance with AS 13.

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