Consolidation of Accounts
AS 21
1. This AS is mandatory in nature.
Exemptions not available. This is mandatory for applying
principles and procedures of consolidation.
Note: AS 21 does not require consolidation but is to be
followed if entity is preparing Consolidated Financial
Statement.
2. Parent means entity having Subsidiary. Subsidiary is entity
under control of Parent.
Control means any of following qualification :
Where One Entity, Directly or Indirectly through subsidiary,
own more than 50 % voting Power.
OR
Where one Entity has power to compose governing body of
another entity.
3.
Subsidiary are of two types:
Temporary Subsy
4.
Permanent Subsy
Temporary Subsidiary are not Consolidated.
Temporary Subsy are any of the following two :
i)
Whose parent hold shares in Subsidiary for disposal
in near future.
ii)
Where there are Long Term Restrictions on fund
transfer from subsidiary to parent Company.
Note:
Near Future means within 12 months
Note:
If any entity hold investment as Stock in trade,
than such shares are for temporary purpose,
No consolidation is required.
( India Bulls holds certain shares as investment)
5. Consolidation Procedure
Procedure are applied for consolidation of :
1.
2.
3.
4.
Consolidated Balance Sheet
Consolidated Profit & Loss A/c
Consolidated Cash Flow
Consolidated Notes of Account
a)
Investment in Subsidiary held by parent will be cancelled
against Net Asset of Subsidiary on the date of
acquisition.
Any excess paid is called Goodwill.
Excess Net Asset received is called Capital Reserve.
b)
All Asset, Liability, Income, Expence and Cash Flow will
be consolidated on line by line basis.
c)
Excess Net Asset Consolidated which are not owned by
parent is called Minority Interest.
It is Shown in CB/S after Unsecured Loans.
If Minority interest is Negative or Debit Balance, than
such negative balance will not be shown in asset side.
It will be written off against CPL in CB/S.
d)
Unrealized Profit / Loss on Assets will be cancelled from
Consolidated Statement.
As per “Frequently Asked Questions” on AS 21 issued by
ICAI, unrealised profit / loss can be on two tyoes of
transactions:
Upstream Transaction
Downstream Transaction
Unrealised Profit will be eliminated where profit has been
recognised.
e)
Any receivable or payable within group will be cancelled.
f)
Before Consolidation, Financial Statements of Subsidiary
will be updated to date of Parents Financial Statement.
Still if such updation is not possible Consolidation can be
done provided gap between financial statement should
not exceed 6 months.
g)
Before Consolidation Accounting Policy of subsidiary
should be made compliant, with that of parent.
f)
Whenever multiple acquisition is made by parent in
Subsidiary, Calculation of Goodwill or Capital Reserve will
be on Step by Step Basis.
g)
Whenever Subsidiary have outstanding Cumulative
Preference Share, whose dividend is in arrear, parent
share in Profit / Loss on subsidiary will be calculated after
providing Preference Dividend.
6. Disclosures
i)
Name of Subsidiary with address
ii)
Whenever Investment in subsidiary has been sold during
the year, fact will be disclosed.
iii)
If the date of Financial Statement of Subsidiary is not
updated, fact will be mentioned.