Accounting Standard (AS) 21 Consolidated Financial Statements 1 (This Accounting Standard includes paragraphs set in bold italic ...
Accounting Standard (AS) 21
Consolidated Financial Statements1
(This Accounting Standard includes paragraphs set
in bold italic type and plain type, which have equal authority. Paragraphs in
bold italic type indicate the main principles. This Accounting Standard should
be read in the context of its objective and the General Instructions contained
in part A of the Annexure to the Notification.)
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 (also known as holding enterprise) to provide financial
1 It is clarified that AS 21 is mandatory if an enterprise presents
consolidated financial statements. In other words, the accounting standard does
not mandate an enterprise to present consolidated financial statements but, if
the enterprise presents consolidated financial statements for complying with
the requirements of any statute or otherwise, it should prepare and present
consolidated financial statements in accordance with AS 21.
information about the economic activities of its
group. 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, the obligations of the group and
results the group achieves with its resources.
Scope
1. 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.
2.
This Standard should also be applied in accounting
for investments in subsidiaries in the separate financial statements of a
parent.
3.
In the
preparation of consolidated financial statements, other Accounting Standards
also apply in the same manner as they apply to the separate statements.
4.
This
Standard does not deal with:
(a)
methods
of accounting for amalgamations and their effects on consolidation, including
goodwill arising on amalgamation (see AS 14, Accounting for Amalgamations);
(b)
accounting
for investments in associates (at present governed by AS 13, Accounting for
Investments2 ); and
(c)
accounting
for investments in joint ventures (at present governed by AS 13, Accounting for
Investments3 ).
Definitions
5. For
the purpose of this Standard, the following terms are used with the meanings
specified:
5.1
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.
5.2 A subsidiary
is an enterprise that is controlled by another enterprise (known as the
parent).
5.3 A parent
is an enterprise that has one or more subsidiaries.
5.4 A group
is a parent and all its subsidiaries.
2 Accounting Standard (AS) 23, ‘Accounting for Investments in Associates
in Consolidated Financial Statements’, specifies the requirements relating to
accounting for investments in associates in Consolidated Financial Statements.
3 Accounting Standard (AS) 27, ‘Financial Reporting of Interests in Joint
Ventures’, specifies the requirements relating to accounting for investments in
joint ventures.
5.5 Consolidated
financial statements are the financial statements of a group presented
as those of a single enterprise.
5.6 Equity is the
residual interest in the assets of an enterprise after deducting all its
liabilities.
5.7 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.
6. 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.
Explanation:
All the notes appearing in the separate financial
statements of the parent enterprise and its subsidiaries need not be included
in the notes to the consolidated financial statements. For preparing
consolidated financial statements, the following principles may be observed in
respect of notes and other explanatory material that form an integral part
thereof:
(a)
Notes
which are necessary for presenting a true and fair view of the consolidated
financial statements are included in the consolidated financial statements as
an integral part thereof.
(b)
Only the notes involving items
which are material need to be disclosed. Materiality for this purpose is
assessed in relation to the information contained in consolidated financial
statements. In view of this, it is possible that certain notes which are
disclosed in separate financial statements of a parent or a subsidiary would
not be required to be disclosed in the consolidated financial statements when
the test of materiality is applied in the context of consolidated financial
statements.
(c)
Additional
statutory information disclosed in separate financial statements of the
subsidiary and/or a parent having no bearing on the true and fair view of the
consolidated financial statements need not be disclosed in the consolidated
financial statements. An illustration of such information in the case of
companies is attached to the Standard.
Presentation of Consolidated Financial Statements
7.
A parent which presents consolidated financial
statements should present these statements in addition to its separate
financial statements.
8.
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. This need is served by providing the users –
(a)
separate
financial statements of the parent; and
(b)
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
9.
A parent which presents consolidated financial
statements should consolidate all subsidiaries, domestic as well as foreign,
other than those referred to in paragraph
11. 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 Accounting Standard (AS) 23, Accounting for
Associates in Consolidated Financial Statements, and Accounting Standard (AS)
27, Financial Reporting of Interests in Joint Ventures respectively.
10.
The
consolidated financial statements are prepared on the basis of financial
statements of parent and all enterprises that are controlled by the parent,
other than those subsidiaries excluded for the reasons set out in paragraph 11.
Control exists when the parent owns, directly or indirectly through
subsidiary(ies), more than one-half of the voting power of an enterprise.
Control also exists when an enterprise controls the composition of the board of
directors (in the case of a company) or of the corresponding governing body (in
case of an enterprise not being a company) so as to obtain economic benefits
from its activities. An enterprise may control the composition of the governing
bodies of entities such as gratuity trust, provident fund trust etc. Since the
objective of control over such entities is not to obtain economic benefits from
their activities, these are not considered for the purpose of preparation of
consolidated financial statements. For the purpose of this Standard, an
enterprise is considered to control the composition of:
(i)
the board
of directors of a company, if it has the power, without the consent or
concurrence of any other person, to appoint or remove all or a majority of
directors of that company. An enterprise is deemed to have the power to appoint
a director, if any of the following conditions is satisfied:
(a)
a person
cannot be appointed as director without the exercise in his favour by that
enterprise of such a power as aforesaid; or
(b)
a person’s
appointment as director follows necessarily from his appointment to a position
held by him in that enterprise; or
(c)
the
director is nominated by that enterprise or a subsidiary thereof.
(ii)
the
governing body of an enterprise that is not a company, if it has the power,
without the consent or the concurrence of any other person, to appoint or
remove all or a majority of members of the governing body of that other
enterprise. An enterprise is deemed to have the power to appoint a member, if
any of the following conditions is satisfied:
(a)
a person
cannot be appointed as member of the governing body without the exercise in his
favour by that other enterprise of such a power as aforesaid; or
(b)
a person’s appointment as member
of the governing body follows necessarily from his appointment to a position
held by him in that other enterprise; or
(c)
the
member of the governing body is nominated by that other enterprise.
It is possible that an enterprise
is controlled by two enterprises – one controls by virtue of ownership of
majority of the voting power of that enterprise and the other controls, by
virtue of an agreement or otherwise, the composition of the board of directors
so as to obtain economic benefits from its activities. In such a rare
situation, when an enterprise is controlled by two enterprises as per the
definition of ‘control’, the first mentioned enterprise will be considered as
subsidiary of both the controlling enterprises within the meaning of this
Standard and, therefore, both the enterprises need to consolidate the financial
statements of that enterprise as per the requirements of this Standard.
11. 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.
Explanation:
(a) Where an
enterprise owns majority of voting power by virtue of ownership of the shares
of another enterprise and all the shares are held as ‘stock-in-trade’ and are
acquired and held exclusively with a view to their subsequent disposal in the
near future, the control by the first mentioned enterprise is considered to be
temporary within the meaning of paragraph 11(a).
(b)
The period of time, which is considered as near future for the purposes
of this Standard primarily depends on the facts and circumstances of each case.
However, ordinarily, the meaning of the words ‘near future’ is considered as
not more than twelve months from acquisition of relevant investments unless a
longer period can be justified on the basis of facts and circumstances of the
case. The intention with regard to disposal of the relevant investment is
considered at the time of acquisition of the investment. Accordingly, if the
relevant investment is acquired without an intention to its subsequent disposal
in near future, and subsequently, it is decided to dispose off the investment,
such an investment is not excluded from consolidation, until the investment is
actually disposed off. Conversely, if the relevant investment is acquired with
an intention to its subsequent disposal in near future, but, due to some valid
reasons, it could not be disposed off within that period, the same will
continue to be excluded from consolidation, provided there is no change in the
intention.
12.
Exclusion
of a subsidiary from consolidation on the ground that its business activities
are dissimilar from those of the other enterprises within the group is not
justified because better information is provided by consolidating such
subsidiaries and disclosing additional information in the consolidated
financial statements about the different business activities of subsidiaries.
For example, the disclosures required by Accounting Standard (AS) 17, Segment
Reporting, help to explain the significance of
Consolidation Procedures
13. 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. 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:
(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 to the parent of its 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;
(c) when the
cost to the parent of its investment in a subsidiary is less than the parent’s
portion of equity of the subsidiary, at the date on which investment in the
subsidiary is made, the difference should be treated as a capital reserve in
the consolidated financial statements;
(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; and
(e) 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:
(i) the
amount of equity attributable to minorities at the date on which investment in
a subsidiary is made; and
(ii) the
minorities’ share of movements in equity since the date the parent-subsidiary
relationship came in existence.
Where the
carrying amount of the investment in the subsidiary is different from its cost,
the carrying amount is considered for the purpose of above computations.
Explanation:
(a) 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.
(b) The
parent’s share in the post-acquisition reserves of a subsidiary, forming part
of the corresponding reserves in the consolidated balance sheet, is not
required to be disclosed separately in the consolidated balance sheet keeping
in view the objective of consolidated financial statements to present financial
information of the group as a whole. In view of this, the consolidated reserves
disclosed in the consolidated balance sheet are inclusive of the parent’s share
in the post-acquisition reserves of a
14.
The
parent’s portion of equity in a subsidiary, at the date on which investment is
made, is determined on the basis of information contained in the financial
statements of the subsidiary as on the date of investment. However, if the
financial statements of a subsidiary, as on the date of investment, are not
available and if it is impracticable to draw the financial statements of the
subsidiary as on that date, financial statements of the subsidiary for the
immediately preceding period are used as a basis for consolidation. Adjustments
are made to these financial statements for the effects of significant
transactions or other events that occur between the date of such financial
statements and the date of investment in the subsidiary.
15.
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 two or more investments are made over a period of time, the
equity of the subsidiary at the date of investment, for the purposes of
paragraph 13 above, is generally determined on a step-by-step basis; however,
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.
16. Intragroup
balances and intragroup transactions and resulting unrealised profits should be
eliminated in full. Unrealised losses resulting from intragroup transactions
should also be eliminated unless cost cannot be recovered.
17.
Intragroup balances and
intragroup transactions, including sales, expenses and dividends, are
eliminated in full. Unrealised profits resulting from intragroup transactions
that are included in the carrying amount of assets, such as inventory and fixed
assets, are eliminated in full. Unrealised losses resulting from intragroup
transactions that are deducted in arriving at the carrying amount of assets are
also eliminated unless cost cannot be recovered.
18. The
financial statements used in the consolidation should be drawn up to the same
reporting date. If it is not practicable to draw up the financial statements of
one or more subsidiaries to such date and, accordingly, those financial
statements are drawn up to different reporting dates, 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.
19.
The
financial statements of the parent and its subsidiaries used in the preparation
of the consolidated financial statements are usually drawn up to the same date.
When the reporting dates are different, the subsidiary often prepares, for
consolidation purposes, statements as at the same date as that of the parent.
When it is impracticable to do this, financial statements drawn up to different
reporting dates may be used provided the difference in reporting dates is not
more than six months. The consistency principle requires that the length of the
reporting periods and any difference in the reporting dates should be the same
from period to period.
20. Consolidated
financial statements should be prepared using uniform accounting policies for
like transactions and other events in similar circumstances. If it is not
practicable
to use uniform accounting policies in preparing the consolidated financial
statements, 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.
21.
If a
member of the group uses accounting policies other than those adopted in the
consolidated financial statements for like transactions and events in similar
circumstances, appropriate adjustments are made to its financial statements
when they are used in preparing the consolidated financial statements.
22.
The results of operations of a
subsidiary are included in the consolidated financial statements as from the
date on which parent-subsidiary relationship came in existence. 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 investment in a subsidiary and the carrying amount of its
assets less 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. In order to ensure the comparability of
the financial statements from one accounting period to the next, supplementary
information is often provided about the effect of the acquisition and disposal
of subsidiaries on the financial position at the reporting date and the results
for the reporting period and on the corresponding amounts for the preceding
period.
23. An
investment in an enterprise should be accounted for in accordance with
Accounting Standard (AS) 13, Accounting for Investments, from the date that the
enterprise ceases to be a subsidiary and does not become an associate1.
24.
The
carrying amount of the investment at the date that it ceases to be a subsidiary
is regarded as cost thereafter.
25. Minority
interests should be presented in the consolidated balance sheet separately from
liabilities and the equity of the parent’s shareholders. Minority interests in
the income of the group should also be separately presented.
26.
The losses applicable to the
minority in a consolidated subsidiary may exceed the minority interest in the
equity of the subsidiary. The excess, and any further losses applicable to the
minority, are adjusted against the majority interest except to the extent that
the minority has a binding obligation to, and is able to, make good the losses.
If the subsidiary subsequently reports profits, all such profits are allocated
to the majority interest until the minority’s share of losses previously
absorbed by the majority has been recovered.
27.
If a
subsidiary has outstanding cumulative preference shares which are held outside
the group, the parent computes its share of profits or losses after adjusting
for the subsidiary’s preference dividends, whether or not dividends have been
declared.
Accounting for Investments in Subsidiaries in a Parent’s Separate
1
Accounting Standard (AS) 23, ‘Accounting for Investments in Associates in
Consolidated Financial Statements’, defines the term ‘associate’ and specifies
the requirements relating to accounting for investments in associates in
consolidated Financial Statements.
28. In a
parent’s separate financial statements, investments in subsidiaries should be
accounted for in accordance with Accounting Standard (AS) 13, Accounting for
Investments.
Disclosure
29. In
addition to disclosures required by paragraph 11 and 20, following disclosures
should be made:
(a) in
consolidated financial statements 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 one-half
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
30. 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.
Illustration
Note: This
illustration does not form part of the Accounting Standard. Its purpose is to
assist in clarifying the meaning of the Accounting Standard.
In the case of companies, the
information such as the following given in the notes to the separate financial
statements of the parent and/or the subsidiary, need not be included in the
consolidated financial statements:
(i)
Source
from which bonus shares are issued, e.g., capitalisation of profits or Reserves
or from Share Premium Account.
(ii)
Disclosure
of all unutilised monies out of the issue indicating the form in which such
unutilised funds have been invested.
(iii)
The
name(s) of small scale industrial undertaking(s) to whom the company owe any
sum together with interest outstanding for more than thirty days.
(iv)
A
statement of investments (whether shown under “Investment” or under “Current
Assets” as stock-in-trade) separately classifying trade investments and other
investments, showing the names of the bodies corporate (indicating separately
the names of the bodies corporate under the same management) in whose shares or
debentures, investments have been made (including all
investments, whether existing or
not, made subsequent to the date as at which the previous balance sheet was
made out) and the nature and extent of the investment so made in each such body
corporate.
(v)
Quantitative
information in respect of sales, raw materials consumed, opening and closing
stocks of goods produced/ traded and purchases made, wherever applicable.
(vi)
A
statement showing the computation of net profits in accordance with section 198
of the Companies Act, 2013, with relevant details of the calculation of the
commissions payable by way of percentage of such profits to the directors
(including managing directors) or manager (if any).
(vii)
In the
case of manufacturing companies, quantitative information in regard to the
licensed capacity (where licence is in force); the installed capacity; and the
actual production.
(viii) Value of imports calculated on C.I.F. basis
by the company during the financial year in respect of :
(a)
raw
materials;
(b)
components
and spare parts;
(c)
capital
goods.
(ix)
Expenditure
in foreign currency during the financial year on account of royalty, know-how,
professional, consultation fees, interest, and other matters.
(x)
Value of
all imported raw materials, spare parts and components consumed during the
financial year and the value of all indigenous raw materials, spare parts and
components similarly consumed and the percentage of each to the total
consumption.
(xi)
The
amount remitted during the year in foreign currencies on account of dividends,
with a specific mention of the number of non-resident shareholders, the number
of shares held by them on which the dividends were due and the year to which
the dividends related.
(xii)
Earnings
in foreign exchange classified under the following heads, namely:
(a)
export of
goods calculated on F.O.B. basis;
(b)
royalty,
know-how, professional and consultation fees;
(c)
interest
and dividend;
(d)
other
income, indicating the nature thereof.
This is applicable from 01.04.2017
Amendment in Other accounting standards
Notification
AS 2, Valuation of Inventories
AS 4, Contingencies and Events Occurring After the Balance Sheet Date
AS 10, Property, Plant and Equipment
AS 13, Accounting for Investments
AS 14, Accounting for Amalgamations
AS 29, Provisions, Contingent Liabilities and Contingent Assets
This is applicable from 01.04.2017
Amendment in Other accounting standards
COMMENTS