Accounting Standard 21 Consolidated Financial Statements (In this Accounting Standard, the standard portions have been set in bold italic type. These should be read in the context of the background material which has been set in normal type, and in the the co cont ntex extt of the the ‘Pre ‘Prefa face ce to the the St Stat atem emen ents ts of Ac Acco coun unti ting ng Standards'.) Accounting Standard (AS) 21, ‘Consolidated Financial Statements’, issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of accounting perio periods ds co comm mmen encin cing g on or after after 1-4-20 1-4-2001. 01. An enter enterpri prise se that that presents presents consolid consolidated ated financial financial stateme statements nts should should prepare prepare and present these statements in accordance with this Standard. The following is the text of the Accounting Standard. Objective The The obje object ctiv ive e of this this St Stat atem emen entt is to lay lay down down prin princi cipl ples es and and proc proced edur ures es fo forr prep prepar arat atio ion n and and pres presen enta tati tion on of co cons nsol olid idat ated ed fina financ ncia iall st stat atem emen ents ts.. Cons Consol olid idat ated ed fina financ ncia iall st stat atem emen ents ts are are pres presen ente ted d by a pare parent nt (als (also o know known n as ho hold ldin ing g ente enterp rpris rise) e) to provide financial information about the economic activities of its grou group. p. Thes These e st stat atem emen ents ts are are inte intend nded ed to pres presen entt fina financ ncia iall inform informati ation on abou aboutt a parent parent and its subsid subsidiar iary(i y(ies es)) as a single single economic entity to show the economic resources resources controlled by the group, the obligations of the group and results the group achieves with its resources. Scope 1. This Statement Statement should should be applied in the preparation and and presentation of consolidated financial statements for a group of enterprises under the control of a parent.
2. This Stateme Statement nt should should also be applied in acco account unting ing for inves inv estm tmen ents ts in su subs bsidi idiari aries es in the se separ parate ate fin financ ancial ial statements of a parent. 3. In the preparation preparation of consolidated consolidated financial financial statements, statements, other Accounting Standards Standards also apply in the same manner as they apply to the separate financial statements. statements. 4. This Statement Statement does does not not deal with: a. methods methods of accounting accounting for amalgamatio amalgamations ns and their their effects effects on consolidation, including goodwill arising on amalgamation (see AS 14, Accounting for Amalgamations); b. ac acco cou untin ting for for inve invest stme men nts in as asso soc ciat iates (at (at pres resent ent governed by AS 13, Accounting for Investments); and c. acco accoun unti ting ng fo forr inve invest stme ment nts s in jo join intt vent ventur ures es (at (at pres presen entt governed by AS 13, Accounting for Investments). Definitions 5.
For the purpose of this Statement, the following terms are used with the meanings specified:
Control: (a) the ownership, directly or indirectly through subs su bsidi idiary ary(ie (ies) s),, of mo more re th than an one one-ha -half lf of th the e vot votin ing g power of an enterprise; or 1. Attent Attention ion is specif specifica ically lly drawn drawn to paragr paragrap aph h 4.3 of the Pref Prefac ace, e, ac acco cord rdin ing g to whic which h ac acco coun unti ting ng st stan anda dard rds s are intended to apply only to material items. 2. A se sepa para rate te ac acco coun unti ting ng st stan anda dard rd on 'Acc 'Accou ount ntin ing g fo forr Investments Investments in Associates', Associates', which is being formulated, formulated, will spe specify cify the the requ requir irem emen ents ts rela relati ting ng to ac acco coun unti ting ng fo forr investments in associates.
3. A separate separate accountin accounting g standard standard on 'Financia 'Financiall Reportin Reporting g of Interests in Joint Ventures ', which is being formulated, will will speci specify fy the requir requirem ement ents s relati relating ng to acc accoun ountin ting g for investments investments in joint ventures. (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. A subsidiary is an enterprise that is controlled by another enterprise (known as the parent). A parent is subsidiaries.
an
enterprise
that
has
one
or
more
A group is a parent and all its subsidiaries. Consol Cons olid idat ated ed fi fina nanc ncia iall sta tate tem men ents ts ar are e th the e fina financ ncia ial l sta state tem men ents ts of a gr grou oup p pr pre ese sent nted ed as th thos ose e of a sing single le enterprise. Equity is the residual interest in the assets of an enterprise after deducting all its liabilities. 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.
Cons Consol olid idat ate ed fina finan ncial cial stat ate ements nts norma rmally lly inc includ lude consolid consolidated ated balance balance sheet, sheet, consolid consolidated ated statement statement of profit profit and loss, and notes, other statements and explanatory material that that fo form rm an inte integr gral al part part ther thereo eof. f. Cons Consol olid idat ated ed ca cash sh flow flow statement is presented in case a parent presents its own cash flow flow st stat atem emen ent. t. The The co cons nsol olid idat ated ed fina financ ncia iall st stat atem emen ents ts are are
presented, to the extent possible, in the same format as that adopted by the parent for its separate financial statements. Presentation of Consolidated Financial Statements 7. A pare ren nt which pr pre esen entts con ons solida datted fin inan anc cial statements should present these statements in addition to its separate financial statements. 8.
Users Users of of the the financ financial ial stat statem ement ents s of a pare parent nt are are usuall usually y 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 financial statements statements of the parent; and b. Consol Consolida idated ted financ financial ial state stateme ments nts,, which which presen presentt financ financial ial 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 pare ren nt which pr pre esen entts con ons solida datted fin inan anc cial statements statemen ts should consolid consolidate ate all subsi subsidiaries, diaries, domestic as wel elll as for ore eign gn,, ot oth her th tha an th tho ose re refe ferr rred ed to in paragraph 11. 10. The cons consoli olidat dated ed financ financial ial state stateme ments nts are prep prepare ared d on the basis of financial statements of parent and all enterprises that are co contr ntroll olled ed by the parent parent,, ot other her than than those those subsi subsidi diari aries es 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
bene benefi fits ts from from its its ac acti tivi viti ties es.. An ente enterp rpri rise se may may co cont ntro roll the the composition composition of the governing bodies 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 acti ac tivi viti tie es, thes these e are are not consid sidere ered for the purp urpos ose e of prep prepar arat atio ion n of co cons nsol olid idat ated ed fina financ ncia iall st stat atem emen ents ts.. For For the the purp purpos ose e of this this St Stat atem emen ent, t, an ente enterp rpri rise se is co cons nsid ider ered ed to control the composition of: (i)
the board board of direc directo tors rs of a compan company, y, if it has the power power,, without the consent or concurrence of any other person, to appo appoin intt or rem remov ove e all all or a majo majori rity ty of dire direct ctor ors s of that that compa company. ny. An enter enterpri prise se is deem deemed ed to have have the powe powerr to appo appoin intt a dire direct ctor or,, if any any of the the fo foll llow owin ing g co con nditi dition ons s is satisfied: a. a pers person on ca cann nnot ot be appo appoin inte ted d as dire direct ctor or with withou outt the the exercise in his favour by that enterprise of such a power as aforesaid; or b. a pers person on’s ’s appo appoin intm tmen entt as dire direct ctor or fo foll llow ows s nece necess ssar aril ily y from his appointment to a position held by him in that enterprise; or c. the director is nominated subsidiary thereof.
by
that
enterprise
or
a
(ii) (ii) the the gov gover erni ning ng body ody of of an an ent enter erpr pris ise e that that is no nott 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 appo appoin intt a memb member er,, if any any of the the fo foll llow owin ing g co cond ndit itio ions ns is satisfied: a. a person cannot cannot be appointed appointed as as member member of the governing governing body body with withou outt the the exer exerci cise se in his his favo favour ur by that that ot othe herr enterprise of such a power as aforesaid; or
b. a person’s person’s appointment appointment as member member of the governing governing body body follows necessarily necessarily from his appointment appointment to a position held by him in that other enterprise; or c. the membe memberr of the governi governing ng body body is nominat nominated ed by that that other enterprise. 11. A su 11. subs bsidi idiary ary sh shou ould ld be exc exclu luded ded fro from m con conso soli lidat datio ion n 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) (b) it op oper erat ates es un unde der r sev sever ere e lon longg-te term rm re rest stri rict ctio ion ns which significantly impair its ability to transfer funds to the parent. In con consol solida idated ted fin financ ancial ial st state ateme ments nts,, in inves vestme tment nts s in such subsidiaries should be accounted for in accordance with wi th Ac Acco coun unti ting ng Sta tand ndar ard d (A (AS) S) 13 13,, Ac Acco coun unti ting ng fo for r Inv Inve estm tme ents. The re reas aso ons for no nott co con nsolid ida ati ting ng a sub subsi sidi diar ary y sho houl uld d be di disc sclo lose sed d in th the e co cons nsol olid idat ated ed financial statements. 12. Exclusio Exclusion n of a subsidi subsidiary ary from consoli consolidatio dation n on the ground that its business activities are dissimilar from those of the other enterp enterpris rises es within within the group group is not justif justified ied becau because se better better information is provided by consolidating such subsidiaries and disclosi disclosing ng addition additional al informati information on in the consoli consolidate dated d financial financial statements about the different business activities of sub subsidia idiari ries es.. For exam xample, le, the the disc sclo losu sure res s req require uired d by Acco Ac coun unti ting ng St Stan anda dard rd (AS) (AS) 17, 17, Se Segm gmen entt Repo Report rtin ing, g, help help to explain explain the signific significance ance of different different business business activities activities within within the group. 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 ad addi ding ng to toge geth ther er li like ke it item ems s of as asse sets ts,, li liab abil ilit itie ies, s, incom inc ome e and exp expen ense ses. s. In ord order er th that at th the e con conso soli lidat dated ed 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 it 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 inve in ves stm tmen entt in th the e su subs bsid idia iary ry is ma made de,, sho houl uld d be described as goodwill to be recognised as an asset in the consolidated financial statements; (c) when the cost to the parent of its inves in vestm tmen entt in a su subs bsidi idiary ary is le less ss tha than n the pa paren rent's t's por porti tion on of eq equi uity ty of th the e su subs bsid idia iary ry,, at th the e da date te on whic wh ich h in inve ves stm tmen entt in th the e sub ubsi sidi diar ary y is mad ade e, th the e difference should be treated as a capital reserve in the consolidated financial statements; (d) minority interests in i n the net income of cons co nsol olid idat ated ed su subs bsid idia iari ries es fo for r th the e re repo port rtin ing g pe peri riod od should be identified and adjusted against the income of th the e gr grou oup p in or orde der r to ar arri rive ve at th the e ne nett in inco com me attributable to the owners of the parent; and (e) minority interests in the conso con solid lidate ated d su subs bsid idiar iaries ies sh shou ould ld be presented in the consolidated sep separ arat ate ely fr from om liab abiilit itie ies s and the
net assets of identi ide ntifie fied d and balance sheet equit ity y of th the e
pare parent' nt's s sh share areho holde lders rs.. Mi Minor nority ity int intere erest sts s in th the e ne net t assets consist of: i. the the am amou ount nt of eq equi uity ty at attr trib ibut utab able le to mi mino nori riti ties es at the th e da date te on wh whic ich h in inve vest stme ment nt in a subs subsid idia iary ry is made; and ii. the minoriti minorities' es' share of move movemen ments ts in equi equity ty since the date the parent-subsidiary relationship came in existence. Where the carrying amount of the investment in the sub subsi sidi diar ary y is di diff ffer eren entt fr from om it its s co cost st,, th the e ca carr rryi ying ng amount is considered for the purpose of above computations. 14. The pa parent's po portion of of eq equity in in a subsidiary, at at th the date on which investment is made, is determined on the basis of info inform rmat atio ion n co cont ntai aine ned d in the the fina financ ncia iall st stat atem emen ents ts of the the subs subsid idia iary ry as on the the date date of inve invest stme ment nt.. Ho Howe weve ver, r, if the the fin financi ancial al stat ate ements nts of a subsidia idiary ry,, as on the dat ate e of investment, are not available and if it is impracticable to draw the the fina financ ncia iall st stat atem emen ents ts of the the subs subsid idia iary ry as on that that date date,, fina financ ncia iall st stat atem emen ents ts of the the subs subsid idia iary ry fo forr the the imme immedi diat atel ely y pre prece ced ding ing period riod are are use sed d as a basis sis for co con nsolid olidat atio ion. n. Adjustments are made to these financial statements for the effec effects ts of signif significa icant nt transa transacti ctions ons or ot other her events events that that oc occur cur between between the date of such financial financial statements statements and the date of investment in the subsidiary. 15. If an an en enterprise ma makes ttw wo or or mo more iin nvestments iin n anothe anotherr enterp enterpris rise e at diffe differen rentt dates dates and event eventual ually ly obtai obtains ns cont co ntro roll of the the ot othe herr ente enterp rpri rise se,, the the co cons nsol olid idat ated ed fina financ ncia iall statements are presented only from the date on which holdingsubs subsid idia iary ry rela relati tion onsh ship ip co come mes s in exis existe tenc nce. e. If two two or more more investments are made over a period of time, the equity of the subs subsid idia iary ry at the the date date of inve invest stm ment, ent, fo forr the the purp purpos oses es of paragraph 13 above, is generally determined on a step-by-step 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 elim el imin inat ated ed in fu full ll.. Un Unre real alis ised ed lo loss sses es re resu sult ltin ing g fr from om intragroup transactions should also be eliminated unless cost cannot be recovered. Intra Intragro group up balan balances ces and intrag intragrou roup p trans transact action ions, s, including sales, expenses and dividends, are eliminated in full. Unrealise Unrealised d profits profits resulting resulting from intragroup intragroup transacti transactions ons that are are incl inclu uded in the carr arryin ying amount of as asse sets ts,, such uch as inventory and fixed assets, are eliminated in full. Unrealised losses resulting from intra group transactions that are deducted deducted in arriving at the carrying amount of assets are also eliminated unless cost cannot be recovered. 17.
18. The financial statements used in the consolidation should be drawn up to the same reporting date da te.. If it is no nott pr prac acti tica cabl ble e to dr draw aw up th the e fi fina nanc ncia ial l 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 transactions or other events that th at oc occu cur r be betw twee een n th thos ose e da date tes s an and d th the e da date te of th the e parent's financial statements. In any case, the difference betwe bet ween en rep repor ortin ting g dat dates es sh shou ould ld no nott be mo more re tha than n si six x months. 19. The financial statements of the parent and its subs subsid idia iari ries es use sed d in the the prep prepar arat atio ion n of the the co cons nsol olid idat ated ed financial statements are usually drawn up to the same date. When the reporting dates are different, the subsidiary often prepar prepares es,, for conso consolid lidati ation on purp purpose oses, s, state statemen ments ts 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 pre prepa pare red d us usin ing g un unif ifor orm m ac acco coun unti ting ng po poli lici cies es fo for r li like ke transactions and other events in similar circumstances. If it is not practicable to use uniform accounting accounting policies in preparing the consolidated financial statements, that fact should be disclosed together with the proportions of the ite items ms in th the e con conso soli lidat dated ed fi finan nanci cial al st state ateme ment nts s to whic wh ich h th the e di diff ffer eren entt ac acco coun unti ting ng po poli lici cies es ha have ve be been en applied. 21. If a me member of of th the gr group us uses ac accounting po policies othe ot herr than than tho those adop adopte ted d in the the consolid lidat ate ed fina financ ncia iall statements for like transactions and events in similar circ circum umst stan ance ces, s, appr approp opri riat ate e adju adjust stme ment nts s are are made made to its its fina financ ncia iall st stat atem emen ents ts when when they they are are used used in prep prepar arin ing g the the consolidated consolidated financial statements. 22. The re results of of o op perations of of a su subsidiary ar are in included in the consolidated financial statements as from the date on which which parent parent-su -subs bsidi idiary ary relati relations onship hip came came in existe existence nce.. The resu result lts s of oper operat atio ions ns of a subs subsid idia iary ry with with whic which h pare parent nt-subs subsid idia iary ry rela relati tion onsh ship ip ce ceas ases es to exis existt are are incl includ uded ed in the the cons co nsol olid idat ated ed st stat atem emen entt of prof profit it and and loss loss unti untill the the date date of cess ce ssat atio ion n of the the rela relati tion onsh ship ip.. The The diffe differe renc nce e betw betwee een n the 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 supplementary information is often provided about the effect of the acquis acquisiti ition on and disp disposa osall of subsi subsidia diarie ries s on the financ financial ial
position at the reporting date and the results for the reporting period period and on the corres correspo pond nding ing amoun amounts ts for the preced preceding ing 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 associate. 24. The ca carryi rying am amount of of th the in inves vestment at at th the date that it ceases to be a subsidiary is regarded as cost thereafter. 25. Minority interests should be presented in the conso con solid lidate ated d bal balanc ance e sh sheet eet se separ parate ately ly fro from m lia liabi bilit litie ies s and the equ equity ity of the par paren ent's t's sh share areho holde lders rs.. Mi Mino norit rity y inte in tere rest sts s in th the e in inco come me of th the e gr grou oup p sh shou ould ld al also so be separately presented. 26. 26. The The loss losses es appl applic icab able le to the the mino minori rity ty in a co cons nsol olid idat ated ed 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 whic which h are are held held ou outs tsid ide e the the grou group, p, the the pare parent nt co comp mput utes es its its share share of profit profits s or losse losses s after after adjus adjustin ting g for the subsid subsidiar iary’s y’s pref prefer eren ence ce divi divide dend nds, s, whet whethe herr or no nott divi divide dend nds s have have been been declared. Accoun Accounting ting for Invest Investmen ments ts in Subsid Subsidiari iaries es in a Parent's Parent's Separate 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 con consolidate ted d financial statements a list of al all l subsidiaries including the name, country of incorpor inco rporatio ation n or res residen idence, ce, prop proporti ortion on of own owners ership hip interest and, if different, proportion of voting power held;
(b) in consolidated applicable:
financial
statements,
where
i. the the na natu ture re of th the e re rela lati tion onsh ship ip betwe between en th the e pa pare rent nt and a subsidiar ary y, if the parent does not own, direc di rectly tly or in indi direc rectl tly y thr throu ough gh su subs bsidi idiari aries es,, mo more re 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. A separate accounting accounting standard on 'Accounting for Investments in Associates', which is being formulated, will define the term ‘associate’ and specify the requirements relating to accounting
for investme investments nts in asso associat ciates. es. Until Until the aforesaid aforesaid acco accounti unting ng standard comes into effect, AS 13 would continue to apply. Transitional Provisions 30. On the first occasion that consolidated financial statem statements ents are pres presente ented, d, com compara parative tive figu figures res for the previous period need not be presented. In all sub subse sequ quen entt ye year ars s fu full ll co comp mpar arat atiive fi figu gure res s fo for r th the e previous period should be presented in the consolidated financial statements.
