Consolidation of Accounts

Need for Consolidation

• Consolidated Financial Statements required as per

Accounting Standard 21.

• Mandatory for listed companies only.

• Annual Consolidation – Mandatory

• Quarterly Consolidation - Optional
 Quarterly Consolidation

• Not mandatory as per existing SEBI Listing

agreement

• As a part of good Corporate Governance, some

Companies are already publishing Consolidated
Quarterly Results.
 Accounting Standards

• AS 21 – Consolidation of Subsidiaries

• AS 23 – Consolidation of Associates

• AS 27 – Consolidation of Joint Ventures

 Advantages of consolidation

• Single source document

• Intrinsic value of share
• Return on investments in subsidiary
• Acquisition of subsidiary
• Evaluating overall financial health of holding
company
 Processes Involved in Consolidation

• Involves combining of financial statements of holding and

subsidiary on line by line basis by adding together like
items of assets,liabilities,equity,income and expenses.

• Certain adjustments need to be made so that the

consolidated statement present financial information about
the group as a single enterprise.
 Adjustments
• Elimination of Inter company transactions
• Elimination of dividends
• Elimination of Inter company balances
• Consolidation adjustments
• Unrealised profits/losses from intragroup
transactions included in inventory
• Minority interest in income statement
• Minority interest in the balance sheet
• Verifying Goodwill / Capital Reserve
 Inter-Company Eliminations

• Sales & Purchases

• Income from Services Rendered & Expenses
• Dividend Income / Expense
• Debtors & Creditors
• Loans / Advances Given & taken
• Preference Shares
 Elimination of Dividend

Affecting Group Profits Because:

Income of one Company is Appropriation of other
Company

Interim Dividend – Paid & Received in same year

Proposed Dividend – Proposed by one Company

in a previous year & actually received by other
company in subsequent year
 Inter Company Balances

• Inter Company Balances need to be tallied &

not merely reconciled.

• Early date for Cutoffs to be followed.

• Inter Company Balances to be tallied on a

Monthly basis and not on Annual basis.
 Consolidation Adjustments
• Profit / Loss on sale of Investments to Group Companies
• Profit / Loss on sale of Fixed Assets to Group Companies
• Provision for Doubtful Debts
• Provision for Diminution in value of Long Term Investments in
subsidiaries
• Adjustments for Material Difference in Accounting Policy of
subsidiary
• Adjustment in Profit on sale of investments in subsidiaries to
third party:
 Minority interest in income statement
Standalone Profits  Group Profits
Standalone Profit of Parent xxx
Add: Standalone Profits of subsidiaries xxx
Add: Share in Standalone Profits of JVs xxx
Add: Share in Standalone Profits of Associates xxx
Add: Profit/Loss on Deemed Divestiture xxx
Less: Dividend Received from subsidiaries xxx
Less: Other Consolidation Adjustments xxx

Group Profits Before Minority Interestxxx

Less: Minority Interests in Profits of subsidiaries xxx
Group Profits after Minority Interest xxx
 Minority Interest in Balance Sheet

• Represents the share of minority shareholders in the

equity i.e equity capital and reserves and surplus

• MI in balance sheet =

Minority Share in Equity

+
Minority Share in Reserves
MI in Profit & Loss Account
 Goodwill / Capital Reserve
on consolidation
Goodwill on consolidation:
Excess of Investment over Share in Net Worth Acquired

Capital Reserve on Consolidation:

Excess of Share in Net Worth Acquired over Investment

Amortisation of Goodwill not done as per Indian Accounting

Standards