ACCOUNTING STANDARD-21 CONSOLIDATED FINANCIAL STATEMENTS (C.F.S.

) Applicability: (1) It comes into effect in respect of accounting periods commencing on or after 01.04.2001. (2) It shall be applicable to the enterprises that prepare and present C.F.S. SEBI has, vide a notification dt.31/8/01, amended clause 32 of Listing Agreement. In lieu of the amended clause, a listed parent company is now mandatorily required to publish audited CFS in the annual report in addition to the separate financial statements. Objective: It lays down principles and procedures for preparation and presentation of C.F.S. Scope: This AS is also applicable for accounting for investments in subsidiaries in the separate financial statements of a parent company. Preparation of C.F.S.: Preparation and presentation of C.F.S is in addition to the separate financial statements of the parent company. Scope of C.F.S.: All subsidiaries, domestic and foreign, are to be consolidated while preparing C.F.S., except a subsidiary: (a) control on which is of temporary nature; or (b) which operates under severe long-term restrictions resulting in inability to transfer funds to the parent company. Such unconsolidated subsidiaries should be accounted for in accordance with AS13. Consolidation Procedures: Consolidation of financial statements of parent and its subsidiaries done on line by line basis by adding together like items of assets, liabilities, income and expenses. Investment in subsidiary account (In the books of parent company) and the share of parent in the equity of subsidiary on the date on investment should be eliminated. Difference if any, arising from such elimination should be shown as GW/CR in the CBS (Consolidated Balance Sheet).
NOTE: (1) If two or more investments are made over a period of time, the equity of the subsidiary on the date of investment is determined on a step-by-step basis. (2) If small investments are made over a period of time and then an investment is made resulting in control, the date of latest investment may be considered as the date of investment.

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Minority Interest is shown on Liability side of CBS Minority Interest = Share of outside shareholders in the equity of subsidiary
Note : If in any F.Y., share of loss of M.I. exceeds its share of equity, then M.I. is shown at NIL in C.B.S. Such unabsorbed loss of M.I. is transferred to consolidated P&L. However, in subsequent years, M.I.s share of profit is not recognised unless such unabsorbed loss has been fully recovered.

From consolidated profit of all subsidiaries, share of minority interests is deducted to arrive at Group profits. Intra-group balances (such a s Debtors/Creditors, B.R/B.P. etc.) and transactions (such as, as sale/ purchase, expenses/ income) are eliminated fully. Unrealised profits resulting from intra-group transactions should be eliminated by creating a reserve for unrealized profit. Such reserve do not affects Minority Interest. Similarly, unrealized losses which cannot be recovered are eliminated. Different reporting dates of parent and subsidiaries: (a) Consolidation is done on Balance sheet date of parent company. (b) Adjustments should be made for significant events and transactions between the two dates. (c) Difference in reporting dates should not exceed 6 months. Uniform Accounting policies: The financial statements of a subsidiary should be adjusted prior to consolidation, in order to ensure uniformity of accounting policies. Where such adjustments could not be done, the fact should be disclosed. Post-acquisition profits/losses (of subsidiary companies) are shown in CBS under Reserves and Surplus as group profits/losses after due adjustment for Minority Interests share. Disposal of Investment in Subsidiary: (a) If it results in cessation of parent-subsidiary relationship, then profits of such subsidiary till the date of disposal only are included in consolidated P&L a/c. (b) Profit/Loss on disposal is recognised in Consolidated P&L account as well as in parents separate P & L a/c. (d) Investment in an enterprise, from the date that enterprise ceases to be a subsidiary, is dealt in accordance with AS13 or AS 23, as the case may be. Cumulative Preference Share held by Outsiders: (a) Paid-up value of such shares is added in Minority Interest. (b) Parents share in profits of subsidiary is derived after deducting the arrears of preference dividend. However, if profits are insufficient to cover such arrears (belonging to M.I.), only note is given at the foot of CBS.

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Accounting for Investments in Subsidiaries in Parents Separate Financial Statements: AS13 is followed for the purpose.

DISCLOSURES: (in C.F.S.) (1) If a subsidiary is left out from C.F.S., the reasons for the same should be disclosed. (2) A list of all subsidiaries including their name, country of incorporation, proportion of interest and /or proportion of voting power held should be given. (3) The nature of relationship between parent and subsidiary, if the parent does not hold majority voting power. (4) The effect of acquisitions and disposal of subsidiaries on the financial position and financial performance (5) The names of subsidiaries whose reporting dates are different along with their reporting dates.

Prepared by Sushma Vishnani, Faculty-B&ST Classes

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