A comparative study of AS and Ind-AS Consolidation of Financial Statement

Consolidation

Consolidation has to be done by every company having subsidiary(s).

Consolidation is mandatory for only listed companies.

Exemption from Consolidation

No such exemption available

Exemption from Consolidation presently available:

1.       Control is short term or temporary

2.       Severe restriction to transfer fund to its parents

Definition of Subsidiary

Additional condition:

3.       Substantive Participative Rights*

4.       Buy-out Rights**

For being a Subsidiary conditions to be satisfied:

1.       Majority Shareholding

2.       Ability to control the composition of BOD

Determination of Majority Shareholding

Potential equity shares which is currently excisable (e.g call option, convertible instruments or warrants) are to be considered only for taking the “majority” decision not for consolidation purpose. 

Potential equity shares are not considered to compute percentage of control

Special Purpose Entities (SPE)

An SPE has to be consolidated when the substance of the relationship between company and SPE indicates that SPE is controlled by that company.

SPE are generally created to establish narrow and well defined objective e.g. Securitisation of financial asset, R&D activities etc.

Nothing is mentioned for the consolidation of SPE.

Minority Interest / Non – Controlling Interest

The term Minority Interest has been replaced by the term Non-Controlling Interest.

Two options available:

1.       Recognise Non – Controlling interest at its Fair Value

2.       Recognise Non- Controlling Interest at the proportionate share of the Fair Value of the Subsidiary company’s identifiable net assets.

Minority Interest has to be recognised at proportionate Book Value of the net assets of the Subsidiary.

Disclosure of Non-Controlling Interest

As per Revised Schedule VI Non-Controlling Interest is to be disclosed as a component of Equity.

As per Old Schedule VI Minority Interest has to be disclosed as a separate item from Liability and Equity in the Balance Sheet.

Loss attributable to Minority Shareholders

Such loss will not be adjusted against parent’s share and negative balance of minority shareholders will be shown as negative balance.

Loss in excess of share in equity of the subsidiary to be adjusted against Parent’s Share

Treatment of Goodwill

Acquisition of a subsidiary which meets the criteria of Business Combination, Goodwill shall be determined as per the relevant Standard.

The difference between Purchase consideration and share of Book Value of Net Assets is considered as Goodwill.

Dilution or Sale of Interest in Subsidiary

Changes in ownership interest which does not result loss of control are to be treated as equity Transaction (i.e. Transaction between shareholders. Remember Demerger transaction!) and accordingly no profit and loss would be recognised in the income statement.

However, if such dilution results into losing of control treatment as per existing AS will follow except retained investment shall be measured at Fair Value

Difference between Sale Price and Proportionate Carrying Amount of the Parent’s Ownership Interest in the subsidiary shall be recognised in Income statement and the balance of controlling interest (investment in Subsidiary) is measured at Cost.

Uniform Accounting Policy

No Impracticability exemption. It is Mandatory

Uniform accounting policies for subsidiaries shall be maintained for consolidation unless it is impracticable to do so.

Accounting Period

Maximum Difference is three months.

The difference between year ending of holding and subsidiary shall be maximum of six months which is also in line with Companies Act.

Put Option with Minority Shareholders

Minority shareholder may have the right to sell their interest either to the company or to the Majority shareholders. Exercise price of such option may be fixed or may be variable (fair value). Recognition of Liability is required for the above.

If the exercise price is fixed, The parent company needs to record the liability and has to derecognise Non-Controlling interest. Any subsequent change in such liability can be transferred to reserves or P&L. However, in case of Forward or Synthetic Forward (call & put taken together), such changes shall be transferred to P&L only.

If the put option is at Fair Value, then company has two options to disclose the potential liability in the financial statement viz.

1.       Show Liability and Non-controlling Interest on a gross basis.

2.       Treat the liability as settlement of the Non-Controlling interest

Nothing is mentioned about it.