Consolidation of accounts

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Querist : Anonymous

Querist : Anonymous (Querist)

26 March 2012 a listed public ltd holding company does not wish to consolidate the accounts of subsidiaery can it do it?

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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26 March 2012 Yes, there are two reasons specified in para 11 of AS 21 for not doing consolidation-

"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 future7; 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."

Hope you got the answer and in any other case a company is required to consolidate its accounts.

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Querist : Anonymous

Querist : Anonymous (Querist)

27 March 2012 PleaseElaborate what can be severe long term restrictions impairing subsidiaries ability totransfer funds to the parent company

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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27 March 2012 The examples of severe long term restrictions could be-
1. When Subsidiary company is in a country which imposed restriction on transfer of funds to other country
2. The Country, currency of which is highly devaluating can also do so
3. Some major Natural Calamity or War has happened in the country can restrict transfer of funds.

In these type of circumstances, the holding company does not control over the funds of its subsidiary and accordingly, it is excluded from being consolidation.

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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Querist : Anonymous

Querist : Anonymous (Querist)

28 March 2012 Dear Mr Kabra,
A clarification on the accounting standard says that if the holding company transfers the sahres of subsidiary to stock in trade the holding company need not publish consolidated accounts. can a holding company transfer part of the holding to stock in trade so as to bring the holding bellow the limit and avoid consolidating the accounts.
I very much appreciate the interest shown by you in my querry.
Thanks

The accounting standard