All about consolidation of accounts (ca final)

2. Consolidation is required under clause 32 of listing requirements of SEBI.

3. AS 21 does nt require consolidation of Financial Statement instead it requires process and procedure to be followed for preparing consolidated financial statements.

4. Consolidated Financial Statements includes : 

• Consolidated Balance Sheet

• Consolidated Profit & Loss Account

• Consolidated Cash Flow

• Consolidated Notes to accounts (Not inculuded in CA Final Course)

5. Clause 32 of SEBI requires CFS for parent company (holding co.) Parent co. will consolidate its subsidiary

6. subsidiary means under control of parent

Meaning of control

i) where parent co. hold more than 50% of the voting power of another co.

or

ii) where parent co. have power to cpmpose governing body of another entity for economic reasons 

7. In India, we apply full consolidation method i.e. net assets not owned in investments are shown in CFS along with minority interest.

8. Imp Definitions :

Minority Interest : Assets which are not purchased in investments but controlled by parent.

Goodwill : Difference btw Cost of investment & net assets of subsidiary on the date of investment

Post Acquisition Profit : means growth in net assets of subsidiary since acquisition of share.

Adjustments

Adj. No. 1 : Treatment of Abnormal items in AOP

Step 1 : Nullify effects of Abnormal items on revenue profit

Ab Gain : decrease revenue profits

Ab. Loss : increase revenue profits

Step 2 : Apply Time Adjustment

Step 3 : Reinstate Abnormal items according to the date of occurance in capital / revenue profits