Consolidation of Accounts: formula sheet

Key formulas

Subsidiary company (Section 2(87))

Subsidiary if holding company (a) controls composition of the Board, OR (b) controls more than 50% of total voting power, alone or with its subsidiaries

Either limb is enough. The test is 'more than one-half', so exactly 50% does not qualify under the voting limb.

Holding company (Section 2(46))

Holding company = a company of which the other company or companies are subsidiaries

Holding and subsidiary status is always relative to a pair of companies.

Control under AS 21

Control = ownership of more than 1/2 of voting power (directly or through subsidiaries) OR control of board composition to obtain economic benefits

Trusts such as gratuity or provident fund trusts are not consolidated, as the aim is not to obtain economic benefits from them.

Meaning of consolidated financial statements

Group assets, liabilities, equity, income, expenses and cash flows presented as those of a single economic entity

Ind AS 110, Appendix A. AS 21 says financial statements of a group presented as those of a single enterprise.

Consolidation procedures (Ind AS 110, B86)

Combine like items; eliminate parent's investment against parent's share of subsidiary equity; eliminate intragroup balances, transactions, income and expenses in full

Profits or losses on intragroup transactions that sit in assets such as inventory or fixed assets are eliminated in full.

Same reporting date (Ind AS 110, B92-B93)

Same reporting date for parent and subsidiary; if impracticable, gap must be no more than three months

Adjust for significant transactions in the gap. Period lengths and the gap must be the same from period to period.

Exemption from consolidating (Ind AS 110, para 4(a))

Parent need not consolidate only if ALL four conditions are met

(i) owners informed and do not object, (ii) not publicly traded, (iii) not filing for public issue, (iv) ultimate or intermediate parent publishes Ind AS statements for public use.

Definition of consolidated financial statements

Group statements = assets, liabilities, equity, income, expenses and cash flows of parent + subsidiaries, shown as a single economic entity

Ind AS 110, Appendix A. Use this wording to open any definition answer.

Who must consolidate

Parent → must present consolidated financial statements (Ind AS 110, para 4)

Exemption only if all four conditions in para 4(a) are met.

Reporting date rule (Ind AS 110)

Gap between subsidiary's date and consolidated date ≤ 3 months; period length and gap same from period to period

Para B93. Applies only where it is impracticable to use the same date. Then use the latest subsidiary statements, adjusted for significant transactions or events in the gap.

Uniform policies

Like transactions + similar circumstances → same accounting policy across group

Ind AS 110 para 19 and B87 (adjust the member's statements). AS 21 para 20: if impracticable, disclose the fact and the proportions of items affected.

Investment entity

Investment entity parent measuring all subsidiaries at FVTPL → no consolidated statements (para 4B)

Applies only if para 31 requires all subsidiaries to be measured at fair value through profit or loss.

Parent's share in subsidiary equity

Equity at acquisition = Share capital + Pre-acquisition reserves and profits (other adjustments as given)

Use balances on the date of investment, not the balance sheet date.

Parent's portion

Parent's portion = Equity at acquisition × Parent's % holding

Holding % is based on shares held ÷ total shares (or voting power as the question states).

Cost of control

Cost of control = Cost of investment − Parent's portion of equity at acquisition

Positive = goodwill. Negative = capital reserve.

Minority interest

Minority interest = Minority % × (Equity at acquisition) + Minority % × (Post-acquisition movement in equity)

Equals minority % × current equity of the subsidiary, if no adjustments.

Parent's post-acquisition reserves

Consolidated reserves = Parent's reserves + Parent % × Post-acquisition reserves of subsidiary

Goodwill is not reduced from reserves unless impaired or the question says so.

Carrying amount rule

If carrying amount of investment ≠ cost, use the carrying amount

AS 21 para 13 states this.

Minority interest (NCI) at balance sheet date

NCI = Minority % × (Share capital + All reserves + P&L balance of subsidiary at balance sheet date)

Adjust first for items such as proposed dividend, unrealised profit on upstream sales and cumulative preference dividend, as the question directs.

NCI built up in parts

NCI = Minority % × Equity at acquisition date + Minority % × Post-acquisition profits

Use this to cross-check the first formula. Both must agree.

Capital (pre-acquisition) profits

Capital profits = Reserves and P&L balance of subsidiary on the date of acquisition

After a bonus out of these reserves, the remaining capital profits are the balance left, but the equity total at acquisition is unchanged.

Revenue (post-acquisition) profits

Revenue profits = Reserves and P&L at balance sheet date − Capital profits

Divide in the ratio of holding: parent's share goes to consolidated reserves, minority's share goes to NCI.

Cost of control

Goodwill (or capital reserve) = Cost of investment − Parent % × (Share capital + Capital profits at acquisition)

A positive result is goodwill. A negative result is capital reserve, as in AS 21 para 13(b) and (c).

Consolidated reserves

Parent's own reserves + Parent % × Revenue profits of subsidiary

Only post-acquisition profits enter consolidated reserves.

Goodwill / Capital reserve

Cost of investment − Parent's share of (equity share capital + pre-acquisition reserves ± revaluation) at acquisition

Positive result is goodwill. Negative result is capital reserve. Use the carrying amount if it differs from cost (AS 21 para 13).

Minority / non-controlling interest

Minority % × (share capital + all reserves at balance sheet date, after adjustments)

Adjustments include revaluation effects and unrealised profit if the subsidiary was the seller. Add outside preference capital and its dividend separately.

Consolidated reserves

Parent's reserves + Parent's share of subsidiary's post-acquisition profits (after adjustments)

Post-acquisition profit = reserves now − reserves at acquisition, after adjusting for unrealised profit, extra depreciation and preference dividend.

Unrealised profit (profit on cost)

Closing stock from group × Mark-up ÷ (100 + Mark-up)

Use this when profit is stated as a percentage of cost.

Unrealised profit (profit on sale price)

Closing stock from group × Profit % on sales

Use this when profit is stated as a percentage of selling price.

Who bears the unrealised profit

Seller = subsidiary: reduce subsidiary's profit, shared with minority. Seller = parent: reduce parent's reserves in full.

Also reduce closing stock in the consolidated balance sheet by the same amount.

Mutual owings

Eliminate the same amount from both sides: debtors/creditors, bills receivable/payable, loans

AS 21 para 17 and Ind AS 110 para B86 require intragroup balances to be eliminated in full.

Line-by-line combination

Group item = Parent item + Subsidiary item (post-acquisition) − intragroup amounts

Applies to every income and expense line. Only the period of control is included.

Intragroup sales and purchases

Eliminate the inter-company sale from Revenue and the same amount from Purchases (cost of materials)

Both sides are removed by the same amount. Profit is not affected by this entry alone.

Unrealised profit in closing stock

Unrealised profit = Closing stock from group company × Profit % on selling price (or Markup ÷ (100 + Markup) if profit is on cost)

Reduce group profit and group closing stock by this amount. Ind AS 110 (para B86(c)) requires elimination in full.

Adjusted profit of the subsidiary

Subsidiary adjusted profit = Reported profit − unrealised profit on its sales to the parent (the seller bears it) − extra depreciation or other fair value adjustments

Ind AS 110 requires the unrealised profit to be eliminated in full. How it is split between parent and minority follows standard practice: if the subsidiary is the seller, the unrealised profit reduces its profit, so the minority bears its share. If the parent is the seller, the whole amount is charged to the parent's profit.

Minority share of profit

Minority share = Minority % × (Subsidiary adjusted profit − cumulative preference dividend payable to minority) + that preference dividend

Deduct from group profit to get profit attributable to owners of the parent. If the subsidiary has cumulative preference shares classified as equity and held by the minority, adjust the subsidiary's profit for their dividend first, whether or not declared (Ind AS 110 para B95). Compute the share on the profit left, then add the minority's own preference dividend.

Parent's share

Profit attributable to parent owners = Consolidated profit − Minority share

Check: parent's own profit (adjusted) + parent % × subsidiary adjusted profit gives the same answer.

Effective interest in a sub-subsidiary

Effective % of H in SS = (% of H in S) × (% of S in SS)

Example: 80% × 60% = 48%. Minority interest in SS (group view) = 100% − 48% = 52%.

Goodwill / (Capital reserve) per subsidiary

Cost of investment − Investor's share of (share capital + pre-acquisition reserves and profits)

Positive is goodwill, negative is capital reserve. Compute it for every subsidiary separately.

Minority interest in a subsidiary

Minority % × (share capital + all reserves and profits of the subsidiary at the balance sheet date)

For a subsidiary that holds a sub-subsidiary, include its share of the sub-subsidiary's post-acquisition profits in its reserves first.

Consolidated reserves

Parent's own reserves + Parent's effective share of each subsidiary's post-acquisition profits

Post-acquisition profit = closing reserves − reserves at the date of acquisition.

Mid-year acquisition

Post-acquisition profit of the year = Profit for the year × months after acquisition ÷ 12 (if evenly earned)

Use the exact split if the question gives it.

Intragroup items

Eliminate in full, irrespective of the percentage held

Ind AS 110 (B86): intragroup balances, transactions, and unrealised profits in inventory or fixed assets.

Quick revision

• Consolidation combines like items of the parent and subsidiaries line by line, then eliminates the internal items.
• Eliminate the parent's investment against the parent's portion of subsidiary equity at the date of investment.
• Under AS 21, cost above the parent's share of equity is goodwill; cost below it is a capital reserve.
• Minority interest in net assets is its share of equity at acquisition plus its share of later movements in equity.
• Minority interest is shown separately from liabilities and from the parent's shareholders' equity.
• Pre-acquisition profits go into the cost of control; only post-acquisition profits go into consolidated reserves.
• Intragroup assets, liabilities, income and expenses are eliminated in full.
• Ind AS 110 (B86(c)) requires profits and losses on intragroup transactions recognised in assets, such as inventory and fixed assets, to be eliminated in full.
• Real differences between the standards: terminology (minority interest vs non-controlling interest), goodwill under Ind AS 103, and the loss-of-control rules.
• The subsidiary's results are included from the date control starts until the date it ends.
• Consolidated tax expense is the sum of the tax expense in the separate statements of parent and subsidiaries.
• On loss of control under Ind AS 110, derecognise the subsidiary's assets and liabilities and recognise any retained investment at fair value.
• For chains, compute the effective holding and the minority share at each level before anything else.

Common mistakes

• Saying a company is a subsidiary only when the holding company owns more than 50% of shares directly. Fix: Always test both limbs of Section 2(87) and add holdings through subsidiaries.
• Treating exactly 50% as control under the voting limb. Fix: The test is more than one-half. Exactly 50% does not satisfy the voting limb. Check whether the board limb applies instead.
• Saying any wholly-owned subsidiary is exempt from consolidation. Fix: List all four conditions: ownership or no objection, not publicly traded, not filing for public issue, and a parent producing public Ind AS financial statements. All must be met.
• Stating the three-month limit as the normal rule. Fix: The normal rule is the same reporting date. The three-month gap is allowed only where it is impracticable to use the same date, with adjustment for significant events.
• Using the subsidiary's current reserves instead of reserves at the date of acquisition. Fix: Take reserves from the acquisition date only. The later increase is post-acquisition.
• Applying 100% of subsidiary equity instead of the parent's percentage. Fix: Multiply equity by the holding percentage. The balance belongs to minority interest.
• Giving the minority a share of only post-acquisition profits. Fix: NCI includes the minority's share of share capital, capital profits and revenue profits. Cross-check as Minority % × total equity at the balance sheet date.
• Adding the parent's share of capital profits to consolidated reserves. Fix: Capital profits are set off in cost of control. Only the parent's share of post-acquisition profits enters consolidated reserves.
• Deducting the whole unrealised profit from the parent's reserves when the subsidiary was the seller. Fix: Identify the seller first. If the subsidiary sold, reduce the subsidiary's profit and share the reduction between the parent and the minority.
• Calculating unrealised profit on the full purchase value rather than on the stock still unsold. Fix: Use only the goods remaining in closing stock. Profit on goods already sold outside the group is realised.

Exam tips

• For definition questions, quote the two limbs of Section 2(87) in your own words and cite the section. This earns the provision marks first.
• In chain-holding facts, draw a small diagram and state the indirect subsidiary conclusion clearly.
• For 'why prepare consolidated statements', give three points: single economic entity view, true picture of group assets and liabilities, and a legal requirement under Section 129(3).
• For exemption questions, list each of the four conditions and tick them against the facts before concluding.
• Keep the answer in ICSI style: provision, application to facts, then a one-line conclusion.
• Learn the four exemption conditions of para 4(a) as a list. Examiners often ask you to state them or test one failing condition.
• In compare-and-contrast questions, present points side by side in two columns of your answer: policy treatment, reporting date, exemption and control basis.
• Always add a one-line conclusion to scenario answers, such as consolidation is required or exempt.