Financial Reporting · Consolidated Financial Statements

Consolidation Procedures and Uniform Accounting Policies (Ind AS 110)

Updated 5 October 2026 · Fact-checked

Consolidation procedures combine the parent's and subsidiaries' line items, eliminate the investment against subsidiary equity, and remove intragroup balances, transactions and unrealised profit in full. Align accounting policies first (B87). Use a common reporting date, or a gap of no more than three months with adjustments (B93).

Understand Consolidation Procedures and Uniform Accounting Policies

A consolidated statement shows the group as if it were one entity. So nothing that happens only between group members should appear in it. The group cannot owe itself money, sell to itself, or earn a profit from itself.

Ind AS 110 (Appendix B, para B86) gives three mechanical steps. Combine like items of assets, liabilities, equity, income and expenses line by line. Offset the parent's investment in each subsidiary against the parent's share of that subsidiary's equity (the difference becomes goodwill or a bargain purchase gain under Ind AS 103). Eliminate in full intragroup assets, liabilities, equity, income, expenses and cash flows. Profits or losses on intragroup transfers that sit in assets, such as inventory or PPE, are also eliminated in full.

Elimination is always 100%, even for a partly owned subsidiary. Only the split of the profit effect between owners of the parent and non-controlling interest (NCI) depends on who sold. In an upstream sale (subsidiary to parent), the unrealised profit sits in the subsidiary's profit, so NCI bears its share. In a downstream sale (parent to subsidiary), the whole elimination falls on the parent's owners. An intragroup loss may show that the asset is impaired, so test it under Ind AS 36. Temporary differences arising from eliminating profits or losses are dealt with under Ind AS 12.

Uniform accounting policies (B87): if a group member uses a different policy from the group's for like transactions in similar circumstances, you adjust that member's figures for consolidation so they follow the group policy. The adjustment is made in the consolidation working. The subsidiary's own books stay unchanged.

Reporting dates (B92-B93): all financial statements used must have the same reporting date. If the dates differ, the subsidiary prepares additional information as at the parent's date, unless impracticable. If impracticable, use the subsidiary's latest statements, adjusted for significant transactions or events between its date and the group's date. In any case the gap must not exceed three months, and the length of reporting periods and the gap must stay the same from period to period.

Key rules to remember

Consolidation steps (B86): Combine like items → Offset investment vs parent's share of subsidiary equity → Eliminate intragroup items in full; Elimination is 100% even when the parent owns less than 100%.
Unrealised profit in closing stock: UP = Closing stock from intragroup purchase (at transfer price) × Profit % on selling price; If the profit is given as mark-up on cost: profit on selling price = Mark-up ÷ (100 + Mark-up). 25% on cost = 20% on sales.
Upstream vs downstream allocation: Upstream: UP reduces subsidiary's profit, shared between parent owners and NCI. Downstream: UP reduces parent's profit, borne wholly by parent owners; Check who the seller is before computing NCI.
Unrealised profit on transferred fixed asset: UP = Transfer price − Carrying amount in seller's books at date of transfer. Annual depreciation adjustment = UP ÷ remaining useful life (if straight-line); Reverse the extra depreciation charged by the buyer on the unrealised element; the carrying amount shown must be at group cost less depreciation.
Uniform policies (B87): Adjusted subsidiary figures = Subsidiary figures restated to group policy for like transactions in similar circumstances; Adjust before combining, and compute NCI on the adjusted profit and net assets.
Different reporting dates (B92-B93): B92: all statements used have the same reporting date. B93 (only if additional statements at the parent's date are impracticable): gap between subsidiary's and consolidated reporting dates ≤ 3 months; adjust for significant transactions or events in the gap; same gap every period; B92 requires a common date. B93 permits the subsidiary's latest statements, with a gap of up to three months, only when preparing additional statements at the parent's date is impracticable.

How to solve Consolidation Procedures and Uniform Accounting Policies questions

Use the same order every time. It stops you missing an adjustment and keeps NCI correct.

1Read the facts and list the group structure: which entity is parent, which are subsidiaries, the holding %, the acquisition date and the reporting dates.
2Fix the data first. Align the subsidiary to the parent's reporting date (or note the permitted gap and adjust for significant events), then restate for any different accounting policy (B87).
3Adjust for in-transit items. Record goods in transit and cash in transit in the receiving entity's books so both sides of each intragroup balance agree.
4Eliminate the investment against the parent's share of subsidiary equity at the acquisition date and compute goodwill or bargain purchase gain (Ind AS 103).
5Eliminate intragroup balances (receivable against payable, loans, interest accrued) and intragroup transactions (sales against purchases, interest, dividends, rent) in full.
6Compute unrealised profit in closing inventory and transferred PPE. Identify the seller, eliminate in full, and allocate the effect between the parent's owners and NCI if upstream.
7Compute NCI: its share of the adjusted subsidiary profit and net assets (after fair value, policy and unrealised profit adjustments as applicable).
8Add across line by line, prepare the consolidated statement, and check that the balance sheet tallies.

Quickest way: Adjust-then-eliminate checklist for a numerical

When to use it: Use it for a consolidated balance sheet or profit and loss question when time is short and many intragroup items are given.

Underline the seller and buyer for every intragroup transaction. This decides upstream or downstream at once.
Convert mark-up on cost to margin on sales at the start: Mark-up ÷ (100 + Mark-up).
Compute unrealised profit only on stock still unsold at year end, not on total sales.
Write two journal lines per item in rough: one to remove sales and purchases, one to remove unrealised profit from inventory and cost of sales.
Charge NCI only with its share of upstream items. Downstream items go entirely to the parent's owners.
Cross-check: total intragroup receivables must equal total intragroup payables after in-transit adjustments, and nothing intragroup should be left in the consolidated figures.

Common mistakes in Consolidation Procedures and Uniform Accounting Policies

Eliminating unrealised profit only in proportion to the parent's holding (for example, only 80%).
Students mix up the elimination with the NCI allocation and think a partly owned subsidiary needs a partial elimination.
Fix: Eliminate 100% of unrealised profit from the asset. Then allocate the profit effect: NCI takes its share only if the seller is the subsidiary.
Applying the profit % to total intragroup sales instead of the stock still held.
The question gives total sales and a margin, and students use the first number they see.
Fix: Unrealised profit arises only on goods still in the buyer's closing stock. Use the stock value at transfer price multiplied by the margin.
Using mark-up on cost as if it were margin on sales (for example, taking 25% of stock instead of 25/125).
Wording like 'cost plus 25%' is read quickly.
Fix: Convert first. Profit in the stock = Stock at transfer price × Mark-up ÷ (100 + Mark-up).
Consolidating the subsidiary first and applying the group's accounting policy later, or not at all, or not adjusting NCI for the policy change.
B87 is treated as a disclosure point rather than a computation step.
Fix: Restate the subsidiary's profit and net assets to group policy before any other step. NCI is then computed on the restated figures.
Treating any gap in reporting dates as acceptable, or ignoring significant events in the gap.
Students remember 'three months' but forget that it is a limit, that additional statements at the parent's date are the first choice, and that adjustments are needed.
Fix: State the order: additional information at the parent's date unless impracticable; otherwise the latest statements, adjusted for significant events, with a gap of at most three months, consistent every period.
Leaving intragroup balances that do not agree because of cash or goods in transit.
Students eliminate the receivable and payable at their book values and plug the difference.
Fix: First record the in-transit item in the receiving entity's books, then eliminate matching balances.

Worked examples

Example 1

P Ltd holds 80% of S Ltd. During the year S sold goods to P for ₹10,00,000 at cost plus 25%. P's closing inventory includes ₹4,00,000 of these goods (at transfer price). At year end P owes S ₹3,00,000 for these goods, and S shows the same amount as receivable. Ignore tax. State the consolidation adjustments and how the unrealised profit is shared.

Show the solution

Identify the seller: S is the seller and P the buyer, so this is an upstream transaction.
Eliminate the sales and purchases in full: reduce consolidated revenue by ₹10,00,000 and reduce cost of sales by ₹10,00,000 (P's purchases of ₹10,00,000 flow through its cost of sales). This entry removes the intragroup sale only. It does not deal with the ₹4,00,000 of goods still in stock, which is handled separately in the next steps.
Convert mark-up to margin on sales: 25 ÷ 125 = 20%.
Compute unrealised profit on the goods still in stock: ₹4,00,000 × 20% = ₹80,000.
Eliminate the unrealised profit in full as a separate adjustment: reduce closing inventory by ₹80,000 and increase consolidated cost of sales by ₹80,000. Net effect on cost of sales: ₹10,00,000 − ₹80,000 = ₹9,20,000 lower. Revenue is ₹10,00,000 lower, so group profit falls by ₹80,000.
Eliminate the intragroup balance: remove ₹3,00,000 from trade receivables (S) and ₹3,00,000 from trade payables (P).
Allocate the profit effect, because it is upstream: NCI share = 20% × ₹80,000 = ₹16,000. Parent's owners bear 80% × ₹80,000 = ₹64,000.

Answer: Reduce revenue and cost of sales by ₹10,00,000 for the intragroup sales and purchases. Then, separately, remove unrealised profit of ₹80,000 from inventory by increasing cost of sales by ₹80,000. Eliminate the ₹3,00,000 receivable and payable. NCI's profit is reduced by ₹16,000 and the parent's owners' share by ₹64,000.

Example 2

P Ltd (year end 31 March 2027) owns 70% of S Ltd, whose year end is 31 December 2026. It is impracticable for S to prepare statements at 31 March 2027. S has been P's subsidiary since before 1 January 2026. On 1 January 2026 S bought a machine for ₹12,00,000 and charged depreciation of 25% on written down value (₹3,00,000) for the year. Group policy is straight-line over 8 years with nil residual value. In February 2027, P sold goods of ₹5,00,000 to S on credit. Explain how P should consolidate S and compute the adjustment for S's depreciation for the year ended 31 December 2026.

Show the solution

Reporting date: since additional statements at P's date are impracticable, P may use S's latest statements (31 December 2026), adjusted for significant transactions or events between that date and 31 March 2027 (B93).
Check the limit: the gap is three months (31 December to 31 March), which does not exceed three months, so it is permitted. The same gap and period lengths must be used in each period.
February 2027 sale: it falls after S's reporting date, so do not add the payable or inventory to S's 31 December 2026 balance sheet. That statement must show S's position at its own date. Treat the sale only as a significant event in the gap. P sold to S, so it is downstream. Eliminate it in full so that it does not distort the consolidated figures: remove P's sales revenue and receivable of ₹5,00,000 against the matching purchase and payable, and remove any unrealised profit on goods still unsold. That profit is borne wholly by P's owners, with no share to NCI.
Policy difference (B87): the machine was bought after P gained control, so group policy applies from the date of purchase. Group depreciation is ₹12,00,000 ÷ 8 = ₹1,50,000.
S charged ₹3,00,000, so S's depreciation is over by ₹3,00,000 − ₹1,50,000 = ₹1,50,000.
Adjust S's figures for consolidation: reduce depreciation by ₹1,50,000 (profit increases by ₹1,50,000). S's own carrying amount is ₹12,00,000 − ₹3,00,000 = ₹9,00,000. The adjusted group carrying amount is ₹12,00,000 − ₹1,50,000 = ₹10,50,000.
NCI is based on the adjusted profit: 30% × ₹1,50,000 = ₹45,000 extra profit to NCI, and ₹1,05,000 to the parent's owners.

Answer: P may consolidate using S's 31 December 2026 statements because the three-month limit is met. The February 2027 sale is not added to S's 31 December balance sheet. It is a downstream intragroup event in the gap, eliminated in full so the consolidated figures are not distorted, with any unrealised profit borne wholly by P's owners. S's depreciation is reduced by ₹1,50,000 (machine carried at ₹10,50,000 in the consolidation). Of the resulting profit increase, ₹45,000 goes to NCI and ₹1,05,000 to the parent's owners.

Exam tips

Write the paragraph reference with the rule: B86 for eliminations, B87 for policies, B92-B93 for reporting dates. Examiners reward the paragraph logic, not only the figures.
In theory answers on reporting dates, follow the sequence: additional information at the parent's date, then latest statements adjusted for significant events, then the three-month limit and consistency.
Always state whether a transaction is upstream or downstream before you give the NCI figure. This single line earns marks even if arithmetic slips.
For case-scenario MCQs, check the margin basis (cost or selling price) and whether the goods are still in stock. Most wrong options come from these two traps.
If a question gives a tax rate, mention the Ind AS 12 effect of eliminating profits, and apply it only as the question directs.

Practice questions from Consolidated Financial Statements

Consolidation Procedures and Uniform Accounting Policies: frequently asked questions

What does Ind AS 110 B87 require on accounting policies?

If a group member uses policies different from those of the consolidated statements for like transactions and events in similar circumstances, you adjust that member's financial statements for consolidation. The aim is that the group follows one set of policies. The subsidiary's own books are not changed.

What is the maximum gap between reporting dates under B93?

The gap between the subsidiary's reporting date and the consolidated reporting date must not exceed three months. B93 applies only when preparing additional statements at the parent's date is impracticable. You must also adjust for significant transactions or events in the gap and keep the gap and period lengths the same every period.

How do I eliminate unrealised profit in consolidation?

Find the stock or asset still held within the group, compute the profit element in it, and remove that profit in full from the asset and from group profit. For an upstream sale, share the effect between the parent's owners and NCI. For a downstream sale, the parent's owners bear all of it.

Do intragroup balances need to be eliminated if the subsidiary is only partly owned?

Yes. Intragroup assets, liabilities, income, expenses and cash flows are eliminated in full regardless of the holding percentage. The holding percentage affects only how the profit effect of unrealised profit is allocated between owners and NCI.