Financial Reporting · Ind AS 110 Consolidation Procedure for Subsidiaries

Consolidation Procedures and Intragroup Eliminations under Ind AS 110

Updated 5 October 2026

Consolidation procedure under Ind AS 110 (Appendix B) means adding the parent's and subsidiary's assets, liabilities, equity, income and expenses line by line, then eliminating the parent's investment against subsidiary equity, intragroup balances, transactions, unrealised profits and dividends, and showing non-controlling interest separately. Solve it by working in fixed steps.

Understand Consolidation Procedures and Intragroup Eliminations

A group is one economic entity. The parent and its subsidiaries are separate legal entities, but the consolidated financial statements show them as if they were a single business. So only dealings with outsiders should appear in them.

The first step is to combine line by line. Add like items of assets, liabilities, equity, income and expenses of the parent and its subsidiaries. Before this, the subsidiary's financials must be on the same reporting date and use uniform accounting policies (adjust if needed).

The second step is to eliminate the investment. Under Ind AS 110 (Appendix B, para B86(b)), the parent's carrying amount of its investment in the subsidiary is eliminated against the parent's portion of the subsidiary's equity at the acquisition date, not its current equity. Goodwill or a capital reserve is determined under Ind AS 103. Non-controlling interest (NCI) is recognised separately within equity.

The third step is to eliminate intragroup items in full. These are intragroup assets and liabilities (such as loans, receivables and payables), equity, income, expenses and cash flows from transactions between group entities. Profits or losses from intragroup transactions that are recognised in assets, such as inventory or fixed assets, are eliminated in full (unrealised profit). Intragroup losses may indicate impairment that still needs to be recognised.

Dividends paid by a subsidiary to the parent are intragroup, so they are removed from the parent's income and from the subsidiary's retained earnings. The part paid to NCI stays as a reduction of NCI.

Profit or loss and each component of OCI are attributed to the owners of the parent and to NCI, even if NCI becomes negative.

Key rules to remember

Goodwill (full or partial method per Ind AS 103): Goodwill = Consideration transferred + NCI (at fair value, or at proportionate share of net assets) + Fair value of previously held equity interest in the acquiree (if any, in a step acquisition) − Fair value of net identifiable assets at acquisition date; Under Ind AS 103, NCI can be measured either way for each acquisition. In a simple acquisition with no previously held interest, drop that term. A negative result is a possible bargain purchase gain. Before recognising any gain, the acquirer must reassess whether it has correctly identified all the assets acquired and liabilities assumed, and review the procedures used to measure them. If there is clear evidence that the purchase is a bargain purchase, the gain is recognised in OCI and accumulated in equity as capital reserve. If there is no clear evidence, the gain is recognised directly in equity as capital reserve. In both cases the gain does not go to profit or loss.
Unrealised profit in closing inventory: Unrealised profit = Closing inventory from intragroup purchase × Profit % on selling price (or Markup ÷ (100 + Markup) if profit is given on cost); Read whether profit is on cost or on sales. Convert markup on cost carefully.
Downstream sale (parent sells to subsidiary): Whole unrealised profit is deducted from the parent's (group) retained earnings; NCI is not affected.
Upstream sale (subsidiary sells to parent): Unrealised profit is deducted from the subsidiary's profit, then shared between parent and NCI in the profit-sharing ratio; Ind AS 110 requires the profit to be eliminated in full. The usual approach is to charge the elimination against the subsidiary's profit, so NCI bears its share.
Unrealised profit on fixed assets: Adjusted profit = Profit on transfer − Excess depreciation charged on that profit element since transfer; Reduce the asset to its cost to the group, and reduce depreciation by the excess part.
NCI at reporting date: NCI = NCI at acquisition + NCI share of post-acquisition adjusted profits (and OCI) − NCI share of dividends paid; Adjusted profit means after fair value adjustments and upstream unrealised profit.
Consolidated retained earnings: Parent's retained earnings + Parent's share of subsidiary's post-acquisition adjusted profits − Downstream unrealised profit − Parent's share of goodwill impairment; The subsidiary's post-acquisition adjusted profit is its profit after fair value adjustments and after upstream unrealised profit, so upstream unrealised profit is already borne in the parent's share. Only downstream unrealised profit is deducted separately. Under the proportionate method, goodwill relates only to the parent, so the whole impairment is deducted from group retained earnings. Under the full goodwill method, goodwill includes the NCI's share, so only the parent's share of the impairment is deducted from group retained earnings and the rest goes to NCI.
Intragroup balances: Intragroup receivable = Intragroup payable; both removed in full; Adjust for cash or goods in transit first, then eliminate.

How to solve Consolidation Procedures and Intragroup Eliminations questions

Use the same sequence every time. It keeps working notes in order and gives method marks even if one figure goes wrong.

1Read the question and note the holding %, the acquisition date, and the date the question is asked. Identify upstream and downstream transactions.
2Fix the data first: make uniform accounting policies, give fair value adjustments, and adjust for goods or cash in transit. Complete mutual-item adjustments before eliminating.
3Prepare the group structure and the analysis of net assets of the subsidiary at the acquisition date and the reporting date. Compute post-acquisition profits.
4Compute goodwill: consideration plus NCI minus net identifiable assets at fair value. Adjust for any impairment.
5Compute unrealised profit on inventory and fixed assets. Decide whose profit it is (parent's or subsidiary's) and who bears it.
6Compute NCI: share of net assets at acquisition, share of post-acquisition adjusted profit, less share of dividends.
7Compute consolidated reserves, then prepare the consolidated balance sheet. Add line by line, remove the investment and intragroup balances, and show goodwill and NCI.
8Do a quick check: the balance sheet should balance. Show working notes clearly, since marks are given for them.

Quickest way: Net assets table and adjustment list

When to use it: When time is short and the question asks for a consolidated balance sheet or key figures like goodwill, NCI and group reserves.

Draw one table with columns: acquisition date and reporting date, for subsidiary share capital, reserves and adjustments (fair value, unrealised profit).
Write each adjustment once in the table and apply it to the correct side. Do not keep it in your head.
Read off goodwill, NCI and post-acquisition profit directly from the table.
Add parent and subsidiary line by line, then apply only the elimination entries: investment, mutual balances, unrealised profit and dividends.
Check that total assets equal total equity and liabilities.

Common mistakes in Consolidation Procedures and Intragroup Eliminations

Charging the whole upstream unrealised profit to the parent and ignoring NCI's share.
Students think the profit is a group matter only and forget that the selling subsidiary earned it, so NCI shares in that subsidiary's profit.
Fix: Eliminate the full profit from inventory and charge it to the subsidiary's profit, shared between the parent and NCI.
Taking unrealised profit on the whole inventory purchased instead of the part still unsold at year end.
The question gives total sales, and students apply the margin to it.
Fix: Apply the profit % only to the closing stock that is still with the buying group entity.
Applying markup on cost as if it were margin on sales.
The words 'profit on cost' are overlooked.
Fix: Convert: if markup is 25% on cost, profit is 25 ÷ 125 = 20% of selling price.
Leaving goods in transit or cash in transit unadjusted before eliminating mutual balances.
Students eliminate the balances as given and the difference stays hanging.
Fix: First record the item in the receiving entity's books, then eliminate the equal balances.
Treating the dividend received from the subsidiary as group income.
It appears in the parent's profit and loss account.
Fix: Remove it from parent's income and from the subsidiary's profit appropriation. Do not count it in consolidated profit.
Using the subsidiary's reserves without correcting for fair value adjustments, extra depreciation and uniform policies.
Students take the balance sheet figures as final.
Fix: Adjust the subsidiary's net assets first, then compute goodwill and post-acquisition profit.

Worked examples

Example 1

P Ltd holds 80% of S Ltd, acquired several years ago. During the year, P sold goods costing ₹6,00,000 to S for ₹8,00,000. At year end, S still holds one-fourth of these goods. S owes P ₹2,00,000 for these goods. Prepare the eliminations for the consolidated balance sheet and profit and loss account.

Show the solution

Sales by P to S are ₹8,00,000. Eliminate this against purchases (cost of goods) of ₹8,00,000 in consolidated profit and loss.
Goods remaining with S at transfer price: ₹8,00,000 × 1/4 = ₹2,00,000.
Profit in those goods: P's profit is ₹8,00,000 − ₹6,00,000 = ₹2,00,000 on ₹8,00,000 sales, or 25%. Unrealised profit = ₹2,00,000 × 25% = ₹50,000.
Reduce closing inventory by ₹50,000 and reduce group profit by ₹50,000. As this is downstream, the whole amount goes against the parent's retained earnings. NCI is not affected.
Eliminate S's payable of ₹2,00,000 against P's receivable of ₹2,00,000.

Answer: Eliminate sales and purchases of ₹8,00,000; reduce inventory and group profit by ₹50,000 (all borne by the parent); eliminate the ₹2,00,000 receivable and payable.

Example 2

P Ltd owns 75% of S Ltd. In the current year S sold goods to P at a profit of 20% on selling price. Total sales were ₹10,00,000, and ₹4,00,000 of these goods (at transfer price) are unsold with P at year end. S's profit for the year (before adjustment) is ₹5,00,000. Find the adjusted profit of S, the share of NCI and the share of P.

Show the solution

Unrealised profit = ₹4,00,000 × 20% = ₹80,000.
This is an upstream sale, so the profit eliminated is the subsidiary's profit.
Adjusted profit of S = ₹5,00,000 − ₹80,000 = ₹4,20,000.
NCI share = 25% × ₹4,20,000 = ₹1,05,000.
P's share = 75% × ₹4,20,000 = ₹3,15,000.
Closing inventory in consolidated balance sheet is reduced by ₹80,000. Sales of ₹10,00,000 and purchases of ₹10,00,000 are eliminated in the consolidated profit and loss.

Answer: Adjusted profit of S is ₹4,20,000. NCI gets ₹1,05,000 and P gets ₹3,15,000 (before any other adjustments such as goodwill impairment). Inventory falls by ₹80,000.

Exam tips

In MCQs, first identify upstream or downstream. This one check decides who bears the unrealised profit and so what NCI is.
Write working notes with clear headings (goodwill, NCI, reserves, unrealised profit). Marks are awarded for each.
Always check whether the profit % is on cost or on selling price before you compute anything.
For fixed asset transfers, remember to adjust depreciation. Many students lose marks by eliminating only the profit.
Quote the principle in one line (for example, intragroup balances, transactions, income and expenses are eliminated in full under Appendix B) before showing the working.

Practice questions from Ind AS 110 Consolidation Procedure for Subsidiaries

Consolidation Procedures and Intragroup Eliminations: frequently asked questions

What does Ind AS 110 say about intragroup transactions?

Appendix B requires the group to eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between group entities. Profits or losses on intragroup transactions that are recognised in assets, such as inventory and fixed assets, are also eliminated in full. Intragroup losses may indicate impairment.

Is unrealised profit eliminated fully or only to the extent of the parent's share?

The unrealised profit is eliminated fully from the asset, as Ind AS 110 requires. For an upstream sale, the usual approach is to charge the elimination against the subsidiary's profit, so NCI bears its share. For a downstream sale, the parent bears the whole amount.

How do I treat a dividend paid by the subsidiary?

Remove the parent's dividend income from group profit and remove the dividend from the subsidiary's appropriations. The part paid to NCI reduces NCI. Only dividends paid outside the group show up in consolidated equity.

Do I need to adjust for different reporting dates of the parent and subsidiary?

Ind AS 110 requires the financial statements used in consolidation to be as of the same date. If dates differ, the subsidiary prepares additional statements as of the parent's date, unless it is impracticable. Uniform accounting policies are also required.