Financial Reporting · Ind AS 110 Consolidation Procedure for Subsidiaries

Ind AS 110 Objective, Scope and Control Concept

Updated 5 October 2026 · Fact-checked

Ind AS 110 sets the principles for presenting consolidated financial statements when an entity controls one or more other entities. An investor controls an investee when it has power over it, exposure or rights to variable returns, and the ability to use power to affect those returns. Test all three elements, then check the exemption conditions.

Understand Ind AS 110 Objective, Scope and Control Concept

Ind AS 110 has one objective: to set principles for preparing and presenting consolidated financial statements when an entity controls one or more other entities. The group is presented as if it were a single economic entity.

The parent is the entity that controls. The subsidiary is the entity that is controlled. Control is the only basis for consolidation. Holding a majority of shares is a common indicator, but it is not the test. The test is control as defined in the standard.

Control has three elements, and all three must be present. First, power over the investee: existing rights that give you the current ability to direct the relevant activities, meaning the activities that significantly affect the investee's returns. Second, exposure, or rights, to variable returns from your involvement. Returns can be positive, negative or both, such as dividends, fees, or losses. Third, the ability to use your power to affect the amount of your returns. This third element separates a principal from an agent. An agent who exercises decision rights for others does not control.

A parent must present consolidated financial statements. There is an exemption in para 4(a). A parent need not present them if it meets all these conditions: it is itself a wholly-owned subsidiary, or a partially-owned subsidiary whose other owners (including those not otherwise entitled to vote) have been informed and do not object to the parent not presenting; its debt or equity instruments are not traded in a public market; it has not filed, and is not in the process of filing, its financial statements with a securities commission or regulator for issuing instruments in a public market; and its ultimate or any intermediate parent produces consolidated financial statements available for public use that comply with Ind AS.

The investment entity rule is separate from this exemption. An investment entity (Ind AS 110 paras 27-33) does not consolidate its subsidiaries. It measures them at fair value through profit or loss (FVTPL) instead (para 31). The exception is a subsidiary that provides services related to the investment entity's investment activities. The investment entity still consolidates that subsidiary (para 32).

Para 4 of the standard carries two separate provisions. Para 4(a) contains the four exemption conditions listed above. Para 4(b) says the standard does not apply to post-employment benefit plans or other long-term employee benefit plans to which Ind AS 19 applies. The four exemption conditions belong only to para 4(a). They do not apply to para 4(b). Always reassess control if facts and circumstances indicate a change in any of the three elements.

Key rules to remember

Definition of control: Control = Power over investee + Exposure/rights to variable returns + Ability to use power to affect returns; All three elements must be met. If any one is missing, there is no control and no consolidation under Ind AS 110.
Power: Power = Existing rights that give current ability to direct relevant activities; Rights need not be exercised. Substantive rights count. Purely protective rights do not give power.
Exemption conditions (all four): Wholly-owned, or partly-owned with other owners informed and not objecting + Not publicly traded + Not filing for public issue + Ultimate or intermediate parent publishes Ind AS consolidated FS for public use; Failing even one condition means the parent must consolidate. This is separate from the investment entity rule, where a parent that is an investment entity measures its subsidiaries at FVTPL instead of consolidating them (Ind AS 110 para 31). It still consolidates a subsidiary that provides services related to its investment activities (para 32).
Reassessment: Reassess control when facts indicate a change in any of the three elements; Control is not a one-time test at acquisition.

How to solve Ind AS 110 Objective, Scope and Control Concept questions

Use this sequence for any scope or control question. Write the provision, apply facts, then conclude.

1Identify the investor and the investee. State whether the investee is a company, a trust, or a structured entity.
2Identify the purpose and design of the investee and its relevant activities, meaning those that significantly affect returns.
3Decide who directs the relevant activities. Check voting rights, potential voting rights, board appointment rights, contractual arrangements and any de facto control.
4Test the second element: is the investor exposed to variable returns such as dividends, fees, residual interest or losses?
5Test the third element: can the investor use its power to affect those returns? If it acts for others, decide whether it is an agent or a principal.
6Conclude on control. If control exists, the investor is a parent and must consolidate unless it meets the exemption.
7If the question asks about exemption, check all four conditions one by one and state which one fails, if any. Also note if the parent is an investment entity, as it measures subsidiaries at FVTPL.
8Write a short conclusion with the Ind AS 110 reasoning, and mention when control should be reassessed.

Quickest way: Three-element tick test, then four-condition exemption check

When to use it: Use in case-scenario MCQs and short written parts where you must decide quickly whether an entity is a subsidiary or whether a parent can skip consolidation.

Underline the relevant activities in the case.
Tick Power, Variable returns and Link between the two. One cross means no control.
If control exists, ask whether the parent is exempt. Tick the four exemption conditions in order.
In MCQs, watch for traps: shareholding below 50% with power, or above 50% with no power, or an agent.

Common mistakes in Ind AS 110 Objective, Scope and Control Concept

Treating more than 50% voting as automatic control.
Students remember the old shareholding rule of thumb.
Fix: Majority votes usually give power, but check whether another party holds substantive rights over the relevant activities, such as contractual rights to direct them or a substantive veto. Rights held by a regulator are usually protective.
Concluding there is no control when holding is below 50%.
Students ignore potential voting rights, dispersed shareholders and contractual rights.
Fix: Test power from all sources. A large holding against widely dispersed holders can give de facto control, and substantive options can matter.
Listing only two elements of control.
Students forget the link between power and returns.
Fix: State all three, and say why the third is met, especially where a decision-maker may be an agent.
Claiming exemption because the parent is a subsidiary, without checking other conditions.
Students remember one condition and stop.
Fix: Check all four. Public trading, filing for a public issue, and the higher parent's Ind AS consolidated statements must be considered.
Treating protective rights as giving power.
Students see a veto right and assume control.
Fix: Protective rights safeguard the holder's interest without giving power over relevant activities. They do not create control.
Assuming control is assessed once.
Students focus on the acquisition date only.
Fix: State that control is reassessed when facts and circumstances show a change in any element.

Worked examples

Example 1

Alpha Ltd holds 45% voting rights in Beta Ltd. The other 55% is held by many shareholders, none holding more than 1%. In the past three years, no other shareholder has attended a general meeting. Alpha appoints the majority of Beta's board and directs its operating policy. Alpha receives dividends from Beta and bears losses on its holding. Does Alpha control Beta?

Show the solution

Relevant activities: operating and financing policy of Beta, decided by its board.
Power: Alpha appoints the majority of the board and has a large holding against widely dispersed holders who do not attend meetings. Alpha has the current ability to direct the relevant activities.
Variable returns: Alpha receives dividends and bears losses, so it is exposed to variable returns.
Link: Alpha is a principal acting for itself, and can use its power to affect its own returns.
All three elements are met, even though holding is below 50%.

Answer: Yes. Alpha controls Beta, so Beta is a subsidiary and Alpha must consolidate it, unless Alpha qualifies for the exemption.

Example 2

Gamma Ltd is a 100% subsidiary of Delta Ltd. Gamma holds 70% of Sigma Ltd. Gamma's shares and debt are not listed. Gamma has not filed and is not filing financial statements for a public issue. Delta, an unlisted company, prepares consolidated financial statements under Ind AS and makes them available for public use. Assume Gamma is not an investment entity. Must Gamma present consolidated financial statements?

Show the solution

Gamma controls Sigma (70% holding, assumed to give power), so Gamma is a parent.
Check exemption condition 1: Gamma is a wholly-owned subsidiary of Delta, so no objection process is needed. Met.
Condition 2: Neither Gamma's debt nor equity is traded publicly. Met.
Condition 3: Gamma is not filing for a public issue. Met.
Condition 4: Delta is Gamma's parent and produces Ind AS consolidated financial statements available for public use. Delta qualifies as an ultimate or intermediate parent for this condition. Met.
All four conditions are met, so Gamma is not required to consolidate Sigma.

Answer: No. Gamma is exempt from presenting consolidated financial statements. It may still present them voluntarily. If it does not present consolidated financial statements, its separate financial statements under Ind AS 27 are its only financial statements.

Exam tips

In written answers, name the three elements as headings and apply the facts under each. This is the quickest way to score in provision-facts-conclusion form.
In case-scenario MCQs, look for agent versus principal, protective rights and dispersed shareholders. These are the usual traps.
For exemption questions, test all four conditions and name the one that fails. Examiners often change one fact, such as a pending public issue.
Always mention that control is reassessed when facts change.
If the parent is exempt and does not present consolidated financial statements, say that its separate financial statements under Ind AS 27 are its only financial statements.
If the parent is an investment entity, say that it measures subsidiaries at FVTPL rather than consolidating them.

Practice questions from Ind AS 110 Consolidation Procedure for Subsidiaries

Ind AS 110 Objective, Scope and Control Concept in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalIntroduction to Consolidation and Ind AS 110 Basics

Ind AS 110 Objective, Scope and Control Concept: frequently asked questions

What are the three elements of control in Ind AS 110?

They are power over the investee, exposure or rights to variable returns from involvement, and the ability to use that power to affect the investor's returns. All three must be present. If one is missing, the investee is not a subsidiary.

Can an entity control another with less than 50% voting rights?

Yes. Control depends on power, not on a fixed percentage. A large holding against dispersed shareholders, board appointment rights, contractual rights or substantive potential voting rights can give power.

When is a parent exempt from preparing consolidated financial statements?

A parent is exempt only if it meets all four conditions: it is a wholly or partly owned subsidiary with its other owners not objecting, its instruments are not publicly traded, it is not filing for a public issue, and its ultimate or an intermediate parent publishes Ind AS consolidated financial statements for public use. An investment entity is a separate case: it measures its subsidiaries at FVTPL instead of consolidating them.

What are relevant activities?

They are the activities of the investee that significantly affect its returns. Examples are selling goods, managing financial assets, selecting and developing projects, and deciding financing. Power is the ability to direct them.