Advanced Accounting · AS 21 Consolidated Financial Statements

AS 21 Scope, Definitions and Control

Updated 4 October 2026 · Fact-checked

AS 21 explains how a parent presents consolidated financial statements that show the parent and its subsidiaries as one economic entity. A subsidiary is an enterprise that is controlled by another. Control means owning more than one-half of voting power, or controlling the board's composition so as to obtain economic benefits from its activities. Test control first, then consolidate.

Understand AS 21 Scope, Definitions and Control

A parent company often does business through other companies it controls. If you read only the parent's own balance sheet, you see its investment in those companies as a single line. You do not see the assets, debts and profits actually under its command. AS 21 fixes this by requiring a parent to present consolidated financial statements, which show the group as if it were one entity.

The standard applies when an enterprise presents consolidated financial statements. It deals with how to prepare them for a parent and its subsidiaries. It does not deal with accounting for associates (that is AS 23), interests in joint ventures (AS 27), or the methods of accounting for business combinations such as amalgamations and their effects on consolidation, including goodwill arising on amalgamation (AS 14). Whether a company must prepare consolidated statements at all is decided by the Companies Act, 2013 and by the applicability rules for Accounting Standards. Section 129(3) of the Companies Act, 2013 requires a company that has subsidiaries, associates or joint ventures to prepare consolidated financial statements. AS 21 tells you how to prepare them once they are required or voluntarily presented.

The key terms are these. A parent is an enterprise that has one or more subsidiaries. A subsidiary is an enterprise controlled by another enterprise, the parent. A group is a parent and all its subsidiaries. Consolidated financial statements are the financial statements of a group presented as those of a single enterprise. Minority interest is the part of a subsidiary's net income and net assets that belongs to shareholders other than the parent group.

Control is the heart of the topic. Under AS 21, control means either (a) ownership, directly or through subsidiaries, of more than one-half of the voting power of an enterprise, or (b) control of the composition of the board of directors in the case of a company, or of the corresponding governing body in any other enterprise, so as to obtain economic benefits from its activities. Ownership of exactly 50% is not enough on the first limb. It must be more than half.

A subsidiary is different from an associate. In a subsidiary, the investor has control. In an associate, the investor only has significant influence, which is the power to take part in financial and operating decisions but not to control them. Subsidiaries are consolidated line by line under AS 21. Associates are accounted for under AS 23 using the equity method.

Key rules to remember

Control by voting power: Voting power held (directly + through subsidiaries) > 50%; Must be more than one-half. Exactly 50% does not satisfy this limb. Count holdings through other subsidiaries as well.
Control by board composition: Power to appoint or remove majority of directors → control; Applies to companies. For other enterprises, use the corresponding governing body. The purpose is to obtain economic benefits.
Minority interest: Minority interest = Subsidiary's net assets (equity incl. current-year profit) at the balance sheet date × minority shareholders' %; It is the minority's share of the subsidiary's equity (share capital and reserves, including current-year profit) at the balance sheet date. Do not add the year's profit again. Show the minority share of the year's profit separately in the consolidated statement of profit and loss.
Group: Group = Parent + all its subsidiaries; Consolidated statements present the group as a single enterprise.
Subsidiary vs associate: Control → subsidiary (AS 21); significant influence only → associate (AS 23); Significant influence is not control. It is the power to participate in decisions.

How to solve AS 21 Scope, Definitions and Control questions

For any question on scope and control, follow a fixed sequence so that you classify the investee correctly before doing any numbers.

1Read the facts and list each investee with the percentage of voting power held, who holds it, and any board rights.
2Add up voting power held directly by the parent and through its subsidiaries. Do not count holdings of associates or outsiders.
3Apply the first test: is total voting power more than 50%? If yes, the investee is a subsidiary.
4If not, apply the second test: does the parent control the composition of the board so as to obtain economic benefits? If yes, it is a subsidiary.
5If neither test is met, look at significant influence. Holding 20% or more of voting power is presumed to give significant influence unless it can be clearly demonstrated otherwise, so the investee is usually an associate under AS 23. Below 20%, significant influence is presumed not to exist unless the facts show it, and the holding is then treated as an investment under AS 13.
6State the conclusion in words: who is the parent, which are subsidiaries, and what the group is.
7Identify the minority interest, meaning the shareholders outside the group, and state the percentage they hold.
8Only then mention the consequence: line-by-line consolidation under AS 21 for subsidiaries.

Quickest way: Fast control check for MCQs and short answers

When to use it: Use this when you have a few lines of facts and need the classification in under a minute.

Underline every percentage in the question. Add direct and indirect holdings through subsidiaries.
Compare the total with 50%. Remember that exactly 50% fails the voting test.
Scan for board control wording such as the right to appoint most directors. Control of the board's composition, to obtain economic benefits, makes an enterprise a subsidiary irrespective of the shareholding percentage.
With no control, check the 20% presumption. Holding 20% or more of voting power is presumed to give significant influence unless clearly shown otherwise: think associate and AS 23. Below 20% it is presumed not to, unless the facts show significant influence: think AS 13 investment.
For MCQs, eliminate options that call a 50% holder a subsidiary on voting alone, or that apply AS 21 to associates.
For written answers, use three lines: provision (the definition of control), facts (the percentages), conclusion (subsidiary or not, and the consequence).

Common mistakes in AS 21 Scope, Definitions and Control

Treating exactly 50% voting power as control.
Students remember '50%' and forget that the standard says more than one-half.
Fix: Write 'more than 50%' on your formula sheet. Look for board control as the alternative route when holding is exactly 50%.
Ignoring indirect holdings through another subsidiary.
Students look only at the parent's direct shareholding.
Fix: Add voting power held by subsidiaries of the parent to the direct holding before testing.
Applying AS 21 to associates and joint ventures.
All three involve investments in other companies, so they look alike.
Fix: Subsidiary: AS 21. Associate: AS 23. Joint venture: AS 27. Decide by control, significant influence or joint control.
Counting an associate's holding as the parent's voting power.
Students add every related holding without checking who holds it.
Fix: Only the parent's own holding and holdings through its subsidiaries count toward control.
Defining minority interest as the parent's share.
The word 'interest' is confused with 'investment'.
Fix: Minority interest is the share of outside shareholders, not the parent group, in the subsidiary's net income and net assets.
Saying AS 21 decides whether consolidation is mandatory.
Students assume the standard contains the applicability rules.
Fix: State that the Companies Act, 2013 (Section 129(3)) and the applicability rules for Accounting Standards decide the requirement, and AS 21 governs preparation.

Worked examples

Example 1

P Ltd holds 30% of the voting power of S Ltd directly. S1 Ltd, a subsidiary of P Ltd, holds a further 25% of the voting power of S Ltd. Is S Ltd a subsidiary of P Ltd under AS 21? State the minority interest percentage in voting terms.

Show the solution

Control means ownership, directly or through subsidiaries, of more than one-half of the voting power.
Direct holding of P Ltd = 30%.
Holding through subsidiary S1 Ltd = 25%.
Total voting power = 30% + 25% = 55%.
55% is more than 50%, so the voting power test is met.
Outside shareholders hold 100% − 55% = 45%.

Answer: Yes. S Ltd is a subsidiary of P Ltd because the group holds 55% of the voting power. The outside shareholders hold 45%.

Example 2

A Ltd holds exactly 50% of the voting power of B Ltd. A Ltd also has the right to appoint the majority of B Ltd's board of directors and so obtains economic benefits from B Ltd's activities. Another company, C Ltd, is 40% owned by A Ltd, and A Ltd has no right over C Ltd's board. Classify B Ltd and C Ltd and name the standard for each.

Show the solution

Test B Ltd on voting power: 50% is not more than one-half, so this limb fails.
Test B Ltd on board composition: A Ltd controls the composition of the board so as to obtain economic benefits. This limb is met, and it makes B Ltd a subsidiary irrespective of the shareholding percentage.
So B Ltd is a subsidiary of A Ltd. It is consolidated line by line under AS 21.
Test C Ltd on voting power: 40% is not more than 50%. No board control either, so C Ltd is not a subsidiary.
A holding of 20% or more is presumed to give significant influence unless clearly shown otherwise. The facts show nothing to the contrary, so C Ltd is an associate.
An associate is accounted for under AS 23 using the equity method in the consolidated statements.

Answer: B Ltd is a subsidiary through board control and is consolidated under AS 21. C Ltd is an associate, not a subsidiary, and is dealt with under AS 23.

Exam tips

Always state the two-limb definition of control in your answer, then apply it to the facts. This earns the provision marks.
In MCQs, watch for traps with exactly 50% and with indirect holdings through subsidiaries.
If the question asks for the difference between subsidiary and associate, write control versus significant influence, and name AS 21 and AS 23.
Define minority interest in words and link it to net assets and net income of the subsidiary, not to the parent's investment.
Keep scope answers short: AS 21 covers preparation of consolidated statements and excludes associates, joint ventures and business combinations.

Practice questions from AS 21 Consolidated Financial Statements

AS 21 Scope, Definitions and Control in other exams

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

AS 21 Scope, Definitions and Control: frequently asked questions

What is the definition of control in AS 21?

Control means owning, directly or through subsidiaries, more than one-half of the voting power of an enterprise. It also means controlling the composition of the board of directors, or the corresponding governing body, so as to obtain economic benefits from its activities.

What is the difference between a subsidiary and an associate?

A subsidiary is controlled by the parent and is consolidated line by line under AS 21. An associate is one where the investor has significant influence but not control, and it is accounted for under AS 23 using the equity method.

What is minority interest in AS 21?

It is the part of a subsidiary's net income and net assets that belongs to shareholders other than the parent and its group. In the consolidated balance sheet it is shown separately from the group's own equity.

Does AS 21 apply to joint ventures and amalgamations?

No. Interests in joint ventures are covered by AS 27, associates by AS 23, and accounting for amalgamations by AS 14. AS 21 deals with preparing consolidated statements for a parent and its subsidiaries. Section 129(3) of the Companies Act, 2013 requires a company with subsidiaries, associates or joint ventures to prepare consolidated statements.