Skip to content

Corporate Financial Reporting · Consolidated Financial Statements and Separate Financial Statements

Separate Financial Statements (Ind AS 27) and Equity Method Basics

Updated 11 October 2026 · Fact-checked

Separate financial statements are those a parent or investor presents in addition to consolidated statements, showing its investments in subsidiaries, associates and joint ventures at cost, at fair value under Ind AS 109, or (for associates and joint ventures) under the equity method. To solve questions, identify the entity's status, pick the permitted basis, and apply it consistently to each category.

Understand Separate Financial Statements (Ind AS 27) and Equity Method Basics

A parent that controls other entities presents consolidated financial statements under Ind AS 110. These combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries. Intragroup balances and transactions are eliminated in full, and the parent's investment is offset against its share of the subsidiary's equity.

Separate financial statements are different. They are the statements of the investor entity alone. The investments are shown as single line items, not combined line by line. Ind AS 27 deals with how those investments are accounted for. The extract supplied for this page covers only the change-of-status rules in paragraph 11B, which refers to the choices in paragraph 10. As a general outline that is outside the supplied extract, paragraph 10 lets the entity account for each category of investment at cost, as a financial asset under Ind AS 109 at fair value, or using the equity method as described in Ind AS 28. Apply the chosen basis consistently within each category.

Under the equity method (Ind AS 28), you record the investment at cost first. After that, the carrying amount goes up by the investor's share of the investee's profit and down by its share of losses and by dividends received. It is a one-line consolidation. It does not combine the investee's assets and liabilities line by line. In consolidated statements it is the method for associates and joint ventures. In separate statements it is one of the paragraph 10 options noted above, not a consolidation technique.

The investment entity is a special case. Under Ind AS 110 paragraph 31, except as described in paragraph 32, an investment entity does not consolidate its subsidiaries and does not apply Ind AS 103 when it obtains control. It measures the investment in a subsidiary at fair value through profit or loss under Ind AS 109. The exception in paragraph 32 is not in the supplied extract. In general terms, it requires an investment entity to consolidate a subsidiary that provides services related to the investment entity's investment activities. So do not assume every subsidiary of an investment entity is at fair value.

Under Ind AS 110 paragraph 4B, a parent that is an investment entity shall not present consolidated financial statements if it is required, in accordance with paragraph 31, to measure all of its subsidiaries at fair value through profit or loss. The condition matters: the rule applies only when all its subsidiaries are measured that way.

A key element of the definition is that the entity measures and evaluates substantially all of its investments on a fair value basis (B85K). For an investment entity, B85L says it elects the exemption from the equity method for associates and joint ventures and measures its financial assets at fair value under Ind AS 109.

Change in status matters in exams. When a parent ceases to be an investment entity or becomes one, Ind AS 27 paragraph 11B sets how to account for it from the date of the change.

Key rules to remember

Consolidation principle (Ind AS 110, B86)
Combine like items line by line + eliminate investment against parent's share of subsidiary equity + eliminate intragroup balances and transactions in full
Unrealised profits in assets such as inventory and fixed assets are eliminated in full.
Equity method carrying amount
Closing carrying amount = Cost + Share of post-acquisition profit − Share of losses − Dividends received
Basic form only. Other adjustments (for example OCI share, or unrealised profits on transactions with the investee) are outside this basic summary.
Investment entity rule (Ind AS 110, para 31)
Investment in subsidiary → fair value through profit or loss (Ind AS 109); no consolidation, no Ind AS 103
Applies only to an entity that meets the investment entity definition.
Ceasing to be an investment entity (Ind AS 110, B100)
Date of change = deemed acquisition date; fair value of subsidiary = deemed consideration for goodwill or bargain purchase
Ind AS 103 then applies, and all subsidiaries are consolidated from that date.
Separate statements: ceasing to be investment entity (Ind AS 27, 11B(a))
Either (i) cost, with fair value at the change date as deemed cost, or (ii) continue Ind AS 109 accounting
The choice is made in accordance with paragraph 10.
Separate statements: becoming investment entity (Ind AS 27, 11B(b))
Fair value through profit or loss; gain or loss = Fair value − Previous carrying amount, taken to profit or loss
Cumulative fair value adjustments previously in OCI are treated as if the subsidiaries were disposed of at the change date.
Reporting date (Ind AS 110, B92-B93)
Same reporting date; if impracticable, gap between subsidiary's and consolidated statements ≤ 3 months, adjusted for significant events
The length of reporting periods and the gap must stay the same from period to period.

How to solve Separate Financial Statements (Ind AS 27) and Equity Method Basics questions

Use this order for any question on separate financial statements, the equity method or investment entities.

  1. 1Read what is asked: separate statements, consolidated statements, or a change in status.
  2. 2Classify each investee: subsidiary (control), associate, or joint venture.
  3. 3Check whether the investor is an investment entity. If yes, subsidiaries go at fair value through profit or loss.
  4. 4Choose the basis for each category as the question allows: cost, Ind AS 109 fair value, or equity method where permitted. Apply it consistently within a category.
  5. 5Compute the carrying amount. For cost, use the purchase price. For equity method, adjust for share of profit and dividends. For fair value, take the fair value and record the gain or loss in profit or loss.
  6. 6For a change in status, fix the date of change and apply paragraph 11B (separate) or B100 (consolidated).
  7. 7State the final figures and the effect on profit or loss, then add a one-line reason.

Quickest way: Three-question screen

When to use it: For MCQs and short theory in Section A, where speed counts.

  1. Is the investor an investment entity? If yes, subsidiaries are generally at fair value through profit or loss with no Ind AS 103 (paragraph 31). Then check the paragraph 32 exception: a subsidiary that provides investment-related services is consolidated. Paragraph 4B stops consolidated statements only if all subsidiaries are at fair value through profit or loss.
  2. Is the statement separate or consolidated? Separate shows one-line investments. Consolidated combines line by line.
  3. For equity method: start at cost, add share of profit, subtract dividends received. Dividends reduce the carrying amount.

Common mistakes in Separate Financial Statements (Ind AS 27) and Equity Method Basics

  • Consolidating subsidiaries of an investment entity without checking the rule.

    Students apply the general consolidation rule and miss the exception.

    Fix: Check for investment entity status first. Paragraph 31 requires fair value through profit or loss and no Ind AS 103, except as described in paragraph 32, where a subsidiary providing investment-related services is consolidated.

  • Treating dividends received as income when using the equity method.

    Students carry over cost-method habits.

    Fix: Under the equity method, dividends reduce the carrying amount. Profit is recognised through the share of the investee's profit.

  • Mixing line-by-line combination with the equity method.

    Both appear in the consolidation chapter.

    Fix: Subsidiaries are combined line by line. Associates and joint ventures use the equity method in one line.

  • Using the old carrying amount as the base after ceasing to be an investment entity.

    Students forget the deemed values.

    Fix: Use fair value at the date of change as deemed cost (separate) or as deemed consideration (consolidated).

  • Forgetting that gain on becoming an investment entity goes to profit or loss.

    Students assume revaluation goes to reserves.

    Fix: Under paragraph 11B(b), the difference between previous carrying amount and fair value is a gain or loss in profit or loss.

  • Allowing any gap between reporting dates.

    Students remember 'three months' but not the conditions.

    Fix: Same date is the rule. The three-month limit applies only if impracticable, with adjustments for significant events.

Worked examples

Example 1

Ravi Ltd acquires 30% of Sita Ltd on 1 April for ₹50,00,000 and has significant influence. Sita Ltd reports profit of ₹20,00,000 for the year and declares a dividend of ₹8,00,000 in total. Compute the carrying amount of the investment at year end under the equity method. Ignore other adjustments.

Show the solution
  1. Initial cost = ₹50,00,000.
  2. Share of profit = 30% × ₹20,00,000 = ₹6,00,000.
  3. Share of dividend = 30% × ₹8,00,000 = ₹2,40,000, which reduces the carrying amount.
  4. Closing carrying amount = ₹50,00,000 + ₹6,00,000 − ₹2,40,000 = ₹53,60,000.

Answer: The carrying amount is ₹53,60,000, with ₹6,00,000 recognised as share of profit.

Example 2

Meru Ltd was an investment entity and held a subsidiary at a carrying amount of ₹12,00,000. It ceases to be an investment entity, and the subsidiary's fair value on that date is ₹15,00,000. How does Meru Ltd account for the investment in its separate financial statements, and what applies in its consolidated statements?

Show the solution
  1. Under Ind AS 27 paragraph 11B(a), Meru Ltd either (i) accounts for the investment at cost, using fair value at the date of change as deemed cost, or (ii) continues Ind AS 109 accounting.
  2. If option (i) is chosen, deemed cost = ₹15,00,000.
  3. For consolidated statements, Ind AS 103 applies under paragraph B100. The change date is the deemed acquisition date.
  4. The fair value of ₹15,00,000 is the deemed consideration when measuring goodwill or a bargain purchase gain.
  5. All subsidiaries are consolidated from that date.

Answer: In separate statements the investment is at deemed cost of ₹15,00,000, or it continues under Ind AS 109. In consolidated statements, ₹15,00,000 is the deemed consideration for computing goodwill, and the subsidiary is consolidated from the change date.

Exam tips

  • In Section A, check for the investment entity exception before choosing consolidation or fair value.
  • For equity method numbers, write the roll-forward: cost, plus share of profit, minus dividends. Marks follow the working.
  • Learn paragraph 11B for both directions of change in status. Questions often test the two directions.
  • In theory answers, contrast separate and consolidated statements in two or three points: combination, elimination and basis of measurement.
  • State the basis you assume if the question is silent, such as cost, and give a one-line reason.

Practice questions from Consolidated Financial Statements and Separate Financial Statements

Separate Financial Statements (Ind AS 27) and Equity Method Basics in other exams

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

Separate Financial Statements (Ind AS 27) and Equity Method Basics: frequently asked questions

What is the difference between consolidated and separate financial statements?

Consolidated statements combine the parent and its subsidiaries line by line and eliminate intragroup items in full. Separate statements are those of the investor alone, showing investments as single line items on the permitted basis.

Can a parent measure its subsidiary at cost in separate financial statements?

Yes. Under the paragraph 10 options of Ind AS 27 (outside the extract supplied for this page), investments can be accounted for at cost, under Ind AS 109 at fair value, or using the equity method as described in Ind AS 28. Apply the chosen basis consistently for each category.

Does an investment entity prepare consolidated statements?

Not if it is required by paragraph 31 to measure all of its subsidiaries at fair value through profit or loss (paragraph 4B). Paragraph 31 applies except as described in paragraph 32, which requires consolidation of a subsidiary providing investment-related services. Where paragraph 31 applies, the subsidiary is measured at fair value through profit or loss under Ind AS 109 and Ind AS 103 is not applied.

How does the equity method work in brief?

You record the investment at cost, then increase it by your share of the investee's profit and reduce it by your share of losses and dividends received. It is a one-line method and does not combine the investee's assets and liabilities.