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CA Intermediate · Corporate and Other Laws · Accounts of Companies

Kaveri Components Ltd has a wholly owned subsidiary in Pune and an associate company in Chennai. The Board is preparing financial statements for the year. Which statement is correct about consolidation under the Companies Act, 2013?

A company with subsidiaries, associates or joint ventures must prepare consolidated financial statements covering all of them, in addition to its own standalone statements. Consolidation does not replace standalone statements, and it is not merely optional or limited to subsidiaries only, subject to the prescribed exemptions.

  1. AThe company must prepare consolidated financial statements covering its subsidiaries and also its associate companies and joint ventures, in addition to its standalone statementsCorrect
  2. BConsolidated financial statements are required only for the subsidiary, and associates are always excluded
  3. CConsolidated statements replace standalone statements, which need not be prepared
  4. DConsolidation is optional for every company, with no obligation under the Act

Explanation

Where a company has one or more subsidiaries, it must prepare a consolidated financial statement of the company and of all subsidiaries in the same form and manner as its own, and also include associates and joint ventures. Standalone statements are still prepared, so the claim that consolidation replaces them is wrong. Consolidation is not optional for a company with subsidiaries, associates or joint ventures, subject to prescribed exemptions.

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