Consolidated Financial Statements
This domain tests consolidation under AS 21 and Ind AS 110: control, elimination, minority interest, cost of control, pre- and post-acquisition profits, and intra-group adjustments.
Core rules
- A subsidiary is an entity controlled by the parent, normally through more than 50% voting power or control of board composition.
- Consolidation combines like items line by line, eliminates the parent’s investment against the subsidiary’s equity, and recognises minority interest.
- Only the parent’s share of post-acquisition profits is added to consolidated reserves; pre-acquisition profits are used in computing cost of control.
- Intra-group balances, transactions and unrealised profits are eliminated.
- Uniform accounting policies and a common reporting date are required.
Worked example
H Ltd acquires 80% of S Ltd for 8,00,000. S Ltd has share capital 5,00,000 and reserves 3,00,000, of which 2,00,000 is pre-acquisition. Pre-acquisition net assets are 7,00,000; H’s share is 5,60,000; goodwill is 2,40,000. Minority interest is 20% of 8,00,000 = 1,60,000. Post-acquisition reserves are 1,00,000; H’s share of 80,000 is added to consolidated reserves.
Traps
Including post-acquisition profits in cost of control; computing minority interest only on share capital; and ignoring unrealised profit elimination.
Exam focus
Cost of control, minority interest, and consolidated reserves.