Introduction to Consolidation of Financial Statements

                 Consolidation of financial statements- Ind AS 110



 When does consolidation required ?

Sec 129(3) of the Companies Act 2013 requires all companies to present consolidated financial statements (CFS) apart from separate financial statements. SEBI-LODR also requires listed companies to present its consolidated financial statements. Such  Consolidated financial statements are required when the entity has a Subsidary, Associate or Joint venture.


  • Ind AS 110 Specifies procedures for consolidation after acquisition date
  • Ind AS 103 "Business Combinations" specifies procedures for consolidation on acquistion date    
Although there is an exception for preparation of consolidated financials statements  which you can understand easily by reading the scope.

(a) A parent need not present consolidated financial statements if it meets all the following conditions:

  • it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements;
  • its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets);
  • it did not file, nor is it in the process of filing, its financial statements.
  • its ultimate or any intermediate parent produces consolidated financial statements that are available for public use and comply with Ind ASs.
(b) Post-employment benefit plans or other long-term employee benefit plans to which Ind AS19, Employee Benefits, applies

(c ) An investment entity need not present consolidated financial statements if it is required, in accordance with paragraph 31 of this Ind AS, to measure all of its subsidiaries at fair value through profit or loss

Let us understand few things before go through consolidation procedure

 Non controlling Interest:

 Equity in a subsidiary not attributable, directly or indirectly, to a parent. (Simply other persons who hold interest in the company)

 Suppose A holds 75% in Company B. So Remaining 25% shares are with various persons/companies. so 25% shareholding is  called as Non controlling Interest (NCI).


In case of investment in a subsidiary, associate or JV, accounting can be done either on cost basis or fair value basis. But when a method is opted once, it cannot be changed next year.

Also we should apply to all class of investments same method.

Eg: Company 'Naruto' has two subsidiaries and three associates.

The company can apply cost method to subsidiaries and Fair value method for associates and vice versa.

But the company cannot apply cost method to one associate and fair value method to another associate.

Generally many companies are following cost method to avoid complexities


 Now just focus on the next topic which is simple but many people go wrong.

In case of a subsidiary turning into a associate by way of sale of share holding or associate  turning into a purchase by way of purchase of additional stake, what is the accounting treatment and how it is measured ?

Let's get into the point straight way !


We have already discussed accounting as per cost method or Fair value.

A company accounted an investment in associate(30%) amounts to Rs. 300 lakhs under cost method in March 2019. Later in September 2019 the company purchased additional stake 25% for Rs. 250 lakhs which makes the total investment to 55% which becomes a subsidiary. The fair value as on sep 19 for 30% is 500 Lakhs



Whenever a conversion happens, whether the company is following cost method or Fair value method first it should measure the investment at Fair value on the date of transition into subsidiary i.e Sep 2019 and consider it as cost for Sep 19 onwards (500 lakhs +250 lakhs = 750 lakhs) . After that if the company wants to follow cost method, fair value on transition date will become the cost or if the company wants to follow a fair value it accounts as per the fair value.


I hope you understand the above topic which is really important.


Let us move into the Consolidation adjustments in the next post.












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