ACCOUNTING STANDARD 21

CONSOLIDATION AND MINORITY INTEREST

GROUP MEMBERS

Serene Ittikunnath (M1244)Tushar Kharate (M1254)Wasif Parker (M1261)

OBJECTIVESThe objective of this statement is to present financial statements

of parent and its subsidiaries as a single economic entity. They are treated as one.

Consolidated profit/loss account and consolidated balance sheet are prepared for disclosing the total profit/loss of the group and total assets and liability of the group.

PARENT COMPANY:- It is an enterprise that has one or more subsidiaries.

SUBSIDIARY COMPANY:- It is an enterprise that is controlled by other enterprises known as parent

MINORITY INTEREST Minority interest (also known as Non-controlling interest) refers to

the portion of a subsidiary corporation’s stock that is not owned by the parent corporation.

The magnitude of the minority interest in the subsidiary company is generally less than 50% of outstanding shares, else the corporation would generally cease to be a subsidiary of the parent.

Minority interest belongs to other investors and is reported on the consolidated balance sheet of the owning company to reflect the claim on assets belonging to other non-controlling shareholders. Also, minority interest is reported on the consolidated income statement as a share of profit belonging to minority shareholders.

FORMAT OF CONSOLIDATED FINANCIAL STATEMENTS

Application of other accounting standards in preparation of consolidated financial statements would be in the same manner as they apply in preparing the separate financial statements.

Consolidated financial statements are no substitutes for separate financial statements.

Dissimilar activities of parent and its subsidiaries cannot be the ground for non-consolidation of financial statements.

The parent company has to consolidate the financial statements of all its subsidiaries, whether domestic or foreign.

CONSOLIDATION PROCEDURECombined/added on line by line basis by adding the like items of

assets, like items of liabilities, like items of income and expenses.

▪ The cost to the parent of its investment in each subsidiary and the parent’s portion of equity of each subsidiary, at the date on which investment in each subsidiary is made, should be eliminated.

▪Any excess of the cost to the parent of its investment in a subsidiary over the parent’s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, should be described as goodwill to be recognised as an asset in the consolidated financial statements

▪ When the cost to the parent of its investment in a subsidiary is less than the parent’s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, the difference should be treated as a capital reserve in the consolidated financial statements.

▪ Minority interests in the net income of consolidated subsidiaries for the reporting period should be identified and adjusted against the income of the group in order to arrive at the net income attributable to the owners of the parent.

▪ Minority interests in the net assets of consolidated subsidiaries should be identified and presented in the consolidated balance sheet separately.

▪ Minority interests in the net assets consist of: ● the amount of equity attributable to minorities at the date

on which investment in a subsidiary is made; ● the minorities’ share of movements in equity since the date

the parent-subsidiary relationship came in existence.

▪ Preference share capital not held by the parent company is also shown along with minority interest.

▪ Intra- group balances and transactions i.e. Inter-company debtor/creditor, inter –company purchases/sales and resulting unrealized profits shall be eliminated in full.

ILLUSTRATIONSummarized balance sheet of A and B ltd is given below as on

31st march 2011.LIABILITY A

(in lacs)B (in lacs)

ASSET A (in lacs)

B (in lacs)

Equity sh. cap 6 4 Goodwill - 0.20

6% pref sh - 1 Fixed assets 3.5 2.5

General reserve 1.6 0.8 Investment 3.6 0.9

Profit /loss 0.25 0.20 Stock 2.2 3.6

Bills payable 1.3 1.2 Debtors 2.1 2.5

Creditors 2.3 2.85 Bills receivable 0.4 0.35

Proposed dividend 0.6 0.4 Cash 0.2 0.45

A ltd purchased interest in B ltd by acquiring 3/4th equity.sh .cap at a premium of 20% on 1st April 2010. prepare consolidated b.s in the books of a ltd as on 31st March 2011. The following further information is taken into account :-

P/L account of B ltd includes an amount includes Rs 20,000 bought forward from the previous yr (PY)

Creditors of a ltd include an amount of Rs 12,000 for purchase from B ltd which was still unsold. B ltd sells good at 20% above cost.

B ltd remitted a cheque for Rs 10,000 which was received by A ltd in the month April 2002

Bills receivable worth Rs 20,000 out of total bills receivable of Rs 25,000 was received by B ltd were discounted by A Ltd and B Ltd had endorsed to its creditor all the bills receivable received from A ltd amounting to Rs 15,000.

Proposed a dividend of 10% on equity sh.cap for the year 2010-2011.

SOLUTIONDate of acquisition- 1st April ’10

Pre acquisition profits

Post acquisition

profits

P/L account 20,000 5000

G.R 80,000 -

1,00,000 5000

Minority interest (1/4th) 25,000 1,250

75,000 3750

Cost of control:Cost of investment in subsidiary 3,60,000Paid up sh .cap held by holding 3,00,000

Pre acquisition profit 75000 375000

CAPITAL RESERVE 15,000

MINORITY INTEREST:-

Paid up value of shares held by minority

1,00,000

Share in reserve and surplus(a) Pre acquisition(b) Post acquisition

25,0001250

----------------------- 26,250

Preference share capital 1,00,000

TOTAL 2,26,250

Consolidated balance sheet of A Ltd as on 31st March 2011.LIABILITY Rs Rs ASSET Rs RsEquity share capital 6,00,000 Fixed asset

(3.5+2.5) 6,00,000

General reserve 160,000 Investment 90,000Profit and loss a/cShare from sub(-) : unrealized profit

20,00037502000 21,750

Stock (-)unrealized profit

5,80,0002000 5,78,000

Bills payable (1.3+1.2-0.05) 2,45,000

Debtors(-) inter debts

4,60,00012000

Creditors (2.3+2.85-0.12) 5,03,000

(-) cheque in transit 10,0004,38,000

Proposed dividend 1,00,000 Bills receivable(-) inter co.

75,0005000 70,000

Minority interest 2,26,250 Cheque in transit 10,000Cash 65,000

18,56000

18,56000

DISCLOSURE List of all subsidiaries

Portion of ownership interest

Nature of relationship between parent and subsidiary, whether direct control or control through subsidiaries.

Name of subsidiary of which reporting date are different.

The fact for different accounting policies applied for preparation of consolidated financial statements.

If consolidation of a particular subsidiary has not been made as per the accounting standards, the reason for not consolidating should be disclosed.