consolidated financial statements 4set
Post on 05-Jan-2016
Embed Size (px)
Consolidated Financial Statements
19CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTIONConsolidated financial statementsrefer to the financial statements which lead to the subsidiaries of the holding company its summative accounting figure. Putting another way, consolidated financial statements can be addressed as the combined financial statements of a parent company and its subsidiaries.According to IAS 27 "Consolidated and separate financial statements",consolidated financial statementsare the financial statements of a group presented as those of a single economic entity.As stated by Investopedia, the consolidated financial statements enable you to determine the general health of an entire group of companies as compared to a companys stand alone position. This is because these financial statements provide an aggregated look at the financial position of a company and its subsidiaries.
DEFINITIONS VIDE AS 21Consolidated financial statements can be defined as:1. A Subsidiary is a company that is controlled by another company (known as parent)2. A Parent (also known as a Holding Company) that has one or more subsidiaries.3. A Group is a parent and all its subsidiaries4. Consolidated financial statements are the financial statements of a group presented as those of a single company.5. Equity is the residual interest in the assets of a company after deducting all its liabilities.6. Minority Interest is the part of the net results of operations and of the net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiaries, by the parent.7. ControlControl means, basically,a. The ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of the company; or b. Control of the composition of the board of directors of a company so as to obtain economic benefits from its activities. A company is considered to control the composition of the board of directors of a company, if it has power, without the consent or concurrence of any other person, to appoint or remove all or a majority of directors of that company. A company is deemed to have the power to appoint a director, if any of the following condition is satisfied: a person cannot be appointed as director without the exercise in his favour by that company of such a power as aforesaid; or a persons appointment as director follows necessarily from his appointment to apposition held by him in that company; or the director is nominated by that company or a subsidiary thereof.Objective and Purpose of Consolidated financial statementsThe key purpose of preparing consolidated financial statements is reporting the financial condition and operating result of a consolidated business group, which is considered as a single entity comprised of more than one companies under a common control (also counting entities other than companies)The objective of this Standard is to lay down principles and procedures for preparation and presentation of consolidated financial statements. Consolidated financial statements are presented by a parent (also known as holding enterprise) to provide financial information about the economic activities of its group. These statements are intended to present financial information about a parent and its subsidiaries as a single economic entity to show the economic resources controlled by the group, the obligations of the group and results the group achieves with its resources.1. A parent that presents CFS should present these statements in addition to its separate financial statements. Users of the financial statements of a parent are usually concerned with, and need to be informed about, the financial position and results of operations of not only the enterprise itself but also of the group as a whole. This need is served by providing the users-a) Separate financial statements of the parent; andb) CFS , which present financial information about the group as that of single enterprise without regard to the legal boundaries of the separate legal entities.2. CFS is presented by a parent (also known as holding company) to Provide financial information about the economic activities of its group.3. CFS present financial information about a parent and its subsidiary as a single economic entity4. CFS shows the economic resources controlled by the group, the obligations of the group and results the group activities with its resources.
Meaning of "Holding Company and Subsidiary as per Companies Act, 1956
Holding Company: A holding company is a parent company that owns enough voting stock (more than 50%)in a subsidiary to make management decisions,influenceand control the company's board of directors. However, holding companies that control 80% or more of the subsidiary's voting stock gain the benefits of tax consolidation, which include tax-free dividends for the parent company and the ability to share operating losses.
Subsidiary Company: A subsidiary is a company that is controlled by a holding company or parent; this means at least 50% of its stock is controlled by another company. This 50% or greater stake gives the parent company control.Meaning of holding company and subsidiarySection 4(1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be asubsidiaryof another if, but only if,-
(a)that other controls the composition of its Board of directors; or
(b)that the other exercises or controls more than one-half of its total voting power in a case where it has issued securities and such securities have the same voting rights as equity shares; or
(c)that the other holds more than one-half in value of its paid-up capital, in any other case;
(1A)No company which is asubsidiaryof another company shall, after the commencement of the Companies (Amendment) Act, 2003, become aholdingcompany;
(2)For the purposes of sub-section (1), the composition of a companys Board of directors shall be deemed to be controlled by another company if, but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purposes of this provision that other company shall be deemed to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is to say-
(a)that a person cannot be appointed thereto without the exercise in his favour by that other company of such a power as aforesaid;
(b)that a persons appointment thereto follows necessarily from his appointment as director or manager of, or to any other office or employment in, that other company, or
(c)that the directorship is held by an individual nominated by that other company or asubsidiarythereof.
(3)In determining whether one company is asubsidiaryof another-
(a)any shared held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it;
(b)subject to the provisions of clauses (c) and (d), any shares held or power exercisable
(i)by any person as a nominee for that other company (except where that other is concerned only a fiduciary capacity); or
(ii)by, or by a nominee for, asubsidiaryof that other company, not being asubsidiarywhich is concerned only in a fiduciary capacity;
shall be treated as held or exercisable by that other company;
(c)any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first-mentioned company or of a trust deed for securing any issue of such debentures shall be disregarded;
(d)any shares held or power exercisable by, or by a nominee for, that other or itssubsidiarynot being held or exercisable as mentioned in clause(c) shall be treated as not held or exercisable by that other, if the ordinary business of that other or itssubsidiary, as the case may be, includes the lending of money and the shares are held or the power is exercisable as foresaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business.
4. For the purposes of this Act, a company shall be deemed to be theholding companyof another if, but only, if that other is itssubsidiary.
5. In this section, the expression company includes any body corporate, and the expression equity share capital has the same meaning as in sub-section (2) of section 85.
6. In the case of a body corporate which is incorporated in a country outside India, asubsidiaryorholdingcompany of the body corporate under the law of such country shall be deemed to be asubsidiaryorholdingcompany of the body corporate within the meaning and for the purposes of this Act also, whether the requirements of this section are fulfilled or not.
7. A private company, being asubsidiaryof a body corporate incorporated outside India, which, if incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act to be asubsidiaryof a public company if not less than ninety-nine per cent. of the share capital in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India.Consolidated balance sheet of Holding Company Vs Subsidiary Company's Balance Sheet
Subsidiary company's balance sheet's assets and liabilities will become the part of consolidatedbalance sheet of holding company.1.All the liabilities of subsidiary company will be added in the consolidated balance sheet ofsubsidiary company. But Share capital of subsidiary company in holding company will not shown in the consolidated balan