A COMPARATIVE STUDY OF AS AND IND-AS CONSOLIDATION OF FINANCIAL STATEMENT

Published On - December 10, 2012

admin Consolidating Financial Statements, Ind-AS
Issue As per Ind-AS As per Existing AS
Consolidation Consolidation has to be done by every company having subsidiary(s). Consolidation is mandatory for only listed companies.
Exemption from Consolidation No such exemption available Exemption from Consolidation presently available:
1. Control is short term or temporary
2. Severe restriction to transfer fund to its parents
Definition of Subsidiary Additional condition: For being a Subsidiary conditions to be satisfied:
3. Substantive Participative Rights* 1. Majority Shareholding
4. Buy-out Rights** 2. Ability to control the composition of BOD
Determination of Majority Shareholding Potential equity shares which is currently excisable (e.g call option, convertible instruments or warrants) are to be considered only for taking the “majority” decision not for consolidation purpose. Potential equity shares are not considered to compute percentage of control
Special Purpose Entities (SPE) An SPE has to be consolidated when the substance of the relationship between company and SPE indicates that SPE is controlled by that company. Nothing is mentioned for the consolidation of SPE.
SPE are generally created to establish narrow and well defined objective e.g. Securitisation of financial asset, R&D activities etc.
Minority Interest / Non – Controlling Interest The term Minority Interest has been replaced by the term Non-Controlling Interest. Minority Interest has to be recognised at proportionate Book Value of the net assets of the Subsidiary.
Two options available:
1. Recognise Non – Controlling interest at itsFair Value
2. Recognise Non- Controlling Interest at the proportionate share of the Fair Value of the Subsidiary company’s identifiable net assets.
Disclosure of Non-Controlling Interest As per Revised Schedule VI Non-Controlling Interest is to be disclosed as a component of Equity. As per Old Schedule VI Minority Interest has to be disclosed as a separate item from Liability and Equity in the Balance Sheet.
Loss attributable to Minority Shareholders Such loss will not be adjusted against parent’s share and negative balance of minority shareholders will be shown as negative balance. Loss in excess of share in equity of the subsidiary to be adjusted against Parent’s Share
Treatment of Goodwill Acquisition of a subsidiary which meets the criteria of Business Combination, Goodwill shall be determined as per the relevant Standard. The difference between Purchase consideration and share of Book Value of Net Assets is considered as Goodwill.
Dilution or Sale of Interest in Subsidiary Changes in ownership interest which does not result loss of control are to be treated as equity Transaction (i.e. Transaction between shareholders. Remember Demerger transaction!) and accordingly no profit and loss would be recognised in the income statement. Difference between Sale Price and Proportionate Carrying Amount of the Parent’s Ownership Interest in the subsidiary shall be recognised in Income statement and the balance of controlling interest (investment in Subsidiary) is measured at Cost.
However, if such dilution results into losing of control treatment as per existing AS will follow except retained investment shall be measured at Fair Value
Uniform Accounting Policy No Impracticability exemption. It is Mandatory Uniform accounting policies for subsidiaries shall be maintained for consolidation unless it is impracticable to do so.
Accounting Period Maximum Difference isthree months. The difference between year ending of holding and subsidiary shall be maximum of six months which is also in line with Companies Act.
Put Option with Minority Shareholders Minority shareholder may have the right to sell their interest either to the company or to the Majority shareholders. Exercise price of such option may be fixed or may be variable (fair value). Recognition of Liability is required for the above. Nothing is mentioned about it.
If the exercise price is fixed, The parent company needs to record the liability and has to derecognise Non-Controlling interest. Any subsequent change in such liability can be transferred to reserves or P&L. However, in case of Forward or Synthetic Forward (call & put taken together), such changes shall be transferred to P&L only.
If the put option is at Fair Value, then company has two options to disclose the potential liability in the financial statement viz.
1. Show Liability and Non-controlling Interest on a gross basis.
2. Treat the liability as settlement of the Non-Controlling interest