Consolidation Finanacial Statement

7/29/2019 Consolidation Finanacial Statement

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Background of Consolidation Financial Statement

Modern accounting was developed in Italy in the late 15th

century. It was only at the

beginning of the 20th century that consolidated financial statements arose in USA.

Corporations in Europe followed during the 1920s and 1930s. It wasn't until the 1940s,

however, that legislation began to handle the subject.

One of the main reasons why legislation was introduced in Sweden was the Kreuger Crash

of the early 1930s. The empire of Ivar Kreuger was composed of companies all over the

world. The companies often had different financial years. Due to possibilities to transfer

gains and losses between the companies, all companies were able to show profits. Assets

were sold between the companies with profit close to the year-end closing for the selling

company. When the bubble burst the fact came out that the companies were overvaluing

their assets. These transactions would not have resulted in these horrid consequences if

there had been demands for consolidated financial statements with elimination of internal

income/expense, profits/losses, assets and liabilities.


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Introduction

This AS comes into effect in respect of accounting periods commencing on or after 1-4-2001.

AS 21 lays down principles and procedures for preparation and presentation of consolidated

financial statements. Consolidated financial statements are presented by a parent (holding

company) to provide financial information about the economic activities of the group as a

single economic entity. A parent which presents consolidated financial statements should

present their statements in accordance with this standard but in its separate financial

statements, investments in subsidiaries should be accounted as per AS 13.

Joint accounts for the companies in the groups, the elimination of shares, the adjustments etc.

form the consolidated financial statements. Enclosure 1 shows a group consisting of a parent

company with two subsidiaries. The first subsidiary has been part of the group for a number

of years. The second subsidiary was acquired by the parent company during the past year.

Based on these conditions the acquired equity is eliminated together with the acquired income

statement of subsidiary.

Depreciations are made on the acquired surplus values. The depreciations reduce deferred

tax. Internal income, expenses and the result are adjusted along with internal receivables and

liabilities. Finally, untaxed reserves are converted to non- restricted equity and deferred tax.


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What are Consolidated Financial Statements (CFS)?

Consolidated financial statements are fiction. It shows the result and position that would have

occurred if the parent company had directly bought the assets and liabilities of the subsidiary

instead of the shares.

CFS are made using a cross- indexed summary of similar assets, liabilities, income and costs

for the different group companies. Everything should be valued according to the same

principles, recalculated to the same currency and closed at the same date. Since the objective

is to show the group as if they were one company, all internal balances and earnings must be

eliminated and only show profits/losses that are earned by the parent company or by the

subsidiaries after they joined the group.

The acquisition in the parent company of a subsidiary is regarded as an acquisition of the

assets and liabilities of the subsidiary in CFS. The shares in the subsidiary are substituted for

the assets and liabilities of the subsidiary. The assets and liabilities are revaluated to the

acquisition cost of the parent company.


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Meaning &Definition vide as 21

For the purpose of this Standard, the following terms are used with the meanings

specified:

- A parent (also known as a Holding Company) is a company that has one or moresubsidiaries. The company which has control over another company is known as the

Holding Company (Parent company).

- A subsidiary is an enterprise that is controlled by another enterprise (known as theparent). The company over which control is exercised is called the Subsidiary

Company.

- A group is a parent and all its subsidiaries.GROUP as an accounting entity

The accounting concept of Entity can be extended to a group of companies

controlled by a parents company. Such group, made up of the parents + subsidiary

companies, is regarded as a single entity for the purpose of accounting. The financial

statements of all companies in the group are added together (consolidated).

- Consolidated financial statements are the financial statements ofagroup presented as those of a single enterprise.

- Equity is the residual interest in the assets of an enterprise afterdeducting all itsliabilities.

- Minority interest is that part of the net results of operations and ofthe net assets of asubsidiary attributable to interests which are not owned, directly or indirectly through

subsidiaries, by theparent.


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- Control:(a)The ownership, directly or indirectly through subsidiaries, of more than one-half of

the voting power of an enterprise; or

(b)control of the composition of the board of directors in the case of a company or ofthe composition of the corresponding governing body in case of any other enterprise so

as to obtain economic benefits from its activities.

Objectives

The objective of this Statement is to lay down principles and procedures for preparation and

presentation of consolidated financial statements. Consolidated Financial Statement is

prepared by the holding/parent company to provide financial information regarding the

economic resources controlled by its group and results achieved with these resources.

This consolidated financial statement is prepared by the parent company in addition to the

financial statement prepared by the parent company for only it's own affairs. Hence parent

company prepares two financial statements,one for only its own affairs and one for taking the

whole group as one unit in the form of consolidated financial statement. Consolidated

financial statements usually comprise the following:

- Consolidated Financial Account- Consolidated Profit & Loss Statement- Notes to Accounts, other statements and explanatory material- Consolidated Cash Flow Statement, if parent company presents its own cash flow

statement.

While preparing the consolidated financial statement, all other ASs and Accounting Policies

will be applicable as they are applied in parent companys own financial statement.


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Scope

a. This Standard should be applied in the preparation and presentation of consolidated

financial statements for a group of enterprises underthe control of aparent.

b. This Standard should also be applied in accounting for investments in subsidiaries in

the separate financial statements of aparent.

c. In the preparation of consolidated financial statements, other AccountingStandards also

apply in the same manner as they apply to the separate financial statements.

d. Exclusion

In the following cases the consolidation is not done

- Amalgamation- Associates- Joint ventures- Gratuity / PF Trust of sunsidiaries whose composition of the governing bodies is

controlled by the holding company. Since the objective of control over such entities si

not to obtain economic benefits from their activities, these are not considerd for the

purpose of preparation of consolidated financial statements.

- Subsidiary where control is Temporary or restricated.


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Advantages of CFS

The main advantages of consolidation are given below:

a. Overall Picture: From the consolidated financial statements, the users of accountscan get an overall picture of the holding company and its subsidiaries. Consolidated

profit and loss account gives the overall profitability of the group after adjustment of

unrealized profit involved in mutual transaction and division of profit of the

subsidiaries into capital and revenue. Similarly Consolidated Balance Sheet shows

the state of affairs of the group after adjustments of mutual indebtedness and putting

separately the minority interest.

b. Share Value of Holding Co.: Intrinsic share value of the holding company can becalculated directly from the Consolidated Balance Sheet.

c. Return on Investments in Subsidiaries: The holding Company controls itssubsidiary. So its return on investment in subsidiaries should not be measured in the

terms of dividend alone. Consolidated Financial Statement provides information for

identifying revenue profit for determining return on investment.

d. Acquisition of subsidiary: the Minority Interest data of the Consolidated FinancialStatement indicates the amount payable to the outside shareholders of the subsidiary

company at book value which is used as the starting point of negotiations at the time

of acquisition of a subsidiary by the holding company.

e. Evaluation of Holding Company in the market: The overall financial health ofthe holding company can be judged using Consolidated Financial Statement. Those

who want to invest in the shares of the holding company or acquire it, need such

data.


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Disadvantages

a. Credit Implications : Just as much as consolidation can improve your credit, youcan also lower your credit profile by consolidating with a person or business with

worse credit than your own. Unless both parties have similar credit profiles, it is

likely that one party is taking a hit to their credit to some degree. This can be

minimal depending on the advantages of other factors, but it could be a significant

impairment to your ability to get lines of credit at good rates..

b. Shared Information : It is important to trust the individuals involved in yourconsolidation. If the financial change is between spouses and individuals, it is likely

you already trust that person with having access to your personal financial history

and credit information. In a business situation, though, this can be dangerous .

c. Changed Debt-to-Income Ratio : Different individuals and businesses havedifferent amounts of debt and income. A healthy debt-to-income is desired, with

debts comprising only a fraction of total earned income. The smaller this ratio is, the

better for both the credit and financial stability.

Because of the multiple ways in which this can affect personal finances or a

company's financial profile, it is important that the debt-to-income ratios of all

parties be examined. If you are taking on much more debt at the gain of minimal

income -- particularly income that does not cover the debt or does not seem

promising -- your party may be at a distinct disadvantage.


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Contents of CFS

1. Which Statements: Consolidated financial statements normally includea. Consolidated balance sheet,

b. Consolidated statement of profit and loss, andc. Notes, other statements and explanatory material that form an integral part thereof.d. Consolidated cash flow statement is presented in case a parent presents its own cashflow statement.

2. Format: The consolidated financial statements are presented,to the extent possible, inthe same format as that adopted by the parent for its separate financial statements.

Basis of Consolidation

In preparing CFS, the financial statements of the parent and its subsidiaries should be

combined on a line by line basis adding together like items of assets, liabilities, income and

expense.


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Format : 1

Working Note for Calculation

I. Date of Acquisition of ControlThe date on which investment in the subsidiary is made.

II. % of HoldingHow much percent of share holding company acquire & how much for minority company ?

III. Capital ProfitIf acquisition is on last day of the year; then all profit during the year are Capital Profits.

These profits are divided between Holding & Minority Company.

IV. Revenue Profit

If acquisition is on first day of the year; then all profit during the year are Revenue Profits.

These profits are divided between Holding & Minority Company.

V. Cost of ControlCost of investment in subsidiary company as per A/C of holding company XX

(-) Normal value / face value XX

(of share held in subsidiary company)

Capital profit of Holding company XX

Dividend for pre acquisition period XX

(+) Goodwill (-) Capital reserve XX


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VI. Minority interestNominal value share held by minority XX

(+) Share capital profit of minority XX

(+) share of revenue profit XX

VII. Reserve & Surplus (holding company)P/L A/C XX

(+) Share of Revenue profit XX

Format : 2 Old Schedule

Consolidated Balance Sheet of Holding & Subsidiary company

Liability Rs. Assets Rs.

Share capital XX Fixed Assets (net) XX

Reserves & Surplus XX Goodwill XX

Minority interest XX Investments XX

Secured Loans XX Current Assets, Loan & Advances XX

Unsecured Loans XX Misc. Exp. Not W/O XX

Current liabilities & Provisions XX

XX XX


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Revised Schedule VI

Consolidated Balance Sheet of Holding & Subsidiary company

Particulars Schedule Current Yr. Previous

Yr.

Equities & Liabilities

a. Shareholders fundShare Capital XX

Reserves & Surplus XX

b. Non Current LiabilitiesBonds / Debentures XX

Loan from Bank XX

Loan from others XX

Public Deposits XX

Deffered Tax Liability XX

c. Current LiabilityShort term Borrowing XX

Trade payable XX

Other Current Liability XX

Short term Provision XX

Total XX


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Assets

d. Non Current assetsFixed assets XX

Tangible assets XX

Intangible assets XX

Capital WIP XX

Non Current investment XX

Long Term Loan / Advances XX

e. Current AssetsCurrent Investment XX

Inventories XX

Trade Receivable XX

Cash & Bank XX

Short Term Loan / Advances XX

Other Current Assets XX

Total XX


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Steps in Consolidation Vide As 21

In order that the consolidated financial statement presents financial information about the

group as that of a single enterprise, the following steps should be taken:

1. Eliminate Parents Cost of Investment & portion of EquityInvestment made by Holding Company in the equity shares of subsidiary companies is

replaced by the subsidiarys assets & liassbility. The Holding Companys Investment in

shares of Subsidiary and the corresponding Equity of the Subsidiary held by the Holding

Company is set off against each other.

E.g. 1) (100% subsidiaryeliminating investment)

B/S as at 31 December, 2012

Liability H Ltd. S Ltd. Assets H Ltd. S Ltd.

Share capital of rs. 10 each 100000 50000 Sundry assets 150000 80000

Sundry creditors 100000 30000 Investment 5000 shares

at par

50000

200000 80000 200000 80000

Note : Invt. which is made by holding company in the subsidiary company is replaced by

the subsidiaries assets & liabilities. The invt. a/c of H Ltd. And the capital of S Ltd. is set

off against each other.


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Solution:-

Consolidated Balance Sheet of H Ltd. & S Ltd. as on 31 December 2012


Share capital

Equity share capital 10,000 Equity

Shares of Rs.10 each, fully paid H 100000

Fixed Assets (Net) NIL

Reserves & surplus NIL Investment NIL

Minority interest NIL C.A, Loans & advance

Sundry Assets H 150000

S 80000 230000

Secured Loans NIL MISC. Exp. Not W/O NIL

Unsecured Loans NIL

Current Liabilities & Provisions

Sundry Liabilities H 100000

S 30000 130000

Total 230000 230000


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2. Calculate Goodwill or Capital Reserve Arising on InvestmentThe difference between the investment and net worth will give rise to goodwill or Capital

Reserve.

GoodwillAn investment made at a Premium gives rise to goodwill . any excess of the cost to

the parent of its investment in a subsidiary over the net worth of the subsidiary, at

the date on which investment in the subsidiary is made, should be treated as

goodwill and recorded as an asset in the CFS.

E.g 2) (100% subsidiary

Goodwill on eliminating investment)


Liabilities H Ltd. S Ltd. Assets H Ltd. S Ltd.


Sundry creditors 100000 30000 Investment 5000 shares

at par

70000

200000 80000 200000 80000

Note :

Cost of Control

Cost of investment of Holding Company 70000

(-)Share of amount of equity of Subsidiary 50000

Goodwill in CBS 20000


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Solution:-



Share capital




Reserves & surplus NIL Goodwill 20000

Minority interest NIL Investment NIL

Secured Loans NIL C.A, Loans & advance


S 80000 210000

Unsecured Loans NIL MISC. Exp. Not W/O NIL



S 30000 130000

Total 230000 230000


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Capital ReserveAn investment made at a Discount gives rise to Capital Reserve. When the cost to

the parent of its invt. in a subsidiary is less than the net worth of the subsidiary, at

the date on which investment in the subsidiary is made, should be treated as Capital

Reserve and recorded as an asset in the CFS. It is negative cost of control.

E.g 3) (100% subsidiaryCapital Reserve on eliminating investment)




Sundry creditors 100000 30000 Investment 5000 shares 30000

200000 80000 200000 80000

Note :

Cost of Control

Cost of investment of Holding Company 30000

(-)Share of amount of equity of Subsidiary 50000

Goodwill in CBS (-)20000


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Solution:-



Share capital




Reserves & surplus

Capital Reserve 20000

Investment NIL



S 80000 250000


Unsecured Loans NIL



S 30000 130000

Total 250000 250000


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3. Calculate Minority InterestNormally, the Holding company hold only some shares say (3/5th) and the remaining(2/5th)

may be held by outsiders. Such interest of the outsiders is known as Minority Interest.

According to AS 21, Minority Interest is that part of the net results of operations and of the

net asset of a subsidiary attributable to interest which are not owned, directly or indirectly

through subsidiary, by the parent.

Minority interest should be presented in the consolidated balance sheet separately from

liabilities and the equity of the parents shareholders under the heading minority interest.

4. Analyse Profits of Subsidiary into Profits before and after AcquisitionAll reserves and profits of subsidiary company should be classified into pre and post

acquisition reserves and profits. We have analyse whether the investment is made on the

last day of the year or on the first day of the year or during any other day in the year.

Acquisition on last day :If the acquisition is on the last day of the current accounting year of the subsidiary, its

entire balances in the P&L a/c and reserves shown in the closing balance sheet of the

current year are taken as capital profits.


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E.g 4) Acquisition on Last Day of the Year




Profit and Loss A/c 20000 5000 Investment 5000 shares

in S Ltd. 75000

General Reserves A/c 10000 4000

Sundry Liabilities 10000 1000

140000 60000 140000 60000

H Ltd. acquired the shares of S Ltd. on 31st

December 2012. Prepare a consolidated balance

sheet.

Working Note:

I. Date of Acquisition of ControlH Ltd. acquire control in S Ltd. as on 31

stDecember, 2012

II. Capital ProfitProfit & Loss A/c on Date of Acquisition 5000

General Reserve on Date of Acquisition 4000 9000

III. Cost of ControlCost of investment in S Ltd. 75000

(-)Paid up value of shares 50000

Capital profit of Holding company 9000 59000

Goodwill 16000


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Solution:-



Share capital




Reserves & surplus

Capital Reserve

Consolidated P & L A/c

10000

20000

Goodwill 16000

Minority interest NIL Investment NIL

Secured Loans NIL C.A, Loans & advance


S 60000 125000

Unsecured Loans NIL MISC. Exp. Not W/O NIL



S 1000 11000

Total 141000 141000


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Acquisition on first day :If the acquisition is on the first day of the current accounting year of the subsidiary, its

entire balances in the P&L a/c and reserves shown in the closing balance sheet of the

previous year is taken as capital profits.

E.g. 5) Acquisition on First Day of the Year



Share capital of Rs. 10

each

2000000 600000 Freehold premises 900000 240000

Profit and Loss A/c 600000 350000 Plant & M/C 700000 320000

General Reserves A/c 800000 250000 Furniture 160000 60000

Sundry creditors 200000 140000 Debtor 600000 340000

Stock 640000 320000

Investment 40000

shares in S Ltd. 520000

Cash in hand 80000 60000

3600000 1340000 3600000 1340000

Adjustment:-

X Ltd. purchase the share of Y Ltd. on 1 January,2012 when balance in P/L A/c & G.R were

Rs.150000 & Rs.160000 respectively then included in Drs. In X Ltd. Rs. 30000 due from Y

Ltd. Prepare Consolidated b/s of XY Ltd.

Working Note:


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I. Date of Acquisition of ControlH Ltd. acquire control in S Ltd. as on 1st January , 2012

II. % of HoldingH Ltd. (holding company) = 3200/4000*100 = 80%

S Ltd. (minority company) = 800/4000*100 =20%

III. Capital ProfitBalance in P/L a/c = 150000

General Reserve = 160000

310000

Capital Profit divided into :-

H Ltd. = 310000*2/3 = 206667

Minority company = 310000*1/3 = 103333

IV. Revenue ProfitBalance in G.R = 250000

(-)G.R as on 1.01.12 = 160000

Transfer during the year 90000

Bal. in P/L a/c as on 31.12.12 350000

(+) Transfer to G.R 90000

440000

(-) Bal. in P/L a/c as on 1.1.12 150000

Revenue profits 290000

Revenue Profit divided into :-

H Ltd. = 290000*2/3 = 193333

Minority company = 290000*1/3 = 96667


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V. Minority interestNominal value of 20000 shares 200000

(+) Share in capital profit 103333

(+) share in revenue profit 96667

400000

VI. Reserve & Surplus (holding company)Bal. in P/L A/C 600000

(+) Share of Revenue profit 193333

793333


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Solution:-

Consolidated Balance Sheet of H Ltd. & S Ltd. as on 31 December, 2012


Share capital



Fixed Assets (Net)

Freehold premise

Plant & M/C

Furniture

1140000

1020000

220000

Reserves & surplus

General Reserve


86667

800000

793333

Cash 140000

Minority interest 400000 C.A, Loans & advance

Inventories

Debtors

960000

910000


Unsecured Loans NIL


Sundry Creditors (340000-30000) 310000

Total 4390000 4390000


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Acquisition in mid year or during Year :If the acquisition is during any other day of the current accounting year of the subsidiary

its balances in the P/L a/c and reserves shown in the available balance sheet are to be

divided between Capital Profits and Revenue Profits.

E.g. 6) Acquisition in mid Year



Share capital of Rs. 1 each 12000 50000 Sundry assets 20000 8000

Profit and Loss A/c 2000 1500 Investment 5000 shares

in S Ltd. 6500

General Reserves A/c 5000 500

Sundry creditors 7500 1000

26500 8000 26500 8000

Shares were acquired by H Ltd. on 1st October, 2012. Reserves in S Ltd. show opening

balance b/d. P/L A/c in S Ltd. show the profits earned during the year.

Prepare CBS


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Working note :

I. Date of Acquisition of ControlH Ltd. acquire control in S Ltd. as on 1

st

October, 2012

Pre acquisition period (Capital profit) 1.4.12 - 30.9.12

Post acquisition period (Revenue profit) 1.10.12 - 31.3.12

II. Capital ProfitProfit & Loss A/c (1500/2) 750

General Reserve 500

1250

III. Revenue ProfitProfit & Loss A/c (1500/2) 750

IV. Cost of ControlCost of investment in S Ltd. 6500

(-)Paid up value of shares 5000

Capital profit of Holding company 1250 6250

Goodwill in CBS 250

V.

P&L A/c

P & L A/c of H Ltd. 2000

(+) RP of S Ltd. 750

Consolidated P & L A/c 2750


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Solution:-

Consolidated Balance Sheet of H Ltd. & S Ltd. as on 31 December, 2012


Share capital




Reserves & surplus

General Reserve (H)


5000

2750

Goodwill 250


Sundry assets H 20000

S 8000 28000


Unsecured Loans NIL


Sundry Creditors H 7500

S 1000 8500

Total 28250 28250


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5. Intra-Group AdjustmentIt is natural for a company to sell goods to its subsidiary and vice versa. Usually goods

are sold at normal selling price. For the purpose of consolidation of financial statement,

profit on goods received from the other company of the same group but sold away before

the balance sheet date raises no problem. But in respect of such goods not yet sold, the

unrealized profits are to be eliminated. Also unrealized losses resulting from intra group

transactions should also be eliminated unless cost cannot be recovered.

There is some of the adjustment which is used in a Consolidation:

Dividends: The holding company, when it receives a dividend from subsidiary company,

must distinguish between the dividend received out of capital profits and that out revenue

profits. The dividend received out of capital profits is credited to Investment Account, it

being a capital receipt. Dividend received out of revenue profits is, being revenue income,

credited to the Profit & Loss Account.

Revaluation of Fixed Assets: For ascertaining the fair price for acquiring shares, the holding

company may revalue the fixed assets of the subsidiary company. The assets may be revalued

upwards or downwards. The depreciation on the difference between the revalued amount and

the book value also need to be adjusted, depending on the details available.


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Issue of Bonus Share out of Pre acquisition Profits: While calculating the cost of control,

when one the one hand holding companys share in the pre-acquisition profit is reduced

(because of capitalisation of profit), on the other hand, the paid up value of shares held

increase. Thus, there is no effect on cost of control of the bonus shares issued out of pre-

acquisition profits.

Issue of Bonus Share out of Post acquisition Profits: When a subsidiary company

capitalises profits by the issue of bonus shares out of the post-acquisition profits, it is

necessary that holding companys share in the revenue profits of the subsidiary company be

calculated only after making adjustments for such bonus shares from the post acquisition

profits. It will have effect of reducing share of holding company in the post-acquisition

profits of the subsidiary company. However, in this case the cost of goodwill will be reduced

because of the increase in paid-up value of shares (without) increasing the cost of shares and

without reducing the pre-acquisition profits of subsidiary company.


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E.g.7) The Balance sheet of H & S Ltd. As on 31.3.2012 were as follow:-

Liability H S Assets H S

Equity Share of Rs. 100

each fully paid up

9000000 400000 L & B 600000 260000

15% Pref. share capital 300000 40000 Plant & M/C - 180000

G.R (1.04.2012) 200000 120000 Invt. in 3000 eq. share of S

Ltd. Purchase on 30.9.2012

480000 -

P/L A/C 280000 180000 Stock 200000 180000

B.P 40000 - Drs. 40000 150000

Crs. 160000 100000 Cash at bank 120000 40000

Preliminary exp. 10000 -

Gwill 70000 60000

Adjustments:-

- 15% dividend on both types of shares was paid in Oct. 2012 for the year ended 31stmarch 2012 H Ltd. credited the dividend received to his P/L account.

- Plant & M/C as per a/c was 200000 on 1.4.2012 H Ltd. revalued it by upward amountby 100000 which is not recorded.

- There was a bonus issue of equity shares of 40000 out of post acquisition profit by SLtd. which is not recorded.

- Credit balance of P/L a/c on 1.4.2012 was 106600 of S Ltd.- Included in creditors of S Ltd. are 40000 for goods supplied by H Ltd. also includedin S Ltd. stock of goods supplied by H Ltd. remain unsold & H Ltd. charge profit at 25 %

on sales.


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Working Note :

I. Date of acquisition of control :-H Ltd. acquire control in S Ltd. As on 30 September 2000

II. Percentage of holding :-H Ltd. = 3000/4000 = 75%

Minority = 1000/4000 = 25%

III. Capital profit as on 1.04.2001G.R 120000

P/L a/c (as on 1.4.2000) 1066000

(+) Current year profit upto 30.9.2000 69700

(-) dividend for year ended 31.3.2000 296300

Pref.share capital (40000*15%) 6000

Equity share capital (400000*15%) 60000

(+) increase in plant & M/C 100000

(-) preliminary written off 10000

320000

Capital profit allotted into :-

H Ltd. = 320000*3/4 = 240225

Minority interest = 320000*1/4 = 80075


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IV. Cost of control

Cost of investment in S Ltd. 480000

(-) nominal value of shares

3000 share @ 100 = 300000

300 bonus @ 100 = 30000

Dividend for pre acquisition

300000*15% = 45000

Capital profits = 240225 615225

Capital reserve (-)135225

V. Revenue profitRevenue profit of S Ld. 69700

(-) issue of bonus share 40000

Dep. on plant & M/C (100000*10%*6/12) 5000

24700

Revenue profit allotted into :-

H Ltd. 24700*3/4 = 18225

Minority interest 24700*1/4 = 6175


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VI. Minority InterestNominal value of share

1000 shares @ 100 100000

100 bonus @ 100 10000

15% pref. share capital 40000

Share in capital profit 80075

Share in revenue profit 6175

236250

VII. Resrve & Surplus of H Ltd.Balance in P/L a/c 280000

(+) share in revenue 18225

(-) dividend trf. to invt. a/c 45000

(-) unrealized profits in intercompany transaction 10000

243525


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Solution:-

Consolidate balance sheet of HS Ltd. As on 31.3.2001


Equity share of Rs.100 each

fully paid

900000 Gwill 130000

Pref. share capital of H Ltd. 300000 L & B 860000

G.R 200000 Plant & M/C 605000

P/L a/c 243525 Stock 370000

B.P 40000 Drs. 150000

Crs. 220000 Cash 160000

Minority interest 236250

Capital reserve 135225

2275000 2275000


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Summary

A company that owns more than 50% of the votes in another company is a parent company to the

subsidiary owned. Together they form a group which is obligated to submit consolidated financial

statements. It is also mandatory to issue consolidated financial statements when a company has

determining influence over another company. Consolidated financial statements are prepared in

order to show all the companies in the group as if they were one.

All companies in the group must apply the same accounting principles and accounting year as the

parent company. Internal income, expenses and profits/losses must be eliminated from the income

statement. The same goes for internal receivables and liabilities in the balance sheet. The

consolidated financial statements are guided by both national and international laws and

recommendations.

The most common method to apply consolidated financial statements is the purchase method. This

method is based on an acquisition analysis which determines the acquired equity of the subsidiary.

The acquired equity is never included in the equity of the group. It is only the equity of the parent

company and profits/losses in the subsidiaries after the acquisition that should be included in the

equity of the group. The acquisition analysis changes constantly as acquired surplus values and

deferred tax are reduced as depreciations and tax expenses.


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BIBLOGRAPHY

Advanced Financial Accounting (M.Com I)Dr. Varsha M.Ainapure

(Sem. I & II)

Edition: September 2010

MANAN PRAKASHAN

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Consolidation Finanacial Statement

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Transcript of Consolidation Finanacial Statement