CHAPTER: 6 CONSOLIDATED (Financial Statements of Parent consolidated with , Joint Ventures and Associates)

1. Applicable Ind AS: Ind AS 110: Consolidated Financial Statements Ind AS 28: Investments in Associates & Joint Venture (in Consolidated Financial Statement) Ind AS 111: Joint Arrangements Ind AS 112: Disclosures of Interest in Other Entities Ind AS 27: Separate Financial Statements (of entities required to present

Venture or Associate and elects to prepare or required by law to prepare

Ind AS 103: Business Combination (for computing and Bargain Purchase Gain) 2. Financial Statement:

Financial Statement

Company with no / Company with Subsidiary/Joint Joint Venture/Associate. Venture/Associate

Stand-alone Financial Consolidated Financial Statement as per respective Statement (Unless exempted) Separate FS Ind AS

Subsidiaries Associates Joint Ind AS 27 Arrangements Ind AS 27 has no relevance

Joint Others Ventures

Ind AS 110 Ind AS 28 Ind AS 111

Full method Proportionate (of , Liabilities, (Consolidation of consolidation Income & Expenditure)

CA FINAL - FINANCIAL REPORTING 145 CONSOLIDATION

3. Consolidated Financial Statement and Separate or Standalone Financial Statement:

Consolidated Financial Statement and Separate or Standalone Financial Statement:

No Subsidiary/Joint No Subsidiary but Joint Subsidiary exists Venture/Associates Venture / Associate

Standalone Financial Statement

Financial Statement called as Consolidated Separate Financial Separate Financial Financial Statement Statement Statement Statement (unless exempted) (unless exempted)

Equity Full consolidation method for method subsidiary (Ind AS 110) *Companies Act + terms Separate for Joint Ven- ture / Associate if any FS too as (Ind AS 28) Standalone FS Ind AS 28 Ind AS 27 Ind AS 110 Ind AS 27

Q. H Ltd. has a Subsidiary S Ltd., exempted from consolidation then H Ltd. Should prepare its own______. Ans. Separate Financial Statement – Ind AS 27 (And not Standalone Financial Statement)

Q. H Ltd. had one subsidiary during the year, which was sold during the year. H Ltd. to prepare______. Ans. Consolidated Financial Statement -  Consolidated - No  idiary relationship existed) 

146 CA FINAL - FINANCIAL REPORTING CHAPTER: 6 4. Entities Exempted from consolidation– a. Holding Company  Investment Company : (Ind AS 110) Subsidiary Any Subsidiary of Investment Company except subsidiary providing services to the Investment Company is exempted from consolidation The holding investment company statement (CFS) and should value investment in subsidiary (except those providing “Separate Financial Statement”.

Parent Parent Parent Investment Investment Investment Company Company Company

Subsidiary Company Subsidiary Company Subsidiary Subsidiary (Non-service providing) (service providing) Company- 1 Company-2 (service providing) (other) Still CFS Consolidated will be F.S. prepared

Investment in Measure investment Investment in Separate Measure investment subsidiary company as per Para 10 of Ind subsidiary company F.S. as per Para 10 AS 27 in CFS b. Unlisted Intermediate Holding Co. (Ind AS 110 & 28): (Exemption given in Companies Act as well as Ind AS from preparing consolidated financial statement) (Applies to Subsidiary as well as Joint Venture / Associate) 1 Shashi Grand PA Intermediate Holding Company 80% Unlisted as well as 3 Dad 2 Rishi H Ltd. not to be listed & presents consolidated 60% other SHs (other than Ranbier S Ltd. Son informed about not preparing Consolidated Financial Statement & they have not objected

CA FINAL - FINANCIAL REPORTING 147 CONSOLIDATION c. Investments in Associate / Joint Venture held by Companies engaged in (Business of making) investments like Mutual Funds, Venture Capitalist etc. (Ind AS 28): Such Investment can be elected to be measured using FVTPL - Option is to be decided investment wise on IR and is irrevocable

5. Consolidation requirement under Companies Act, 2013: a. Companies Act 2013 requires consolidation to be done as per AS & Ind AS. b. It permits any Company exempted from consolidation under AS/Ind AS to be not consolidated. c. In Companies Act 2013, exemption from consolidation is given to ‘unlisted intermediate holding company’ as discussed in 3 (b) above. d. prepared by every co. having –  Subsidiary – - Company, as well as - Body corporate  Associate company includes Joint Ventures Company ***[Subsidiary /Associate/Joint Venture, where parent has Short Term Intentions or there are Long Term Restrictions imposed on Subsidiary/Associate/Joint Venture, Consolidation is not exempted under Ind AS (though exempted in AS).

6. Consolidation (with Subsidiary): Ind AS 110:

Balance Sheet (As on 31-Mar-18) Particulars H Ltd. S Ltd. Consolidated Financial Statement PPE 20,000 8,000 28,000 (↑3200 NCI share) Investment in S Ltd. made 10,000 - 10,000 – 9,000 = 1,000 (Goodwill) on 31-03-18 for 60% Current Assets 15,000 7,000 22,000 (↑2800 NCI share) Equity Share Capital 25,000 9,000 25,000 Other Equity : Reserves 12,000 6,000 12,000 Non-Controlling Interest - - 6,000 [(8000 + 7000) x 40 %] Non-Current Liabilities 8,000 - 8,000

148 CA FINAL - FINANCIAL REPORTING CHAPTER: 6 (Concept Builder) H Ltd. (31.3.17) S Ltd. (31.3.17) PPE 10,000 PPE 4,000 Investment in S Ltd. 60% (31.3.17) 5,000 CA 6,000 CA 5,000 SC/Equity/(500share @10) 5,000 SC / Equity 12,000 Other Equity / Reserve 3,000 Other Equity / Reserve 3,000 NCL 2,000 NCL 5,000 Solution W.N.1 Net Assets of S Ltd. W.N.2 Non-Controlling Interest: Preferred to calculate through Method 1: Method Assets –liability; Fair Value of Non-Controlling Interest is not If information of Assets & Liabilities given hence Fair Value computed taking H Ltd’s N. A. then through Share investment value in SLtd. as base Capital + Reserves)  5000 X 40 = 3,333 PPE 4,000 60 Current Assets 6,000 Method 2: Net Assets Method Non-Current Liabilities (2,000) Net Assets 8,000 Net Assets 8,000 Non-Controlling Interest @ 40 % 3,200 W.N.3. Goodwill or Bargain Purchase Gain P.C. N.C.I. N.A. Goodwill N.C.I. @ FV: 5,000 + 3,333 - 8,000 = 333 N.C.I. @ N.A.: 5,000 + 3,200 - 8,000 = 200 Consolidated Balance Sheet of H Ltd. & Subsidiary S Ltd. (as at 31.03.17) Particulars Method I Method II Non-Controlling Non-Controlling Interest @ Interest @ FV Net Assets PPE 14,000 14,000 Goodwill 333 200 Current Assets 11,000 11,000 Equity Share Capital 12,000 12,000 Reserves 3,000 3,000 Non-Controlling Interest 3,333 3,200 Non-Current Liabilities 7,000 7,000

CA FINAL - FINANCIAL REPORTING 149 CONSOLIDATION Key Points on First Meet with Consolidation: 1. Consolidation accounting is to be done only after acquisition of control known as Date of Acquisition of control (DoA) 2. Accounting prescribed under Ind AS 103 on DoA : : Treat Cost of Investment as (a) PC : Treat FV of NCI, if not available then NCI @ PSNA (b) Addition to PC (Proportionate share in Net Assets) : Treat Fair Value of Net Assets of Subsidiary as (c) Net Assets acquired under absorption (Biz. Combination)

: Goodwill/(Capital Reserves) a + b - C 3. Subsequently goodwill will not change even if further shares are acquired( by parent from NCI. Derocgnised when subs. is no more subs Goodwill will be ( Tested for impairment 4. NCI valued at fair value, but if not available then PSNA. FV of shares paid for acq. Controlling stake may not be the right basis for determining fair value of shares with NCI as PC paid (FV of shares for acq. Of control) will have ‘’ 5. Line by line consolidation Subsidiary ds D;k gksaxs a) Assets & Liability 100% add djsaxs b) Share Captial Not added c) Reserves (Undistributed) Pre Acq. Not added Parent Added to parent is R&S in CFS Post Acq. Share of NCI Added to NCI in Cons. FS. 7. Consolidation Index: Consolidation Index

Subsidiary (Direct Subsidiary) Joint Venture/Associate

Single Separate Financial Statements Consolidated Financial Statements Subsidiary

Multiple Balance Sheet Statement of Flow Statement Schedule III Information Subsidiary

Dat Measurement period)  subsequently Chain e of Acquisition ( De-recognition/ Sale of Subsidiary or conversion to Joint Venture/Associate. Holding

Cross Purchase Non-Controlling Bargain Purchase Holding Net Assets Goodwill Consideration Interest Gain

150 CA FINAL - FINANCIAL REPORTING CHAPTER: 6

Balance Sheet Consolidation of (Direct) Subsidiary

8. 9. 10. 11. DOA Measurement Subsequent Period Years Derecognition

A.Purchase Consideration D. Goodwill I. Cash: 1. Fair Value i. Immediate - DOA ii. Deferred 3. Different accounting policies - Measurement Period Changes II. Other Than Cash 4. Intangibles other than goodwill b. Different when Non-Controlling (Eg. Debentures, other securities) (like Brands) Interest valued at: III. Contingent Consideration 5. Financial Instruments a) Net : Proportionate Goodwill IV. Step Acquisition 6. Contingent liabilities b) Fair Value : Full Goodwill V. Acquiring Control without further 7. Subsidiary having Joint Venture / (preferred) acquisition Associate c. Impairment of Goodwill (no VI. Investment entity – Change in 8. Others – amortization) Status a. Goodwill in books of subsidiary d. Increase in stake in subsidiary or b. DTA/DTL of subsidiary Decrease in stake of NCI in subsidiary c. Fictitious assets in subsidiary’s will not affect goodwill. Financial Statement d. Inter company Assets/Liabilities e. Purchase Consideration paid to E. Bargain Purchase Gain B.Non Controlling Interest company (Fresh issue of shares) I .Capital Reserve or 1.Qualifying NCI – 9. Approach of computing Net Assets ii. Other Comprehensive Income (NR) Option 1 - Fair Value * Covered in Ind AS 103 – to Capital Reserve Option 2 - Net Assets proportionate Exception to general rule share i. Reacquired Rights 2.Non-Qualifying NCI - Always fair ii. Asset held for sale value iii. Share Based Payment toEmployees 3.*Negative NCI and Earn Out Arrangements

F. Transaction Costs v. Income Taxes

CA FINAL - FINANCIAL REPORTING 151 CONSOLIDATION 7. Ind AS 27: Separate Financial Statement 1. Companies having Subsidiary/Joint Venture/associate, if elects or required by law to prepare Standalone Financial Statement it is to be prepared as per Ind AS 27. 2. In India: Companies Act2013 requires entities to prepare & present separa statement as well – (Section 129 of Companies Act2013) 3. Ind AS 27 prescribes: A. A. [Para 10] Investment in Subsidiary/Joint Venture/Associate, in separate valued at: i. Cost, or ii. Fair Value as per Ind AS 109  i.e. FVTPL or FVOCI (NR) when entity irrevocably elects to value its investment in Equity Share of Subsidiary/Joint Venture/Associate under FVOCI. Choice is to be made for a category of investment and is not available in vestment wise. B. ial statement to be in consolidated financial statement, date of acquisition value of investment in Subsidiary/Joint Venture/ statement. Hence subsequent changes in Fair Value of such investment will not affect Consolidated Financial Statement. C. If, in Standalone Financial Statement, investment in Subsidiary/Joint Venture/ Associate is carried at Cost, it will be subjected to impairment requirements of Ind AS 36. D. from Subsidiary/Joint Venture/Associate to be recogniz when the right to receive the dividend is established (Declared Basis) E. Rest – Accounting to be as per various Ind AS. *Investment made by Investment Company in Subsidiary Company or through /Mutual Fund/ Venture Capitalist in Joint Venture/Associate if measured at FVPTL are valued, in Standalone Financial Statement using FVTPL only (cost or FVOCI method not permit - ted) *Other than for Subsidiary Company that is providing services to the further the business of its holding investment company.

152 CA FINAL - FINANCIAL REPORTING CHAPTER: 6

Separate FS of Parent Ltd. (Ind AS 27)

BS SPL Others

Investment Dividend Income Other items in BS/ SPL of parent Co. in Equity from S/JV/A of S/JV/A

Always credited to Respective Ind AS to If parent is an investment Else PorL in SFS of apply (Eg. PPE, Invst in Co. then FVTPL parent, even if, other than Eq. Of Subs invst opted to be / JV/ A like investment Para 10 measured at FVOCI in shares of non-group Cost or FV Method as (NR) and div. cos., investment in deb. given in Ind AS 109 clearly represents of non-group/group Cos., recovery of cost Trade Receivable, (Discussed in Ind AS Inventory, Liab., Sales, 109: Dividend Purchase, etc.) Options Stripping) accounted as per respective Ind AS FVTPL or FVOCI (NR) If investments have received dividend that are > earned Choice for each for the period then impairment category of investment & check to be done as per Ind AS not individual investment 36 ‘Impairment of Assets’ (Accounting Policy Choice) (and not Ind AS 109)

If investment is held through MF/VC etc. in JV/A then parent has an option to measure such investment at FVTPL and not consolidate as per Ind AS 28 in Cons FS. If FVTPL option used then in SFS also FVTPL to be used.

CA FINAL - FINANCIAL REPORTING 153 CONSOLIDATION 8. DOA (Date of Acquisition) (A) Purchase Consideration: I Cash Consideration – Immediate payment of Purchase Consideration(PC) => PC = CashCo nsideration or payment is within the usual terms. Payment is deffered (beyond normal terms => PC = Present Value(PV) of deferred consideration (Discounted using ). (Concept Builder) H Ltd. acquired shares of S Ltd. from SH of S Ltd for cash consideration of 50L. 10L payable immediately and balance payable equally in 2 years. Find FV of investment made. D.F. 15% p.a. Solution 2 Cost of Investment = 10 Lakh + 20 Lakh X AF 15% = 42.51 Lakh Standalone Financial Statement: (Cost Method) Year 0 (1) Investment in subsidiary company Dr.42.51 (Financial Assets) (Ind AS 27 para 10 Cost Option) (DOA) To Bank 10 To PC payable 32.51 (Financial Liability) (DO IT FROMAMORTISED COST METHOD) Year 1 (2) Interest Dr. 4.88 To PC payable 4.88 (32.51X15%) (3) PC payable Dr. 20.00 To Bank 20.00 Year 2 (4) Interest Dr. 2.61 To PC payable 2.61 [(32.51 + 4.88 – 20) x 15%] (5) PC payable Dr. 20.00 To Bank 20.00 [PC payable  32.51 + 4.88 – 20 + 2.61 – 20]= NIL

154 CA FINAL - FINANCIAL REPORTING CHAPTER: 6 I1. Consideration in other than cash: -  Valued at fair value of consideration given.  Examples of other consideration: - i. Equity shares of acquiring company to Share Holders of subsidiary company  Facebook Inc. PC paid (Cash + FB Shares)to J.K. (Promoter of What’sApp) (Acquired) WatsApp Inc. Sometimes, this may lead to Reverse Acquisitions (will be discussed in Ind AS 103-Business Combination) ii.

Eg. 10% Debenture issued to Share Holder of Subsidiary co. of face value 50 Lakhs redeemable after 3 years. Market interest is only 6% p.a. 3 3rd yr Sol.: Fair Value = 5Lakh X AF 6%+50Lakh X PV 6% = 55.35Lakh

Journal Entry (Separate Financial Statement) Investment in subsidiary Dr. 55.35L To Financial Liability – Debentures 55.35L

III. Contingent Consideration: (CC): (i) Contingent Consideration: (CC)

PC or part of PC will be discharged subject to fulfillment or non-fulfillment of future uncertain event

(ii) Contingent Consideration will be valued at fair value of such contingent consideration on date of acquisition. (iii) This may lead to creation of a ‘liability in Financial Statement of parent (even though it may be less likely) which is permitted under Ind AS 103.

(iv) Any further changes in FV of CC : When CC involves issue of a) When CC is classifiable asEquity of Acquirer are ignored fixed no. of Eq. b) When CC is classifiable as FL Shares of Acquirer are adjusted from PorL & not PC.

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