Accounting standard 21, Consolidation & Minority interest

1. ACCOUNTING STANDARD 21
CONSOLIDATION AND MINORITY
INTEREST
GROUP MEMBERS
Serene Ittikunnath (M1244)
Tushar Kharate (M1254)
Wasif Parker (M1261)

2. OBJECTIVES
 The 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

3. 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.

4. 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.

5. CONSOLIDATION PROCEDURE
 Combined/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

6. 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.

7. 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.

8. ILLUSTRATION
Summarized 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

9. 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.

10. SOLUTION
Date 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

11. Cost of control:
Cost of investment in subsidiary 3,60,000
Paid 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
25,000
1250
----------------------- 26,250
Preference share capital 1,00,000
TOTAL 2,26,250

12. Consolidated balance sheet of A Ltd as on 31st March 2011.
LIABILITY Rs Rs ASSET Rs Rs
Equity share capital 6,00,000 Fixed asset
(3.5+2.5) 6,00,000
General reserve 160,000 Investment 90,000
Profit and loss a/c
Share from sub
(-) : unrealized profit
20,000
3750
2000 21,750
Stock
(-)unrealized profit
5,80,000
2000 5,78,000
Bills payable (1.3+1.2-
0.05) 2,45,000
Debtors
(-) inter debts
4,60,000
12000
Creditors (2.3+2.85-
0.12) 5,03,000
(-) cheque in transit 10,000
4,38,000
Proposed dividend 1,00,000 Bills receivable
(-) inter co.
75,000
5000 70,000
Minority interest 2,26,250 Cheque in transit 10,000
Cash 65,000
18,56000 18,56000

13. 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.