1. Consolidation of Associate Companies
ASHOK SETH, Lucknow
B. Sc, FCA, DISA (ICA)
Dear Members

2. Companies Act S. 129(3)
Provides where a company has one or more subsidiaries, it shall, in addition to financial statements (FS) provided under sub section (2), prepare a consolidated financial statements of the company and all its subsidiaries in the same form and manner as that of its own which shall also be laid before the AGM
6 Jan 2017
CA Ashok Seth, Lucknow

3. 129(3)- Proviso -1 & Explanation
The company shall also attach along with its FS a separate statement containing salient features of the FS or its subsidiaries in such form as may be prescribed. (AOC-1)
Explanation. – for the purposes of this sub section, the word “subsidiary” shall include associate company and joint venture.
6 Jan 2017
CA Ashok Seth, Lucknow

4. The Companies (Accounts) Rules, 2014
Rule 5- Form f statement of salient features in AOC-1
Rule 6- Provides for manner of consolidation of accounts. Lays that consolidation of FS shall be made in accordance with Sch.-III and applicable accounting standards.
6 Jan 2017
CA Ashok Seth, Lucknow

5. Rule- 6 Contd.
Rule 6 further provided that the consolidation will not be required to be made for FY ending 31st march 2015 in case of a company which only has one or more associate companies or Joint Ventures or both.
So in above situation consolidation will be required for 1st time from FY
6 Jan 2017
CA Ashok Seth, Lucknow

6. “Associate Company”- Sec 2(6)
In relation to another Co, means a Co in which that other Co has a significant influence, but which is not a subsidiary Co of the Co having such influence &includes a joint venture Co.
Explanation.—For the purposes of this clause, "significant influence" means control of at least 20% of total share capital, or of business decisions under an agreement;
6 Jan 2017
CA Ashok Seth, Lucknow

7. Accounting Standards AS 13 Accounting for Investments
AS 21 Consolidated Financial statements
AS 23 Accounting for Investments in Associates in Consolidated Financial Statements
AS 27 Financial reporting of Interests in Joint Ventures
6 Jan 2017
CA Ashok Seth, Lucknow

8. Applicability of Accounting Standards
Control of SC<less Than 20%- AS 13
Control of SC>= 20% upto =50%- AS 23
Control of SC > 50% AS 21
Joint Venture AS 27
6 Jan 2017
CA Ashok Seth, Lucknow

9. AS 23- Definitions
Associate – an enterprise in which investor has significant influence & which is neither subsidiary nor joint venture
Significant influence – power to participate in financial and / or operating policy decisions of investee but not control over those policies (20% holding normally assumed as significant influence)
Control – definition same as in AS 21
6 Jan 2017
CA Ashok Seth, Lucknow

10. Procedures Investments in Associates
to be recorded in CFS using equity method.
NO if investment acquired for disposal in near future- Reasons for not applying to be disclosed in CFS
to be initially recorded as cost, identifying goodwill / capital reserve arising at the time of acquisition.
Carrying amount of investment is adjusted thereafter for the post acquisition change in investor’s share of net assets of the investee.
Near Future generally mean not later than 12 months unless in facts higher period is justified.
- to be seen at the point of acquisition
6 Jan 2017
CA Ashok Seth, Lucknow

11. Investor’s share of results of operations of investee to be included in Consolidated profit & loss account
Unrealised profits and losses resulting from transactions between investor (or its consolidated subsidiaries) and the associate should be eliminated to the extent of the investor’s interest in the associate.
6 Jan 2017
CA Ashok Seth, Lucknow

12. Most recent available statements to be used preferably drawn upto same date
Using uniform accounting policy. If not then appropriate adjustments to be made. If not practical then facts to be disclosed with brief descriptions of the differences between policies
6 Jan 2017
CA Ashok Seth, Lucknow

13. If, under the equity method, an investor’s share of losses of an associate equals or exceeds the carrying amount of the investment, the investor ordinarily discontinues recognising its share of further losses and the investment is reported at nil value
6 Jan 2017
CA Ashok Seth, Lucknow

14. Where an associate presents consolidated financial statements, the results and net assets to be taken into account are those reported in that associate’s consolidated financial statements.
6 Jan 2017
CA Ashok Seth, Lucknow

15. Contingencies and Events Occurring After the B.Sheet Date
TO DISCLOSE: -
its share of the contingencies and capital commitments of an associate for which it is also contingently liable; and
those contingencies that arise because the investor is severally liable for the liabilities of the associate
6 Jan 2017
CA Ashok Seth, Lucknow

16. Capital reserve\(Goodwill)
Capita Reserve= Share of equity- Cost of investment IF >0
Goodwill = Share of equity- Cost of investment IF <0
6 Jan 2017
CA Ashok Seth, Lucknow

17. Illustration A Ltd Acquired 45% of B Ltd on 1-4-2015 for 15 Lacs
B Ltd B Sheet Extract:-
Paid up SC 10 Lacs
Security Premium 1Lacs
Reserves Lacs
Reported Profit Lacs
Dividend Lacs
6 Jan 2017
CA Ashok Seth, Lucknow

18. Solution Equity Shares 1000000 Security Premium 100000 Reserves 500000
Net assets
45% of the Net Assets
720000
Add 45% of the Profits
135000
855000
Less Dividend Received
-45000
810000
Cost of Investment
Good will
690000
6 Jan 2017
CA Ashok Seth, Lucknow

19. Balance sheet Extract Assets Investments in B Ltd 8,10,000
Add Goodwill
6,90,000
15,00,000
6 Jan 2017
CA Ashok Seth, Lucknow

20. Illustration 2
A Ltd Acquired 40% share in B Ltd om for 10 lacs. On that date B Ltd had 1 Lacs Share of Rs 10.- each and accumulated Profit of Rs 2 lac.
In B Ltd had loss of 10 Lacs
In Loss of Lacs
In Loss of 5 lacs
6 Jan 2017
CA Ashok Seth, Lucknow

21. 1-4-2009 Equity Shares 1000000 Reserves & Surplus 200000 Net Assets
40% of Net Assets
480000
Cost of Investment
Goodwill
520000
Investment in B Ltd
480000
Add Goodwill
520000
6 Jan 2017
CA Ashok Seth, Lucknow

22. 31-03-2010 Investment in B Ltd 480000 Add Goodwill 520000
Cost of Investment
Share of Loss for the year 40% of 10 Lacs
Goodwill
600000
Investment in B Ltd
80000
Add Goodwill
520000
600000
6 Jan 2017
CA Ashok Seth, Lucknow

23. 31-03-2011 Carrying amount of Investment in B Ltd 600000
Share of Loss for the year 40% of Lacs
100000
Investment in B Ltd
Add Goodwill
100000
6 Jan 2017
CA Ashok Seth, Lucknow

24. 31-03-2012 Carrying amount of Investment in B Ltd 100000
Share of Loss for the year 40% of 5 Lacs
Investment in B Ltd
Add Goodwill
6 Jan 2017
CA Ashok Seth, Lucknow

25. Misc. Issues If there are more than one investor all will make CFS
CFS to be made only if the investment more than 20% is there as on last day of FY
LLP also need to be consolidated.
CFS to be approved by the Board
6 Jan 2017
CA Ashok Seth, Lucknow

26. Auditor
If in investor and associate two different auditors the auditor of the CFS will have to use due diligence
CFS auditor may be different than both auditor of Investor and Associate.
6 Jan 2017
CA Ashok Seth, Lucknow

27. Disclosure
Appropriate listing and description of Associates and proportion of ownership held
Investment in Associate should be classified as Long term investments and disclosed separately
The Investor share of the profit or loss of such investment to be disclosed separately in CFS P&L
6 Jan 2017
CA Ashok Seth, Lucknow

28. Investors share in Extraordinary and Prior period items to be shown separately
Appropriate disclosure of different reporting dates and different accounting policies.
6 Jan 2017
CA Ashok Seth, Lucknow