Consolidated Financial Statements
(a)
requires an entity (the parent ) that controls one or more other entities ( subsidiaries ) to present consolidated financial statements;
(b)
defines the principle of control , and establishes control as the basis for consolidation;
(c)
sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee;
(d)
sets out the accounting requirements for the preparation of consolidated financial statements; and
(e)
defines an investment entity and sets out an exception to consolidating particular subsidiaries of an investment entity.
(a)
A parent need not present consolidated financial statements if it meets all the following conditions:
(i)
it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements;
(ii)
its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets);
(iii)
it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and
(iv)
1 its ultimate or any intermediate parent produces financial statements that are available for public use and comply with Ind ASs, in which subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with this Ind AS.
(b)
Omitted 2
(c)
Omitted 3
(a)
power over the investee (see paragraphs 10 – 14 );
(b)
exposure, or rights, to variable returns from its involvement with the investee (see paragraphs 15 and 16 ); and
(c)
the ability to use its power over the investee to affect the amount of the investor’s returns (see paragraphs 17 and 18 ).
(a)
derecognises the assets and liabilities of the former subsidiary from the consolidated balance sheet.
(b)
recognises any investment retained in the former subsidiary at its fair value when control is lost and subsequently accounts for it and for any amounts owed by or to the former subsidiary in accordance with relevant Ind ASs. That fair value shall be regarded as the fair value on initial recognition of a financial asset in accordance with Ind AS 109 or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture.
(c)
recognises the gain or loss associated with the loss of control attributable to the former controlling interest.
(a)
obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;
(b)
commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
(c)
measures and evaluates the performance of substantially all of its investments on a fair value basis.
(a)
it has more than one investment (see paragraphs B85O – B85P );
(b)
it has more than one investor (see paragraphs B85Q – B85S );
(c)
it has investors that are not related parties of the entity (see paragraphs B85T – B85U ); and
(d)
it has ownership interests in the form of equity or similar interests (see paragraphs B85V – B85W ).
(a)
obtains funds from one or more investors for the
(b)
commits to its investor(s) that its business purpose is
(c)
measures and evaluates the performance of
(a)
power over the investee;
(b)
exposure, or rights, to variable returns from its involvement with the investee; and
(c)
the ability to use its power over the investee to affect the amount of the investor’s returns.
(a)
the purpose and design of the investee (see paragraphs B5- B8);
(b)
what the relevant activities are and how decisions about those activities are made (see paragraphs B11 - B13 );
(c)
whether the rights of the investor give it the current ability to direct the relevant activities (see paragraphs B14 - B54 );
(d)
whether the investor is exposed, or has rights, to variable returns from its involvement with the investee (see paragraphs B55 - B57 ); and
(e)
whether the investor has the ability to use its power over the investee to affect the amount of the investor’s return (see paragraphs B58-B72).
(a)
selling and purchasing of goods or services;
(b)
managing financial assets during their life (including upon default);
(c)
selecting, acquiring or disposing of assets;
(d)
researching and developing new products or processes; and
(e)
determining a funding structure or obtaining funding.
(a)
establishing operating and capital decisions of the investee, including budgets; and
(b)
appointing and remunerating an investee’s key management personnel or service providers and terminating their services or employment.
(a)
the purpose and design of the investee;
(b)
the factors that determine the profit margin, revenue and value of the investee as well as the value of the medical product;
(c)
the effect on the investee’s returns resulting from each investor’s decision-making authority with respect to the factors in (b); and
(d)
the investors’ exposure to variability of returns. In this particular example, the investors would also consider:
(e)
the uncertainty of, and effort required in, obtaining regulatory approval (considering the investor’s record of successfully developing and obtaining regulatory approval of medical products); and
(f)
which investor controls the medical product once the development phase is successful.
(a)
rights in the form of voting rights (or potential voting rights) of an investee (see paragraphs B34 – B50 );
(b)
rights to appoint, reassign or remove members of an investee’s key management personnel who have the ability to direct the relevant activities;
(c)
rights to appoint or remove another entity that directs the relevant activities;
(d)
rights to direct the investee to enter into, or veto any changes to, transactions for the benefit of the investor; and
(e)
other rights (such as decision-making rights specified in a management contract) that give the holder the ability to direct the relevant activities.
(a)
The investor can, without having the contractual right to do so, appoint or approve the investee’s key management personnel who have the ability to direct the relevant activities.
(b)
The investor can, without having the contractual right to do so, direct the investee to enter into, or can veto any changes to, significant transactions for the benefit of the investor.
(c)
The investor can dominate either the nominations process for electing members of the investee’s governing body or the obtaining of proxies from other holders of voting rights.
(d)
The investee’s key management personnel are related parties of the investor (for example, the chief executive officer of the investee and the chief executive officer of the investor are the same person).
(e)
The majority of the members of the investee’s governing body are related parties of the investor.
(a)
The investee’s key management personnel who have the ability to direct the relevant activities are current or previous employees of the investor.
(b)
The investee’s operations are dependent on the investor, such as in the following situations:
(i)
The investee depends on the investor to fund a significant portion of its operations.
(ii)
The investor guarantees a significant portion of the investee’s obligations.
(iii)
The investee depends on the investor for critical services, technology, supplies or raw materials.
(iv)
The investor controls assets such as licences or trademarks that are critical to the investee’s operations.
(v)
The investee depends on the investor for key management personnel, such as when the investor’s personnel have specialised knowledge of the investee’s operations.
(c)
A significant portion of the investee’s activities either involve or are conducted on behalf of the investor.
(d)
The investor’s exposure, or rights, to returns from its involvement with the investee is disproportionately greater than its voting or other similar rights. For example, there may be a situation in which an investor is entitled, or exposed, to more than half of the returns of the investee but holds less than half of the voting rights of the investee.
(a)
Whether there are any barriers (economic or otherwise) that prevent the holder (or holders) from exercising the rights. Examples of such barriers include but are not limited to:
(i)
financial penalties and incentives that would prevent (or deter) the holder from exercising its rights.
(ii)
an exercise or conversion price that creates a financial barrier that would prevent (or deter) the holder from exercising its rights.
(iii)
terms and conditions that make it unlikely that the rights would be exercised, for example, conditions that narrowly limit the timing of their exercise.
(iv)
the absence of an explicit, reasonable mechanism in the founding documents of an investee or in applicable laws or regulations that would allow the holder to exercise its rights.
(v)
the inability of the holder of the rights to obtain the information necessary to exercise its rights.
(vi)
operational barriers or incentives that would prevent (or deter) the holder from exercising its rights (eg the absence of other managers willing or able to provide specialised services or provide the services and take on other interests held by the incumbent manager).
(vii)
legal or regulatory requirements that prevent the holder from exercising its rights (eg where a foreign investor is prohibited from exercising its rights).
(b)
When the exercise of rights requires the agreement of more than one party, or when the rights are held by more than one party, whether a mechanism is in place that provides those parties with the practical ability to exercise their rights collectively if they choose to do so. The lack of such a mechanism is an indicator that the rights may not be substantive. The more parties that are required to agree to exercise the rights, the less likely it is that those rights are substantive. However, a board of directors whose members are independent of the decision make r may serve as a mechanism for numerous investors to act collectively in exercising their rights. Therefore, removal rights exercisable by an independent board of directors are more likely to be substantive than if the same rights were exercisable individually by a large number of investors.
(c)
Whether the party or parties that hold the rights would benefit from the exercise of those rights. For example, the holder of potential voting rights in an investee (see paragraphs B47 – B50 ) shall consider the exercise or conversion price of the instrument. The terms and conditions of potential voting rights are more likely to be substantive when the instrument is in the money or the investor would benefit for other reasons (eg by realising synergies between the investor and the investee) from the exercise or conversion of the instrument.
(a)
a lender’s right to restrict a borrower from undertaking activities that could significantly change the credit risk of the borrower to the detriment of the lender.
(b)
the right of a party holding a non-controlling interest in an investee to approve capital expenditure greater than that required in the ordinary course of business, or to approve the issue of equity or debt instruments.
(c)
the right of a lender to seize the assets of a borrower if the borrower fails to meet specified loan repayment conditions.
(a)
the relevant activities are directed by a vote of the holder of the majority of the voting rights, or
(b)
a majority of the members of the governing body that directs the relevant activities are appointed by a vote of the holder of the majority of the voting rights.
(a)
a contractual arrangement between the investor and other vote holders (see paragraph B39);
(b)
rights arising from other contractual arrangements (see paragraph B40);
(c)
the investor’s voting rights (see paragraphs B41–B45);
(d)
potential voting rights (see paragraphs B47–B50); or
(e)
a combination of (a)–(d).
(a)
the size of the investor’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders, noting that:
(i)
the more voting rights an investor holds, the more likely the investor is to have existing rights that give it the current ability to direct the relevant activities;
(ii)
the more voting rights an investor holds relative to other vote holders, the more likely the investor is to have existing rights that give it the current ability to direct the relevant activities;
(iii)
the more parties that would need to act together to outvote the investor, the more likely the investor is to have existing rights that give it the current ability to direct the relevant activities;
(b)
potential voting rights held by the investor, other vote holders or other parties (see paragraphs B47–B50);
(c)
rights arising from other contractual arrangements (see paragraph B40); and
(d)
any additional facts and circumstances that indicate the investor has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.
(a)
dividends, other distributions of economic benefits from an investee (eg interest from debt securities issued by the investee) and changes in the value of the investor’s investment in that investee.
(b)
remuneration for servicing an investee’s assets or liabilities, fees and exposure to loss from providing credit or liquidity support, residual interests in the investee’s assets and liabilities on liquidation of that investee, tax benefits, and access to future liquidity that an investor has from its involvement with an investee.
(c)
returns that are not available to other interest holders. For example, an investor might use its assets in combination with the assets of the investee, such as combining operating functions to achieve economies of scale, cost savings, sourcing scarce products, gaining access to proprietary knowledge or limiting some operations or assets, to enhance the value of the investor’s other assets.
(a)
the scope of its decision-making authority over the investee (paragraphs B62 and B63).
(b)
the rights held by other parties (paragraphs B64–B67).
(c)
the remuneration to which it is entitled in accordance with the remuneration agreement(s) (paragraphs B68–B70).
(d)
the decision maker’s exposure to variability of returns from other interests that it holds in the investee (paragraphs B71 and B72).
(a)
the activities that are permitted according to the decision-making agreement(s) and specified by law, and
(b)
the discretion that the decision maker has when making decisions about those activities.
(a)
The remuneration of the decision maker is commensurate with the services provided.
(b)
The remuneration agreement includes only terms, conditions or amounts that are customarily present in arrangements for similar services and level of skills negotiated on an arm’s length basis.
(a)
the greater the magnitude of, and variability associated with, its economic interests, considering its remuneration and other interests in aggregate, the more likely the decision maker is a principal.
(b)
whether its exposure to variability of returns is different from that of the other investors and, if so, whether this might influence its actions. For example, this might be the case when a decision maker holds subordinated interests in, or provides other forms of credit enhancement to, an investee.
(a)
the investor’s related parties.
(b)
a party that received its interest in the investee as a contribution or loan from the investor.
(c)
a party that has agreed not to sell, transfer or encumber its interests in the investee without the investor’s prior approval (except for situations in which the investor and the other party have the right of prior approval and the rights are based on mutually agreed terms by willing independent parties).
(d)
a party that cannot finance its operations without subordinated financial support from the investor.
(e)
an investee for which the majority of the members of its governing body or for which its key management personnel are the same as those of the investor.
(f)
a party that has a close business relationship with the investor, such as the relationship between a professional service provider and one of its significant clients.
(a)
providing management services and strategic advice to an investee; and
(b)
providing financial support to an investee, such as a loan, capital commitment or guarantee.
(a)
the acquisition, use, exchange or exploitation of the processes, assets or technology of an investee. This would include the entity or another group member having disproportionate, or exclusive, rights to acquire assets, technology, products or services of any investee; for example, by holding an option to purchase an asset from an investee if the asset’s development is deemed successful;
(b)
joint arrangements (as defined in Ind AS 111 ) or other agreements between the entity or another group member and an investee to develop, produce, market or provide products or services;
(c)
financial guarantees or assets provided by an investee to serve as collateral for borrowing arrangements of the entity or another group member (however, an investment entity would still be able to use an investment in an investee as collateral for any of its borrowings);
(d)
an option held by a related party of the entity to purchase, from that entity or another group member, an ownership interest in an investee of the entity;
(e)
except as described in paragraph B85J, transactions between the entity or another group member and an investee that:
(i)
are on terms that are unavailable to entities that are not related parties of either the entity, another group member or the investee;
(ii)
are not at fair value; or
(iii)
represent a substantial portion of the investee’s or the entity’s business activity, including business activities of other group entities.
(a)
provides investors with fair value information and measures substantially all of its investments at fair value in its financial statements whenever fair value is required or permitted in accordance with Ind ASs; and
(b)
reports fair value information internally to the entity’s key management personnel (as defined in Ind AS 24 ), who use fair value as the primary measurement attribute to evaluate the performance of substantially all of its investments and to make investment decisions.
(a)
[Refer Appendix 1]
(b)
elect the exemption from applying the equity method in Ind AS 28 for its investments in associates and joint ventures; and
(c)
measure its financial assets at fair value using the requirements in Ind AS 109.
(a)
is in its start-up period and has not yet identified suitable investments and, therefore, has not yet executed its investment plan to acquire several investments;
(b)
has not yet made other investments to replace those it has disposed of;
(c)
is established to pool investors’ funds to invest in a single investment when that investment is unobtainable by individual investors (eg when the required minimum investment is too high for an individual investor); or
(d)
is in the process of liquidation.
(a)
is within its initial offering period, which has not expired and the entity is actively identifying suitable investors;
(b)
has not yet identified suitable investors to replace ownership interests that have been redeemed; or
(c)
is in the process of liquidation
(a)
combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries.
(b)
offset (eliminate) the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary ( Ind AS 103 explains how to account for any related goodwill).
(c)
eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group (profits or losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full). Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements. Ind AS12, Income Taxes , applies to temporary differences that arise from the elimination of profits and losses resulting from intragroup transactions.
(a)
They are entered into at the same time or in contemplation of each other.
(b)
They form a single transaction designed to achieve an overall commercial effect.
(c)
The occurrence of one arrangement is dependent on the occurrence of at least one other arrangement.
(d)
One arrangement considered on its own is not economically justified, but it is economically justified when considered together with other arrangements. An example is when a disposal of shares is priced below market and is compensated for by a subsequent disposal priced above market.
(a)
derecognise:
(i)
the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost; and
(ii)
the carrying amount of any non-controlling interests in the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them).
(b)
recognise:
(i)
the fair value of the consideration received, if any, from the transaction, event or circumstances that resulted in the loss of control;
(ii)
if the transaction, event or circumstances that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners, that distribution; and
(iii)
any investment retained in the former subsidiary at its fair value at the date when control is lost.
(c)
reclassify to profit or loss, or transfer directly to retained earnings if required by other Ind ASs, the amounts recognised in other comprehensive income in relation to the subsidiary on the basis described in paragraph B99.
(d)
recognise any resulting difference as a gain or loss in profit or loss attributable to the parent.
(i)
Effective date is not relevant as the date of application will be notified under the Companies Act.
(ii)
Transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards , corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
(iii)
Paragraphs dealing with withdrawal of other IFRSs are not relevant.
(i)
Paragraph 4(b)
(ii)
Paragraph 4(c)
Notes, amendments & references (10)
# This Ind AS was notified vide G.S.R. 111(E) dated 16th February, 2015 and was amended vide Notification No. G.S.R. 365(E) dated 30 th March, 2016.
1 Substituted vide Notification No. G.S.R. 365(E) dated 30 t h March, 2016.
2 Refer Appendix 1. Omitted vide Notification No. G.S.R. 365(E) dated 30 t h March, 2016.
3 Refer Appendix 1. Omitted vide Notification No. G.S.R. 365(E) dated 30 t h March, 2016.
4 Inserted vide Notification No. G.S.R. 365(E) dated 30 th March, 2016.
5 Inserted vide Notification No. G.S.R. 365(E) dated 30 th March, 2016.
6 Substituted vide Notification No. G.S.R. 365(E) dated 30 th March, 2016.
7 Substituted vide Notification No. G.S.R. 365(E) dated 30 th March, 2016.
8 Substituted vide Notification No. G.S.R. 365(E) dated 30 th March, 2016.
9 Inserted vide Notification No. G.S.R. 365(E) dated 30 th March, 2016.