Consolidation Related Standards –Ind AS - WIRC Related Standards... · – Financial Reporting of Interest in Joint Venture C) GAAP Differences By Rakesh Agarwal, Associate Director

Consolidation Related Standards – Ind AS

A) New Concepts & Refresher

– Applicability

– Subsidiary

– Special Purpose Entities (SPE)

– Associates

– Joint Venture

B) Advanced Implementation Issues

Rakesh Agarwal PricewaterhouseCoopers

B) Advanced Implementation Issues

– Consolidated Financial Statements

– Accounting of Associates in CFS

– Financial Reporting of Interest in Joint Venture

C) GAAP Differences

By

Rakesh Agarwal, Associate Director

PricewaterhouseCoopers India Private Limited

[email protected], 9820273458

WIRC – ICAI, September 3, 2011

Applicability under Ind AS v/s IFRS v/s Existing Indian GAAP

Consolidation

Technical

Literature

Effective Date Applicability

IAS 27

IAS 27(R )

Annual periods beginning on or after 1

January 2005

Annual periods beginning on or after 1 July

1, 2009 (Early adoption subject to some

conditions)

AS 21 v/s Ind-AS 27

Carve outs (Consolidation Exemption)

IAS 28 Annual periods beginning on or after 1

January 2005AS 23 v/s Ind-AS 28

Carve outs (None)

Rakesh Agarwal Slide 2

IAS 31 Annual periods beginning on or after 1

January 2005AS 27 v/s Ind-AS 27

Carve outs (None))

SIC 12 Effective for annual financial periods

beginning on or after 1 July 1999.

Amendment in paragraph 6 for annual

periods beginning on or after 1 January

2005.

If an entity applies IFRS 2 for an earlier

period, this amendment shall be applied

for that earlier period.

None v/s Appendix to Ind-AS 27

Carve outs (None)

Summary of Accounting for Investments

Consolidation

Percentage of outstanding voting stock acquired

0 % 20 % 50 % 100 %

Level of economic influence

Nominal Significant

influence

Control


Nominalinfluence

Accounting

Investment

(Ind AS 39)

Equity Method

(Ind AS 28)

ConsolidatedFinancial statements

(Ind AS 27)

Investment

Entity Type

SubsidiaryAssociate

Subsidiary

PwC*connectedthinking

Concept of ‘group”

Consolidation

“The Group” is defined as:

• a parent and all its subsidiaries

Consolidation concepts

• Parent entity model

– the reporting entity comprises of entire 100% of the group’s entities


– goodwill calculated relates only to the parent’s share of the subsidiary

• transactions between group and minority are reported from parent’s perspective

• Economic entity model

– group is a single entity

– minority interests treated as shareholders’ funds

– transactions between group and minority treated as equity

Definition of subsidiary

Consolidation

Definition of subsidiary is based on

• Based on voting control or power to govern.

• The existence of currently exercisable potential voting rights is also taken into

consideration.

• SPEs also need to be consolidated.


Situations of control

Consolidation

Equity

shareholding

Ability to

appoint

directors to the

boardPotential voting

rights

Factors influencing

control


A combination of all these factors needs to be considered

Control

agreement

Special purpose

entities (SPEs)

De facto control

Majority of voting rights

Consolidation

Indirect ownership through subsidiaries

In determining whether a power should be attributed to a parent, similar rights held by

a subsidiary should be treated as if they are held by the parent.

Company A

100%70%

100%


Company A has > 50% voting power in company E

Company CCompany B Company D

Company E

15%

40%

40%

70%

Exclusions from Consolidation under IFRS / Ind AS

Consolidation

DISPOSALLONG TERM

RESTRICTIONMATERIALITY

No exclusion

Subsidiary

was bought

No exclusion

Severe long term

restrictions apply to

No exclusion

applies (but Ind

AS applies only

to material

DISSIMILAR

ACTIVITIES

No exclusion

because S’s

business

activities are


was bought

and is being

held solely for

the purpose of

resale.

the Subsidiary,

which significantly

impair S’s ability to

transfer funds to P

(i.e. liquidation)

to material

items)

Do not exclude

2 or more

subsidiaries who

together are

material

activities are

dissimilar from

those of the

rest of the

group

Exclusions from consolidation under IFRS but Not Ind-AS

Consolidation

Under IFRS, a parent may avoid consolidation if

• the parent is a wholly owned subsidiary or a partially owned subsidiary of another

entity and its other owners, including those not entitled to vote, have been informed

about and do not object to the parent not preparing consolidated financial

statements

• the parent is neither listed nor it is in the process of listing

• the ultimate or any intermediate parent of the parent produces IFRS compliant


• the ultimate or any intermediate parent of the parent produces IFRS compliant

consolidated financial statements

No justification

• Temporary control (unless the intended period of holding is less than12 months) is

not a justification for non consolidation.

• Severe long term restrictions to transfer funds to the parent are not a justification for

non consolidation.

• Equity compensation plans need to be consolidated.

The one and only: single economic entity

Consolidation

Group financial statements single economic entity.

Equity providers include

parent company shareholders

TRANSACTIONS WITH EQUITY

HOLDERS


parent company shareholders

& NCI

Losses can be allocated to

NCI even if result in debit

balance

- no goodwill and no gain/loss in

income statement.

Principles of losing control

Consolidation

De-recognise assets (inc. goodwill)

and liabilities

De-recognise NCI

Recognise consideration received Difference to


Recognise consideration received

Recognise at FV any investment

retained

Reclassify to income statement any

gain or loss previously recognised

in other comprehensive income

Difference to

income statement

NEW!!

IMPORTANT

CLARIFICATION

Special Purpose

Entity


Special purpose entities

Consolidation

Features of SPE

• Auto-pilot arrangements that restrict the decision-making capacity of the governing

board or management

• Use of professional directors, trustees or partners.

• Thin capitalisation, the proportion of ‘real’ equity is too small to support the SPE’s

overall activities.


• Absence of an apparent profit-making motive,

• Domiciled in ‘offshore’ capital havens.

• Have a specified life.

• Exists for financial engineering purposes.

• The creator or sponsor transfers assets to the SPE, as part of a derecognition

transaction involving financial assets

Special Purpose Entities – SIC 12

Consolidation

CIRCUMSTANCES

INDICATING THAT AN ENTITY

CONTROLS AN SPE

Activities of the SPE are being

conducted on behalf of the entity

according to its own specific

business needs

Rights to obtain

the majority of

the benefits of

Majority of the

residual or

ownership risks

Activities


CONTROLS AN SPE

AN SPE SHOULD BE

TREATED AS A SUBSIDIARY

Decision-making powers to obtain

the majority of the benefits of the

activities of the SPE are controlled

by the enterprise directly or

through an autopilot mechanism

the benefits of

the SPE and

therefore the

risks incident to

the activities of

the SPE;

ownership risks

related to the

SPE or its assets

retained by the

controlling entity

BenefitsRisks

Decision -making

Accounting Principles

Consolidation

SIC 12 requires that an SPE should be consolidated when the substance of the

relationship indicates that the SPE is a subsidiary.

For consolidation

• follow usual procedures

• elimination of inter-company activity

• presentation of minority interests.


• presentation of minority interests.

IAS 27 requires specific disclosures for subsidiaries that are consolidated for reasons

other than majority of voting power. These disclosure requirements apply to

subsidiaries consolidated under SIC 12.

Associates


Accounting for Associates – IAS 28

Consolidation

Associate

An enterprise in which the investor has significant influence and which is neither a

subsidiary nor a joint venture of the investor.

Significant Influence

• The power to participate in the financial and operating policy decisions of the

investee but is not control or joint control over those policies.


• Significant influence is presumed to exist, if an investor holds, directly or indirectly

(e.g.. through subsidiaries), 20 per cent or more of the voting power of the investee

unless it can be clearly demonstrated that this is not the case.

• Should Potential equity shares be taken into consideration for determining the 20%

threshold? - Yes

IAS 28 provide exemption to investor who is a venture capital organization, mutual fund,

unit trust or similar entity from their scope if such investments are designated as at

FVTPL or being classified as held-for-trading under IAS 39 upon initial recognition.

Exceptions to the use of equity method

Consolidation

Temporary

Investment

Investment is classified as held for sale in

accordance with IFRS 5 Non-current Assets

Held for Sale and Discontinued Operations

Parent not required

to present

consolidated

The exception in paragraph 10 of IAS 27R,

allowing a parent that also has an

investment in an associate not to present


consolidated

statementsinvestment in an associate not to present

consolidated financial statements, applies

Investor not

required to present

consolidated

statements

An exception similar to the above exception

allowed to the investor

Joint Ventures


Jointly controlled entities accounting

Consolidation

IFRS – either

proportionate consolidation; or equity method

Proportionate consolidation:

2 alternative methods


* IAS 31 R allows only equity method of accounting

Combine assets, liabilities,

income and expenses on a line

by line basis.

Benchmark treatment

Proportionate Consolidation

Alternative treatment

Equity Method *Include separate lines for each

of assets, liabilities, income and

expenses

Two

methods

Advanced Implementation Issues

AS 21 / Ind AS 27

– Consolidated Financial Statements

AS 23 / Ind AS 28

- Accounting of Associates in CFS

AS 27 / Ind AS 31

- Financial Reporting of Interest in Joint Venture

Rakesh Agarwal PricewaterhouseCoopers

- Financial Reporting of Interest in Joint Venture

Implementation Issues

Question 1 – Application of Standard

QuestionIs consolidated financial Statement required whenever there is investment in

Associates/subsidiary/Joint Venture?

Answer

AS 21, para 9 - A parent which presents consolidated financial statements should consolidate all

subsidiaries, domestic as well as foreign, other than those specifically excluded from consolidation

AS 21, para 6. - Consolidated cash flow statement is presented in case a parent presents its own cash

Rakesh Agarwal

AS 21, para 6. - Consolidated cash flow statement is presented in case a parent presents its own cash

flow statement.

AS 23, para 1 - The Statement should be applied in the preparation and presentation of consolidated

financial statements for a group of enterprises under the control of a parent.

AS 23, para 7. - An investment in an associate should be accounted for in consolidated financial

statements under the equity method

In nutshell, in case of a listed company where CFS is required, the company adopts AS 21, 23 and 27. In case of other

enterprise which voluntarily present CFS, the preface to Indian Accounting Standards require adoption of these

standards. However, in case of any other enterprise, there is no mandate to necessarily prepare any consolidated

financial statements and thus these standards are not applicable.

Under IFRS – CFS are Primary Financial Statements. Under Ind – AS – Position is yet to be firmly taken

Question 2 – Scope

Question -

If consolidated financial statements are not prepared how investments in associates are

accounted?

Answer

Rakesh Agarwal

Answer

AS 23 shall not be applicable. Thus AS-13, “Accounting of Investments” shall be applicable.

Accordingly such investments shall be initially carried at cost.

Under Ind-AS - MTM depending through P&L or Reserves depending upon Classification

Question 3 – Scope

Question

How do you consolidate when the investment is held through more than one entity?

Answer

Identification of control or significant influence is based on % shareholding in the ultimate

Rakesh Agarwal

Identification of control or significant influence is based on % shareholding in the ultimate

entity but consolidation is based on effective holding.

Similar under Ind-AS

Question 4 – Interpreting the term Near Future

QuestionParagraph 11 of AS 21, paragraph 7 of AS 23 and paragraph 29 of AS 27 use the words ‘near future’ in

the context of exclusions from consolidation, application of the equity method and application of the

proportionate consolidation method, respectively. The issue is what period of time should be considered

as ‘near future’ for the above purposes?

Answer

Rakesh Agarwal

AnswerThe meaning of the words ‘near future’ should be considered as not more than twelve months from acquisition of

relevant investments unless a longer period can be justified on the basis of facts and circumstances of the case. The

intention with regard to disposal of the relevant investment should be considered at the time of acquisition of the

investment. Accordingly, if the relevant investment is acquired without an intention to its subsequent disposal in near

future, and subsequently, it is decided to dispose off the investment, such an investment is not excluded from

consolidation, application of the equity method or application of the proportionate consolidation method, as the case

may be, until the investment is actually disposed off. Conversely, if the relevant investment is acquired with an

intention to its subsequent disposal in near future, however, due to some valid reasons, it could not be disposed off

within that period, the same will continue to be excluded from consolidation, application of the equity method or

application of the proportionate consolidation method, as the case may be, provided there is no change in the

intention.

Under Ind-AS – Period is not defined

Question 5 – Consolidating notes of

Standalone Financial Statements

Question

Whether all the notes appearing in the separate financial statements of the parent enterprise and its

subsidiaries should be included in the notes to the consolidated financial statements?

Answer ASI, 15

Rakesh Agarwal

Answer ASI, 15

Additional statutory information disclosed in separate financial statements of the subsidiary and/or a

parent having no bearing on the true and fair view of the consolidated financial statements need not be

disclosed in the consolidated financial statements. For instance, in the case of companies, the

information such as the following given in the notes to the separate financial statements of the parent

and/or the subsidiary, need not be included in the consolidated financial statements:

(i) Source from which bonus shares are issued

(ii) Disclosure of all unutilised monies out of the issue

(iii) Small scale industrial undertaking(s)

Answer to Question 5 Continued..

(iv) A statement of investments (whether shown under “Investment” or under “Current

Assets” as stock-in-trade) separately classifying trade investments and other

investments, showing the names of the bodies corporate (indicating separately the

names of the bodies corporate under the same management) in whose shares or

debentures, investments have been made (including all investments, whether

existing or not, made subsequent to the date as at which the previous balance sheet

Rakesh Agarwal

existing or not, made subsequent to the date as at which the previous balance sheet

was made out) and the nature and extent of the investment so made in each such

body corporate.

(v) Quantitative information in respect of sales, raw materials consumed, opening and

closing stocks of goods produced/traded and purchases made, wherever applicable.

(vi) A statement showing the computation of net profits in accordance with section 349 of

the Companies Act, 1956, with

(vii) Value of imports calculated on C.I.F. basis by

(viii) Expenditure in foreign currency, etc., etc

Under IFRS – CFS are primary financial statements Under Ind – AS – Position is yet to be firmly taken

Question 6 – Treatment of Proposed Dividend

of an Associate

Question

In case an associate has made a provision for proposed dividend in its financial statements,

whether the investor should consider the same while computing its share of the results of

operations of the associate?

Rakesh Agarwal

Answer

ASI 16 In case an associate has made a provision for proposed dividend in its financial

statements, the investor’s share of the results of operations of the associate should be

computed without taking into consideration the proposed dividend.

Under Ind-AS – Similar to Exisiting Indian GAAP

Question 7 – Equity Adjustments of Affiliates

Question

How the adjustments to the carrying amount of investment in an associate arising from

changes in the associate’s equity that have not been included in the statement of profit and

loss of the associate, should be made?

Rakesh Agarwal

Answer ASI 17

Adjustments to the carrying amount of investment in an associate arising from changes in the

associate’s equity that have not been included in the statement of profit and loss of the associate should

be directly made in the carrying amount of investment without routing it through the consolidated

statement of profit and loss. The corresponding debit/credit should be made in the relevant head of the

equity interest in the consolidated balance sheet. For example, in case the adjustment arises because of

revaluation of fixed assets by the associate, apart from adjusting the carrying amount of investment to

the extent of proportionate share of the investor in the revalued amount, the corresponding amount of

revaluation reserve should be shown in the consolidated balance sheet.

Under Ind-AS – Similar to Existing Indian GAAP

Question 8 – Potential Equity Shares

Question

For applying the definition of an ‘associate’, whether the potential equity shares of the

investee held by the investor should be taken into account for determining the voting power

of the investor.

Rakesh Agarwal

Answer

The potential equity shares of the investee held by the investor should not be taken into

account for determining the voting power of the investor unless these are currently

excercisable


Question 9 – Control by Two Enterprise

Question

In case an enterprise is controlled by two enterprises - one controls by virtue of ownership

of majority of the voting power of that enterprise and the other controls, by virtue of an

agreement or otherwise, the composition of the board of directors so as to obtain economic

benefits from its activities - whether in such a case both the controlling enterprises should

consolidate the financial statements of the first mentioned enterprise.

Rakesh Agarwal

consolidate the financial statements of the first mentioned enterprise.

Answer

In a rare situation, when an enterprise is controlled by two enterprises as per the definition

of ‘control’ under AS 21, the first mentioned enterprise will be considered as subsidiary of

both the controlling enterprises within the meaning of AS 21 and, therefore, both the

enterprises should consolidate the financial statements of that enterprise as per the

requirements of AS 21.

Under IFRS – Generally one entity shall meet the definition of control

Question 10 – Shares held as Stock in Trade

QuestionIn case an enterprise owns majority of the voting power of another enterprise but all the shares are held

as ‘stock-in-trade’, whether this will amount to temporary control within the meaning of paragraph 11(a)

of AS 21.

Answer

Rakesh Agarwal

AnswerASI 25

Where an enterprise owns majority of voting power by virtue of ownership of the shares of another

enterprise and all the shares held as ‘stock-in-trade’ are acquired and held exclusively with a view to

their subsequent disposal in the near future, the control by the first mentioned enterprise should be

considered to be temporary within the meaning of paragraph 11(a). Note as per AS 30 (not mandatory at

this point of time) such investments shall be fair valued at each reporting date with gains and losses

through P&L.

Under Ind-AS – Consolidation for Subsidiaries and either FVTPL or Equity Accounting for associates

Question 11 – Disclosure of post-acquisition

reserves

Question

What should be the manner of disclosure of the parent’s/venturer’s share in the post-

acquisition reserves of a subsidiary/jointly controlled entity in the consolidated balance

sheet?

Rakesh Agarwal

Answer

ASI 28

The parent’s share in the post-acquisition reserves of a subsidiary, forming part of the

corresponding reserves in the consolidated balance sheet, is not required to be disclosed

separately in the consolidated balance sheet. While applying proportionate consolidation

method, the venturer’s share in the post-acquisition reserves of the jointly controlled entity

should be shown separately under the relevant reserves in the consolidated financial

statements.

Under IFRS – Not required separately Under Ind – AS – Position is yet to be firmly taken

Question 12 – Dual Relationship; Subsidiary

and Joint Venture

Question

In some exceptional cases, an enterprise by a contractual arrangement establishes joint

control over an entity which is a subsidiary of that enterprise within the meaning of

Accounting Standard (AS) 21, Consolidated Financial Statements. In such cases, should the

entity consolidated under AS 21 by the said enterprise or treated as a joint venture?

Rakesh Agarwal

Answer

Limited Revision to AS 17

The entity is consolidated under AS 21 by the said enterprise, and is not treated as a joint

venture as per this Statement.

Under Ind-AS – The entity is accounted as Joint Venture

Question 13 – Special Purpose Vehicles

Question

Are Special Purpose Vehicle’s required to be consolidated.

Answer

The current version of AS 21, 23 and 27 does not specifically deals with off balance sheet

Rakesh Agarwal

The current version of AS 21, 23 and 27 does not specifically deals with off balance sheet

entities/special purpose vehicles.

Under Ind-AS – Appendix to Ind-AS 27 deals with the subject (SIC 12)

Question 14 – Consolidation at BV or FV

Question

Is purchase price allocation required on acquisition or the book value is considered?

Answer

Rakesh Agarwal

Answer

Book value is generally considered. However, purchase price allocation (PPA) on basis of

fair value is not prohibited.

Under Ind-AS – PPA is always on basis FV

Question 15 – Amortisation of Goodwill on

Consolidation

Question

Is goodwill required to be amortized on Consolidation?

Answer

AS 26

Rakesh Agarwal

AS 26

Goodwill is an item of intangible assets. Para 2(b) of AS 26, scopes out application of the

Standard. Judgment is required exercise to whether to depreciate goodwill arising on

consolidation.

Amortization of goodwill is NOT mandatory.

Under Ind-AS – Goodwill is never amortized but tested for impairment.

Question 16 – Form of Joint Venture

Agreement

Question

Is Joint Venture Agreement required to be in Writing?

Answer

Para 7, AS 27 states

Rakesh Agarwal

Para 7, AS 27 states

Whatever its form, the contractual arrangement is normally in writing and deals with such matters

as:

• the activity, duration and reporting obligations of the joint venture;

• the appointment of the board of directors or equivalent governing body of the joint venture

and the voting rights of the venturers;

• capital contributions by the venturers; and

• the sharing by the venturers of the output, income, expenses or results of the joint venture.

Ind-AS – Similar to Existing Indian GAAP

Question 17 – Contingent Liabilities of JCE

Question

While consolidating jointly controlled entity, are contingent liabilities fully picked up or only

a proportionate share is picked up?

Answer

Rakesh Agarwal

A venturer should disclose the aggregate amount of the following contingent liabilities, unless the

probability of loss is remote, separately from the amount of other contingent liabilities:

• any contingent liabilities that the venturer has incurred in relation to its interests in joint

• ventures and its share in each of the contingent liabilities which have been incurred jointly

with other venturers;

• its share of the contingent liabilities of the joint ventures themselves for which it is

contingently liable; and

• those contingent liabilities that arise because the venturer is contingently liable for the

liabilities of the other venturers of a joint venture.


Question 18 – Accounting policies on

Consolidation

Question

Is Uniformity in GAAP required for consolidating entities?

Answer

Para 20, AS 21

Rakesh Agarwal

Para 20, AS 21

Consolidated financial statements should be prepared using uniform accounting policies for

like transactions and other events in similar circumstances. If it is not practicable to use

uniform accounting policies in preparing the consolidated financial statements, that fact

should be disclosed together with the proportions of the items in the consolidated financial

statements to which the different accounting policies have been applied.

Under Ind-AS – Consolidated FS are with one set of accounting policies

Question 19 – Permissible differences in

Reporting dates

Question

How much time-lag is permissible for investee Company’s financial statements?

Answer

Para 18, of AS 21

Rakesh Agarwal

Para 18, of AS 21

Six Months

Ind-AS – 3 months

Question 20 – Accounting of transactions

Different Reporting Dates

Question

Where there are material transactions during the time-lag period whether the entity has an

option to either Adjust or Disclose?

Answer

Rakesh Agarwal

Answer

Para 18, of AS 21

Adjustment required for significant transactions.


Question 21 – Inter-company profits

Question

How the profit on transactions with Inter-company is dealt with in case of equity affiliates?

Answer

Rakesh Agarwal

Para 16 of AS 21

Unrealised profits are eliminated


Question 22 – Inter-company losses

Question

How the Loss on inter-company transactions is dealt with in case of transactions with equity

affiliates?

Answer

Rakesh Agarwal

Answer

Para 16 of AS 21

Unrealised losses resulting from intragroup transactions should also be eliminated unless

cost cannot be recovered.

Ind-AS – Similar to Indian GAAP

Question 23 – Allocation of Losses to

Minority/Other Investors

Question

In case of subsidiary, how do you allocate losses to minority in case of fully eroded

networth? Would your answer be different if you are consolidating an equity affiliate?

Answer

Para 26 of AS 21 and Para 18 of AS 23

Rakesh Agarwal

Para 26 of AS 21 and Para 18 of AS 23 The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in

the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted

against the majority interest except to the extent that the minority has a binding obligation to, and is able

to, make good the losses.

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. Additional losses are provided for to the extent that the

investor has incurred obligations or made payments on behalf of the associate to satisfy obligations of

the associate that the investor has guaranteed or to which the investor is otherwise committed.

Under Ind-AS – Continue to Allocate to Minority

Question 24 – Acquisition in Blocks

Question

Where investment is acquired in various blocks, do you account for each block separately

or on the final block.

Answer

Rakesh Agarwal

Answer

Para 15 of AS 21

If two or more investments are made over a period of time, the equity of the subsidiary at the

date of investment, for the purposes of paragraph 13 above, is generally determined on a

step-by-step basis; however, if small investments are made over a period of time and then

an investment is made that results in control, the date of the latest investment, as a

practicable measure, may be considered as the date of investment.

Under Ind-AS – Each Block is Accounted separately with adjustment to Equity

Question 25 – Passive Shareholdings

Question

Does passive shareholding indicate control?

Answer

Rakesh Agarwal

Answer

Yes. The identification of subsidiary is based on existence of control.


Question 26 – Indirect Control

Question

What is the appropriate accounting procedure for indirect control: (a) by an intermediate

holding entity in its separate financial statements and (b) in the consolidated financial

statements of the group to which it belongs?

Rakesh Agarwal

Answer

The identification of subsidiaries is based on existence or non existence of control

relationship. However, the proportion that is finally consolidated is arrived on basis of

percentage effectively held by holding co. Example company H holds 60 % share each in

company (I1) and company (I2) which in turn each holds 30 % each Company S. Effectively

Company Group H (though intermediaries) holds 60% in Company S. However, effectively

36% is getting picked in line by line consolidation.

Under Ind-AS – Similar to Exisiting Indian GAAP

Question 27 – Veto Power

Question

Can the power to veto the majority of the votes of the board of directors (or another

equivalent governing body) rebut the presumption of control?

Answer

Rakesh Agarwal

Answer

The concept of protective right v/s participative rights has been deleted (para 9 of AS 27).

Accordingly, it is assessed for joint control and needs to be assessed for accounting under

joint venture.


Question 28 – Control less than 50 % interest

Question

Can control exist when economic interest is less than 50%?

Answer

Yes. On basis of (i) control of composition of board of directors (ii) on basis of effective

Rakesh Agarwal

Yes. On basis of (i) control of composition of board of directors (ii) on basis of effective

control under situation of indirect holdings.

Ind-AS – Similar to Existing Indian GAAP. Besides, there is concept of defacto control

Question 29 – Other Accounting Standards

Question

When a foreign subsidiary is consolidated, are all assets and liabilities converted at closing

rate of exchange or only monetary asset and liability converted at closing rate of exchange?

Answer

Rakesh Agarwal

Answer

AS 11

Yes. All assets and liabilities are converted as closing rates


Question 30 – Other Accounting Standards

Question

How the translation gains/losses on foreign operation are accounted on consolidation?

Answer

Rakesh Agarwal

AS 11

In case of integral operation, gains or losses are taken to profit and loss account whereas, in

case of non-integral operations these are taken to reserves.

Ind-AS – Depends on functional currency

GAAP Differences

Ind AS v/s Existing Indian GAAP


GAAP Differences – Ind AS v/s Indian GAAP

1. Primary Financial Statements v/s Legal Entity Statements

2. Definition of control and significant influence

3. Scope Exclusion;

• On grounds of disposal,

• long term restriction on repatriation of funds.

• Parents company financial statement under some circumstances

4. Purchase Price Allocation at Fair value v/s Book Values

5. Subsidiary acquired for resale


5. Subsidiary acquired for resale

6. Deferred tax on consolidation adjustments

7. Amortization of goodwill on consolidation

8. Time lag six months v/s three months

9. Equity Compensation Plans

10. Special purpose vehicles

a) Activity b) Risks c) Benefits d) decision making; 1) ESOPs 2) Securizations

11. Losses of non-controlling shareholders in excess of book value

12. Accounting of divestment of controlling stake; where remaining interest is retained

13. Economic entity model

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Consolidation Related Standards –Ind AS - WIRC Related Standards... · – Financial Reporting of Interest in Joint Venture C) GAAP Differences By Rakesh Agarwal, Associate Director

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