Procedures consolidating foreign subsidiaries

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Example Suppose company B is having Net worth of Rs 10 lac, company A purchases 75% of share of company B, then remaining 25% i.e. Presentation as per Schedule III The CFS prepared in the same format as that of Separate Financial Statements, i.e, Schedule III of Companies Act 2013 Exclusion of Subsidiaries from Consolidation The Holding Company shall consolidate the financial statements of all the subsidiaries, domestic or foreign other than: Temporary Investment - When the shares are held in subsidiary company for disposal in near future.

Severe Restriction -Where there are long term restrictions on fund transfer from subsidiary to parent Company Different financial year of Subsidiary It will prepare an additional set of financial statement in accordance with financial year of holding Consolidation Procedure: Goodwill Computation At the date of acquisition 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 Cost to parent Parent�s portion of Equity = Goodwill 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 Cost to parent Adjustments of carrying amount� 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 or loss should be directly adjusted in the carrying amount of investment without routing it through the consolidated statement of profit and loss.

Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee.

IFRS 10 was issued in May 2011 and applies to annual periods beginning on or after 1 January 2013.

An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. An investor must be exposed, or have rights, to variable returns from its involvement with an investee to control the investee.

[IFRS 10:5-6; IFRS 10:8] An investor controls an investee if and only if the investor has all of the following elements: [IFRS 10:7] Power arises from rights. Such returns must have the potential to vary as a result of the investee's performance and can be positive, negative, or both.

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[IFRS ] A reporting entity attributes the profit or loss and each component of other comprehensive income to the owners of the parent and to the non-controlling interests.For instance, the remuneration of the decision-maker is considered in determining whether it is an agent.[IFRS 10: B58, IFRS 10: B60] Preparation of consolidated financial statements A parent prepares consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances.An investor determines whether it is a parent by assessing whether it controls one or more investees.An investor considers all relevant facts and circumstances when assessing whether it controls an investee. An investor that holds only protective rights cannot have power over an investee and so cannot control an investee [IFRS , IFRS ].

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