Consolidated financial statements are an essential part of financial reporting for companies with subsidiaries. These statements combine the financial results of the parent company and its subsidiaries, providing a comprehensive view of the group’s financial position.
As per AS 21, Consolidated Financial Statements, a company must prepare consolidated financial statements if it has one or more subsidiaries. In this blog, we will discuss the preparation of consolidated statements as per AS 21.
AS 21 requires the preparation of consolidated financial statements using uniform accounting policies for all entities within the group. The consolidated financial statements must include the financial results of the parent company and its subsidiaries as if they were a single entity.
To prepare the consolidated financial statements, the following steps should be followed:
Step 1: Identify Subsidiaries The first step is to identify all the subsidiaries that are required to be consolidated. A subsidiary is defined as an entity in which the parent company has control over financial and operating policies. Control is defined as the power to govern the financial and operating policies of an entity to obtain benefits from its activities.
Step 2: Prepare Financial Statements of Subsidiaries The next step is to prepare the financial statements of each subsidiary. These financial statements should be prepared by the accounting policies of the parent company.
Step 3: Adjustments for Uniform Accounting Policies The financial statements of the subsidiaries may have been prepared using different accounting policies than those of the parent company. In this step, adjustments should be made to ensure that all entities within the group use the same accounting policies. This adjustment is done to ensure that the financial statements of the subsidiaries can be combined with those of the parent company to create a consolidated financial statement.
Step 4: Elimination of Intra-Group Transactions The next step is to eliminate intra-group transactions to avoid double-counting. These transactions are transactions between entities within the group, and they should be removed from the consolidated financial statements. For example, if one subsidiary sells goods to another subsidiary, the revenue and cost of sales should be eliminated.
Step 5: Consolidation of Financial Statements The final step is to combine the financial statements of the parent company and its subsidiaries to create the consolidated financial statement. This statement should reflect the financial results of the group as a whole.
Final Conclusion
In conclusion, the preparation of consolidated financial statements as per AS 21 is a complex process that requires the consolidation of the financial statements of the parent company and its subsidiaries. It is important to ensure that the financial statements of all entities within the group use the same accounting policies and that intra-group transactions are eliminated to avoid double-counting. The consolidated financial statement provides a comprehensive view of the group’s financial position and is an important tool for stakeholders to evaluate the performance of the company as a whole.
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Here are some frequently asked questions (FAQs) about the preparation of consolidated financial statements as per AS 21:
Q: What is a consolidated financial statement?
A: A consolidated financial statement is a report that combines the financial statements of a parent company and its subsidiaries to provide a comprehensive view of the financial position and performance of the group as a whole.
Q: Who is required to prepare consolidated financial statements as per AS 21?
A: Any company that has one or more subsidiaries is required to prepare consolidated financial statements as per AS 21.
Q: What is a subsidiary?
A: A subsidiary is an entity controlled by another entity, which is the parent. Control is defined as the power to govern the financial and operating policies of an entity to obtain benefits from its activities.
Q: What are the steps involved in the preparation of consolidated financial statements as per AS 21?
A: The steps involved in the preparation of consolidated financial statements as per AS 21 include: identifying subsidiaries, preparing financial statements of subsidiaries, adjusting for uniform accounting policies, eliminating intra-group transactions, and consolidating financial statements.
Q: Why are adjustments made for uniform accounting policies?
A: Adjustments are made for uniform accounting policies to ensure that all entities within the group use the same accounting policies. This is necessary to enable the financial statements of the subsidiaries to be combined with those of the parent company to create a consolidated financial statement.
Q: Why are intra-group transactions eliminated?
A: Intra-group transactions are eliminated to avoid double-counting. These transactions are transactions between entities within the group, and they should be removed from the consolidated financial statements.
Q: What information should be included in the consolidated financial statement?
A: The consolidated financial statement should include the name of the parent company and its subsidiaries, the accounting policies used by the parent company and its subsidiaries, the elimination of intra-group transactions, the elimination of minority interests, and the financial position, performance, and cash flows of the group as a whole.
Q: Why are consolidated financial statements important?
A: Consolidated financial statements are important because they provide a comprehensive view of the financial position and performance of the group as a whole. They are essential for making informed decisions and are used by stakeholders to evaluate the performance of the company as a whole.
