C for Consolidation

What is Consolidation ?

Consolidation accounting is the process of combining the financial results of several subsidiary/associate/Joint venture entities into the combined financial results of the parent company.

Consolidation of Financial statements is mandated by IND AS 110 which establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

 What is Control?

 Control has been redefined in IND AS 110, it's not merely the process of amassing more than 50% shares in another entity. Control fundamentally means having the rights as well as the exposure to the returns of another entity and the ability to direct relevant activities of such entity.

 Why do we consolidate ?

A lot of acquisitions have been taking place recently in the Edu-tech industry. Take Byju's for example, when you invest in it's shares, you are not just entitled to the returns from Byju's normal operations but also in the returns Byju's earns from its recent acquisitions. This is why companies need to consolidate their accounts to show a true and fair picture of their earnings from normal operations, from their associates, subsidiaries etc.,

What is the process of consolidating financial statements ? 

• Since a parent company can exercise substantive rights over the operations as well as policies of the subsidiary, it is prudent to include all of subsidiaries' assets and liabilities in the parent's balance sheet. Same treatment is extended to revenue and expenses ( in the Profit and loss statement)
• Remove the investment component in the Parent's Balance Sheet since the assets and liabilities of the subsidiaries have already been included.
• If the subsidiary is not a wholly owned one, incorporate Non controlling interest in the parent's balance sheet. NCI is the amount owed to the other parties who have invested in the subsidiary.
• Eliminate intergroup transactions like sale, purchases, rental income etc., 

Is Consolidation really useful?

Consolidating various financial statements into a single financial snapshot gives stakeholders extensive insight into the company's overall health. It can be extremely difficult to assess financial performance of a company which has multiple subsidiaries, associates and joint ventures without consolidated financial statements.

 Here's the link to "A for Asset" in case you missed to read it - https://www.dhirubhai.net/pulse/asset-sruthilaya-h/?trackingId=dCqoJGQp8H%2FZqUZvtP20Fg%3D%3D

We've just gotten started, so stay tuned and follow this space for the next post in #ATOZWITHINDAS

D FOR............. any guesses?