(Topic)________________________________

A PROJECT SUBMITTED AS A PART OF INTERNAL EVALUATION OF

COURSE: ADVANCED FINANCIAL ACCOUNTING

PROGRAMME: M. COM, UNIVERSITY OF MUMBAI FIRST SEMESTER 2013-14

SUBMITTED BY

(N !"#$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
ROLL NO. $$$$$$$$$$

UNDER T%E GUIDANCE OF

MR. AS%O& GUJAR

GURU NANA& COLLEGE OF ARTS, SCIENCE AND COMMERCE G. T. B. NAGAR, MUMBAI - 400 03'

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D"() * +,-.

I hereby declare that the work embodied in this project entitled _____________________________________________ forms my own original contribution which has been carried out under the guidance of Mr ______________________ at !uru "anak #ollege of $rts% &cience and #ommerce% ! T ' "agar% Mumbai ( )***+, This work has not been submitted for any other degree of this or any other -ni.ersity /hene.er reference has been made to the work of others% it has been clearly indicated and included in the 'ibliography &ignature of &tudent
(____________________"ame)

#ertified by

&ignature of Internal !uide

&ignature of 01ternal 01aminer

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#ollege seal

&ignature of 2rincipal

A(/.-0)"12"!".+

This project comes out to be a great source of learning and e1perience $ lot of effort has been put by .arious people to make this project a success This has greatly enhanced our knowledge about 3ell Inc I greatly acknowledge our indebtness to Mr 4ahul Mishra%for helping me throughout this project and for pro.iding me in5depth knowledge This project is a culmination of efforts of my friends whose sincere inputs and focused attitude could bring this project to fruition 6inally% thanks to almighty !od who has been a source of strength and confidence

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CONSOLIDATED FINANCIAL STATEMENTS

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2roject by 2ra.een 7umar M com (2art5I)% 4oll "o 89% & I 0 & #ollege &ubmitted to P*-3: D%ANABALU R. NAI&AR

INDE4

S*.N-.
8 ; + ) = : , <

S56-T-7,(8
Introduction Meaning 3efinition as per $&5;8 01planation of Terms >bjecti.es $d.antages #ost of #ontrol Minority Interest

P 2" N-.
:5, ,5, ,5< <58+ 8)58: 8:58< 8<5;8 ;85;,

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9 8* 88 8;

#onsolidated 2rofit ? @oss #onsolidated 'alance &heet &ol.ed 2roblem on #onsolidated 'alance &heet 'I'@>!4$2AB

;<5+; ++5+: +:5+9 )*5)*

CONSOLIDATED FINANCIAL STATEMENTS

INTRODUTION: 'usiness combinations are often results in a parent5subsidiary relationship between the acCuirer and the acCuiree The acCuiree continues to operate as a legal entity separate from the acCuirer% while the latter controls the former $ parent and its subsidiary together form a group &hareholders of the parent are more interested in understanding the performance of the group rather than in understanding the performance of the parent alone

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#onsolidated financial statements present financial information about a parent and its subsidiaries as a single economic entity They are presented primarily for the benefit of the shareholders% creditors% and other resource pro.iders of the parent /hen the number of related companies is large% there is no other way of summariDing the .ast amount of information relating to the indi.idual companies #onsolidated financial statements often pro.ide the best means of presenting information regarding the acti.ities and resources of the o.erall economic entity It is now a well established practice across the globe that a parent should present consolidated statements% which combine the statements of the parent and all majority5owned subsidiaries e1cluding those on which it is unable to e1ercise control $lthough majority ownership is the most common means of acCuiring

control $n enterprise may be able to e1ercise control o.er another by other means% such as through the control of the composition of the go.erning body (the directors in case of a company) I$&5;, and $&5;8 reCuires the consolidation of the entities controlled by the reporting enterprise% including those in which the reporting enterprise has less than majority ownership &6$&59) does not reCuire the consolidation of subsidiaries with less than majority ownership Aowe.er it reCuires an entity to include financial statements E.ariable interest entitiesF (GI0) in the consolidated financial statements

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M" .,.2 -3 C-.8-),1 +"1 F,. .(, ) S+ +"!".+8: The objecti.e of this &tandard is to lay down principles and procedures for preparation and presentation of consolidated financial statements #onsolidated financial statements are presented by a parent (also known as holding enterprise) to pro.ide financial information about the economic acti.ities of its group These statements are intended to present financial information about a parent and its subsidiary or subsidiaries as a single economic entity to show the economic resources controlled by the group% the obligations of the group and results the group achie.es with its resources #onsolidation is mandatory only for listed companies as per the listing agreement #onsolidationFs done as per general rules of preparation of financial statements of indi.idual companies &ignificant accounting policies and notes which necessary are presenting a true and fair .iew of consolidated financial statements should also be disclosed

DEFINITION AS PER AS-21: #onsolidated financial statements are the financial statements of a group presented as those of a single company $& ;8 come into effect in respect of accounting periods commencing on or after 8
st st

$pril i ie for year ends +8 March% ;**; The $ & ;8 is applicable to all the

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enterprises that prepare the consolidated financial statement It is mandatory for @isted #ompanies and 'anking #ompanies $s per $& ;8% the consolidated 6inancial &tatements would includeH I II III IG G 2rofit and @oss $Ic 'alance &heet #ash 6low &tatement "otes of $ccounts e1cept typical notes &egment 4eporting

#onsolidated 6inancial &tatements are prepared in addition to separate financial statements of the parent and its subsidiaries #onsolidated statements should be prepared for both domestic as well as foreign subsidiaries

E4PLANATION OF TERMS: SUBSIDIARY The company whose shares are held is called as a subsidiary company The subsidiary companies can either be partly owned or wholly owned subsidiaries 9:-)); -0."1 .1 7 *+); -0."1 8568,1, *; (-!7 .,"8. If a holding company acCuires all the shares (8**J) ha.ing .oting rights of a company% such company is called wholly5owned subsidiary company In other

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case% if the holding company owns the majority of shares ha.ing .oting rights (i e % more than =*J of .oting right shares)of a company % such a company os known as partly owned subsidiary company In such partly owned subsidiary companies the remaining shares which the holding company could not acCuire% are called the minority shareholders or outsiders $nd the interest of the minority shareholders in the assets of the subsidiary company is called the minority interest M" .,.2 5.1"* (-!7 .,"8 (+ 1<=> &ection ) of the companies $ct% 89=: defines a subsidiary company $ company is a subsidiary of another if and only if 8 That other company controls the composition of its 'oard of directorsK or ; That otherK + /here the first mentioned company is an e1isting company in respect of which the holders of 2reference shares issued before the commencement of this $ct ha.e the same .oting rights in all respect as the holders of 0Cuity shares e1ercises or controls more than half of the total .oting power of such company ) /here the first mentioned company is any other company% holds more than half in nominal .alue of its 0Cuity share capitals >4

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= The company is a subsidiary of any company which is that other companyFs subsidiary A. );?" +:" 7*-3,+ -3 S568,1, *; C-!7 .;: $nalysis of profit of subsidiary company as pre5acCuisition profit and post5 acCuisition profit is done on the basis of date of acCuisition of shares by the Aolding company 2rofits earned by the subsidiary company up to the date of acCuisition of shares by Aolding company are called as pre5acCuisition profits or capital profits The profits earned by the subsidiary company after the acCuisition of shares by the Aolding company are called as 2ost5$cCuisition profits or 4e.enue profits The loss of the subsidiary up to the date of acCuisition is treated as a capital loss and subseCuent to the acCuisition as a re.enue loss Thus% the cutoff date is the date of acCuisition of shares of the Aolding #ompany If In.estments are made during the financial year% the profits should be apportioned on a reasonable basis i e on the basis of time The assumption being that profits ha.e accrued e.enly during the year

2articulars !eneral 4eser.e >ther 4eser.e 2rofit ? loss Total

#apital 2rofit 11 11 11 11

4e.enue 2rofit 11 11 11 11

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Aolding #ompany Minority

11 11 11

11 11 11

%OLDING COMPANY >ne of the popular firms of business combination is by means of holding company or 2arent #ompany $ holding company is one which directly or indirectly acCuires either all or more than half the number of 0Cuity shares in one or more companies so as to secure a controlling interest in such companies% which are then known as subsidiary companies Aolding companies are able to nominate the majority of the directors of subsidiary company and therefore control such companies Aolding company meet directly from such subsidiary company or it may acCuired majority >4 shares in e1isting company &uch company also considered as subsidiary company in which holding company acCuired majority shares 8 'y acCuiring more than =*J of .oting right shares of some other companies

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; 'y controlling the composition of the board of directors of some other companies + 'y controlling any other company which is the holding company some other company ADVANTAGES OF %OLDING COMPANIES: Aolding company need not to be in.est entire amount in the share capital in subsidiary company still enjoy controlling power in such company It would be possible to carry forward losses for income ta1 purposes 0ach subsidiary company prepares its own accounts and therefore financial position and profitability of each undertaking is known Aolding company may additional acCuired or disposed of and the shares in subsidiary company market whene.er if desired

PRESENTATIONS OF ACCOUNTS BY %OLDING COMPANIES $s laid down in section (;8;) of the companies act% 89=: a holding company reCuires to attach its balance sheet The following documents and present the same to its shareholders

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8 $ copy of the 'alance &heet of the subsidiary ; $ copy of the 2rofit and @oss $ccount of the subsidiary + $ copy of the 4eport of the 'oard of 3irectors of the subsidiary ) $ copy of the $uditors 4eport of subsidiary = $ statement indicating the e1tent of holding companyFs interest in the subsidiary at the end of the accounting year of the subsidiary : /here the financial year of the subsidiary company does not coincident with the financial year of the holding company $ statement showing the following I /hether there are any changes in holding companies interest in subsidiary company since the close of financial year of the subsidiary company II 3etails of material changes which ha.e occurred between the end of the financial year or the subsidiary company an end of the financial year of the holding company

PREFERENCE S%ARES %ELD BY T%E %OLDING COMPANBH

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/hen preference shares are issued by a subsidiary company and are held by the holding company it should be treated in the same way as eCuity shares If the holding company acCuires the preference shares at par% the cost of in.estment of the holding company cancels out of shares shown on the 'alance sheet of subsidiary company If the preference shares are acCuires at premium or at a discount the balance is carried to goodwill or capital reser.e in the #onsolidated 'alance &heet The preference shares owned by the Minority shareholders are added to Minority interest PARENT COMPANY: $ parent company is a company that owns enough .oting stock in another firm to control management and operations by influencing or electing its board of directorsK the second company being deemed as a subsidiary of the parent company The definition of a parent company differs by jurisdiction% with the definition normally being defined by way of laws dealing with companies in that jurisdiction

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8 #ost acCuisition to the parent company in each subsidiary and the parent portion of net eCuity if each subsidiary on the date on which in.estments in each subsidiary made% should be eliminated from consolidated balance sheet ; In case of chain subsidiaries the parent company should consolidate its subsidiaries as well as subsidiary of the subsidiaries + $ parent company makes two or more in.estments in its subsidiary at different dates the consolidated financial statements are presented only from the e date on which holding5subsidiary relationship comes into e1istence

OBJECTIVES OF CONSOLIDATED FINANCIAL STATEMENTS: $ company consolidates its financial statements with affiliatesL results to portray a true% complete picture of its financial situation at a gi.en point in time $ccounting consolidation calls for three methods% depending on the eCuity stake These are outright consolidation% eCuity method and cost method 55 if the business owns more than =* percent% between ;* and =* percent% and less than ;* percent eCuity% respecti.ely 1. C-**"(+."88 ,. E@5,+; R"7-*+,.2:

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#onsolidating a parent companyLs financial statements opens a portal onto the organiDationLs eCuity stakes in not one but se.eral subsidiaries 'y combining its results with the performance data of domestic and international affiliates% the parent business gi.es in.estors a complete measure of its eCuity holdings 6inanciers may see this type of reporting as an opportunity for further in.estments in corporate operations because they can determine tactics and tools the business uses for competiti.e e1pansion -nlike outright consolidation% the eCuity and cost methods may not produce accurate eCuity reporting because regulatory guidelines do not reCuire that in.esting businesses combine their performance data with the operating results of in.estees $lso known as affiliates or subsidiaries% in.estees are businesses into which a parent company pours money In the eCuity method% a parent business reduces its stake when an in.estee posts a net loss or pays out di.idends% increasing it when the affiliate records net income The cost method generally calls for financial updates only when the parent organiDation sells its eCuity stake 2. F,. .(, ) D + A((5* (;: #ombined financial statements tell readers whether a parent company is truly generating sales on its own or whether something other than marketing prowess is at work 'y comparing the corporationLs standalone reports with its consolidated financial statements% sa..y in.estors can appraise the companyLs sales generation power and the e1tent to which it relies on affiliates to post rosy reports 6or in.estors% these considerations are important to accurately gauge business risks and determine 55 for e1ample 55 how political trouble or social unrest in one country can affect a companyLs bottom line 6inancial statement consolidation co.ers four accounting data summariesH a balance sheet% a statement of profit and loss% a statement of cash flows and a statement of retained earnings
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3. A88"+ A))-( +,-. .1 I.A"8+!".+ D"(,8,-.-M /,.2: #ombined accounting information often enables financiers to make better in.estment decisions In essence% the practice has effecti.ely o.erturned the con.entional wisdom on corporate profitability and its impact on long5term producti.ity 6or e1ample% financial commentators may re.iew a parent companyLs results with an eye toward how much money the business made from o.erseas !one are the days when companies solely relied on a single product or ser.ice to make money In modern economies% businesses routinely engage in se.eral .entures% produce .aried items and pro.ide an e1pansi.e assortment of ser.ices 6inancial data consolidation also touches on producti.ity issues 55 telling in.estors areas or countries that are more producti.e in a companyLs operations and how this increased producti.ity translates into higher re.enues and cash flows

4. R"25) +-*; C-!7), .(": #onsolidated financial statements help regulatory agencies% such as the - & &ecurities and 01change #ommissionK determine the scope of a companyLs acti.ities and find where the buck stops with respect to legal responsibility 'ut the

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most important element in accounting consolidation% in this realm% is that it helps regulators accurately calculate corporate eCuity and enforce antitrust laws

T%E ADVANTAGES OF CONSOLIDATING FINANCIAL STATEMENTS: 6inancial statements% including the balance sheet% the income statement and the cash flow statement% are primary financial tools for e.ery business They pro.ide .ital information in easy5to5understand ways and enable analysts to Cuickly form financial ratios to compare different numbers Aowe.er% for some businesses% financial statements are not easy to create @arge corporations tend to be segmented with se.eral different di.isions that all ha.e different financial operations #onsolidated financial statements combine all these di.isions into a single report 1. B*- 1 P,(+5*": The basic ad.antage when consolidating financial statements is the broad picture it gi.es In.estors do not want to go through se.eral different financial statements to add up information and find out how the corporation is doing o.erall The consolidated statements pro.ided by the parent company accomplish the task automatically and make an e1cellent reference point for shareholders% leaders and

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anyone interested in how all the different parts of the business are functioning as a whole

2. B ) .(" #onsolidating financial statements also lets a corporation effecti.ely balance its appearance to outside parties 6or e1ample% during one period a parent company may lose re.enue and perform poorly% but the subsidiaries may perform .ery well and increase re.enues The consolidated statement will balance the poor parentLs performance with the positi.e subsidiary performance% allowing the company to show that through its di.ersification it remained profitable

3. EB()58,-.8 $ccording to consolidated financial statement guidelines% a corporation can also e1clude certain di.isions from the statements This is also an ad.antageK because it allows in.estors to see 55 and companies to show 55 that some financial aspects are not long term 6or e1ample% subsidiaries are e1empt if the parent companyLs ownership of them is temporary or if the control of the company does not actually rest with the majority owner% which can happen through bankruptcy 4. N"("88,+; #onsolidated financial statements are reCuired by most go.ernments as an accurate representation of a parent companyLs financial acti.ity In general% ta1 laws reCuire

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that a single accounting entity be represented out of the net resources and operating results of all the di.isions that a company owns $s a result% many companies ha.e become used to producing consolidated statements for go.ernments% in.estors and internal analysis

COST OF CONTROL OR GOOD9ILL The holding company acCuires more than =*J of the shares of the subsidiary company &uch shares may be acCuired at a market price /hich may be at a premium or at discountM This amount is reflected in the balance sheet of holding company of the assets side as in.estment in the shares of subsidiary company This is the price paid for shares in net assets of subsidiary company as on date of its acCuisition "et assets of the subsidiary company consist of share capital% accumulated profits and reser.e after adjustment% accumulated losses as on the date of acCuisition If the amount paid by the holding company for the shares of subsidiary company is more than its proportionate share in the net asset of the subsidiary company as on the date of acCuisition% the difference is considered as goodwill

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If there is e1cess of proportionate share in net assets of subsidiary company intrinsic of shares acCuired and cost of shares acCuired by holding company there will be capital reser.e in fa.our of holding company It goodwill already e1ists in the balance sheet of holding company or both the goodwill thus calculated% will be added up to the e1isting goodwill #apital 4eser.e will be deducted from !oodwill In short% net amount resulting from goodwill and capital 4eser.e will be shown in the consolidated 'alance sheet $ D"+"*!,." C-8+ O3 I.A"8+!".+ #ost of in.estment is calculated as follows $mount In.ested (#ost as per Aolding #ompanies 'alance sheet) L"88H 3i.idend recei.ed from subsidiary out of pre5acCuisition profit #ost of preference shares in subsidiary company $djusted cost of In.estment 11 11 111 11

'

D"+"*!,." A )5" -3 I.A"8+!".+ Aolding #ompanies share of capital A11H Aolding #ompanyFs share of capital profit Galue of In.estment 11 11 11

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C )(5) +" C-8+ -3 C-.+*-) #ost of #ontrolN$5' !oodwillN$O' ($5') #apital 4eser.eN$P' ('5$)

/hen the .alue of In.estment is less than the cost of in.estment in shares of subsidiary company% the difference is considered as goodwill #apital 4eser.e is the e1cess .alue of in.estment o.er the cost of in.estment #ost of #ontrol I !oodwill S-)A"1 -. EB !7)" -. C-8+ -3 (-.+*-) -* G--10,)) 'alance sheet of & @td as on +8st March ;*8* (@iabilities only) &hare capital )*%*** 0Cuity shares of 4s 8*I5 each 4eser.es and surplus &ecured loan >ther @iabilities )%**%*** ;%=*%*** ;%=*%*** 8%**%*** 8*%**%***

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>n the abo.e date A @td acCuired +*%*** 0Cuity shares in & @td on the abo.e date for 4s ,%=*%*** fi1ed assets of & @td /ere appreciated by 4s 8%=*%*** find out cost of control I !oodwill

#ost of in.estment in & @td @ess H 8) &hare in share capital ()%**%*** 1 Q) ;) &hare in 4eser.es and surpluses #apital profit (;%=*%*** 1 +I)) &hare in capital profit ($ppreciation in fi1ed assets) 8%=*%*** 1 +I) #>&T >6 #>"T4>@I!>>3/I@@ 8%8;%=** 8%<,%=** +%**%***

,%=*%***

(:%**%***) 8%=*%***

&uppose in abo.e case% cost of in.estment amounted to 4s =% **%*** then instead of goodwill% there would be capital 4eser.e 4s 8%**%***

MINORITY INTEREST: The claim of outside shareholders in the subsidiary company has to be assessed and shown as liability in the consolidated balance sheet Minority interest in the net assets of the company is nothing but the proportionate share of aggregation of share
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capital% reser.e surpluses funds etc proportionate share of all assets should be deducted from the minority interest Thus% minority interest is the share of outsider in the following 8 &hare in share capital in subsidiary ; &hare in reser.es ('oth pre and post acCuisition of subsidiary)
+

&hare in accumulated losses should be deducted

) 2roportionate share of profit or loss on re.aluation of assets = 2reference share capital of subsidiary company held by outsiders and di.idend due on such share capital% if there are profits Minority interest means outsiders interest It is treated as liability and shown in consolidated 'alance sheet as current liability This amount is basically intrinsic .alue of shares held by minority Minority Interest5consists of i)The amount of eCuityIattributable to minorities at a date on which in.estment in a subsidiary is made ii) The Minorities share of mo.ements is in eCuity since the date the parent

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&ubsidiary relationship coming to e1istence M,.-*,+; I.+"*"8+: &hare in eCuity on the date of acCuisition &hare in mo.ement in eCuity since the date of acCuisition 11 11
RR

/hen minority interest is negati.e it should be adjusted against majority interest "egati.e Minority Interest should not be shown in the #onsolidated 'alance &heet

E@5,+; -3 +:" S568,1, *; -. +:" D +" -3 (@5,8,+,-. -3 8: *"8 It refers to net worth of the subsidiary% it includes share capital reser.es surplus less fictitious assets 6ictitious assets includeH i) 2reliminary 01penses ii) 3iscount on issue of shares Iii) 2rofitI@oss $ccount 3ebit balance IG) $malgamation adjustment $Ic

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&hare capital% reser.es and surplus of the subsidiary on the date of acCuisition of shares is shared by the parent and the minority shareholder in the ratio of eCuity holding It is popularly known as pre5acCuisition reser.es and surplus

S-)A"1 EB !7)" -. M,.-*,+; I.+"*"8+: The following is the 'alance sheet of & @td as on +8 March% ;*8* @iabilities &hare capital 0Cuity shares of 4s 8* each ;%,*%*** !eneral 4eser.e 2rofit ? @oss $Ic #urrent liabilities +%:*%*** <=%*** $ssets 6i1ed $ssets In.estments #urrent $ssets 2reliminary 01penses
st

;%9*%*** ;%,=%*** 8%+*%*** ;*%***

,%8=%*** ,%8=%*** A @td acCuired ;=%*** shares in & @td on +8st March% ;*8* at a cost of 4s ;%,=%*** 6i1ed assets were re.alued at 4s +% ;<%*** 6ind minority interest

&olutionH
Minority Interest= 2,000/27,000 =2/27 Minority Interest

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8 ;

&hare in share capital ;%,*%*** 1 ;I;, &hare in 4eser.es and &urpluses +%:*%*** 1 ;I;, &hare in capital profits (+%:*%***5;*%***S+<%***) 1 ;I;, M,.-*,+; I.+"*"8+

;*%*** ;*%***

;<%*** :<%***

@iabilities &hare capital 0Cuity shares of 4s each !eneral 4eser.e 2rofit ? @oss $Ic #reditors 8*

A @td

& @td

$ssets

A @td

& @td 8%**%*** 5 ;%+9%***

6i1ed $ssets +%**%*** :*J &hares in & ltd at =%**%*** ;%**%*** cost 8%**%*** =*%*** :*%*** <*%*** +=%*** :*%*** 2reliminary 01penses 5 ,%)*%*** #urrent $ssets 8%:;%)** ;%,,%:**

:*%*** +%)=%***

,%)*%*** +%)=%***

A @td acCuired the share on 8st $pril ;**9 on which date !eneral 4eser.e and profit and loss $ccount of & @td &howed balances of 4s )*%*** and 4s <%*** respecti.ely "o part of preliminary e1penses was written off during the year ending +8 March% ;*8* 2repare the consolidated balance sheet of A @td $nd its subsidiary & @td as on +8st March ;*8*
st

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S-)5+,-.: 8 #apital profits of the subsidiary (i e profits earned prior to acCuisition of shares) !eneral 4eser.e 2rofit ? @oss $Ic @essH 2reliminary 01penses 40,000 8,000 48,000 6,000 42,000

; 4e.enue profits of the subsidiary (i e profits earned after the acCuisition of shares)

To !eneral 4eser.e (4s =*%***5)*%***) To 'alance cId

8*%*** 'y balance bIfd 'y 2rofit for the year +=%*** )=%***

<%*** +,%***

)=%***

+ #alculation of cost of control or !oodwill

$mount paid for :*J shares of & @td

8%:;%)**

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@essH paid up .alue of :*J shares of & @td :*J of capital profits i e profits 2rior to acCuisition 4s );%*** 1 :*I8** !>>3/I@@ ;=%;** (8%)=%;**) 8,%;** 8%;*%***

) #alculation of minority Interest 2aid up .alue of )*J shares of & @td $ddH )*J capital profits N );%*** 1 )*I8** $ddH )*J 4e.enue 2rofits N +,%*** 1 )*I8** <*%*** 8:%<** 88%<** 8%88%:**

: $lternati.ely% minority interest may be calculated as follows

2aid up .alue of )*J shares of & @td $dd H )*J of !eneral 4eser.e as on +8 + ;*8* =*%*** 1 )*I8** $dd H )*J of profits and @oss $ccount as on +8 *+ ;*8* 4s +=%*** 1)*I8** @ess H )*J of preliminary e1penses 4s :%*** 1 )*I8**

<*%*** ;*%*** 8)%*** 8%8)%*** ;%)** 8%88%:**

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C-.8-),1 +"1 B ) .(" 8:""+ -3 % L+1. .1 ,+8 8568,1, *; S L+1. 8 + 31.3.2010

@iabilities &hare capital 0Cuity shares of 4s 8* each Minority interest !eneral 4eser.e 2rofit and loss $Ic A @td 4e.enue 2rofits of & @td #reditors A @td & @td T>T$@ <*%*** :*%*** :*%*** ;;%;**

$mt (4s )

$ssets !oodwill

$mt (4s ) 8,%;**

=%**%*** 8%88%:** 8%**%***

>ther 6i1ed $ssets A @td & @td #urrent $ssets +%**%*** 8%**%*** )%**%***

<;%;**

A @td & @td

;%,,%:** ;%+9%*** =%8:%:**

8%)*%*** 9%++%<** T>T$@ 9%++%<**

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CONSOLIDATED PROFIT AND LOSS ACCOUNT: The consolidated profit and loss account of the holding company and its subsidiaries are prepared to show the operating company and its subsidiaries are prepared to show the operating the consolidated profit and loss account of the holding company and its subsidiary% the items appearing in the profit and loss account of the holding company and the subsidiary companies ha.e to be aggregated B5+ 0:,)" 1-,.2 8-, +:" 3-))-0,.2 1C58+!".+8 : A" +- 6" ! 1". 8 2repare profit and loss account in columnar form $mounts relating to intercompany transactions are entered in the adjustment column against the respecti.e items and are subtracted while entering amounts in the total columns ; $ll inter company operating transactions are eliminated such as purchase and sale of goods% interest on loans among the group companies + $ll inter company profits are adjusted

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) 3i.idends recei.ed from the subsidiary company by the holding company should be eliminated from both the sides of consolidated profit and loss account = Interest accrued and outstanding on 3ebenture of the subsidiary company held by the holding company should be accounted by holding and subsidiary company both and then itFs should be eliminated : 4eadjustment of 3epreciation on 4e.aluation on fi1ed $ssets at the time of acCuisition of shares by the holding company should be adjusted in consolidated balance sheet and respecti.e fi1ed assets and in the consolidated profit and loss account , The minority interest in the profit of subsidiary company should be transferred minority interest account% in the proportion of total profit after adjustment of re.aluation of fi1ed $ssets% but before adjusting unrealiDed profit on stock < The share of holding company in pre5acCuisition profit should be transferred to cost of control% in case shares are acCuired during the year 9 &hare of holding company in the past acCuisition profits shall be considered as re.enue profits

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8* The balance in holding company columns will represents the total profit or loss made or suffered by the group as a whole 2art II5 6orm of &tatement of 2rofit and @oss "ame of the company __________ 2rofit and @oss statement for the year ended _________

"ote "o 2articulars I II III 4e.enue from operation >ther Income Total 4e.enue (iSii) 01penseH #ost of materials consumed 2urchases of stock5in5trade #hanges in in.entories of finished goods work5in5progress and stock5in5 progress 0mployee benefits e1pense 6inance cost 3epreciation and amortiDation e1pense >ther e1pense Total e1pense 2rofit before e1ceptional and

IG

6igures for the current reporting period 111 111 111 111 111 111

6igures for the pre.ious reporting period 111 111 111 111 111 111

111 111 111 111 111 111

111 111 111 111 111 111

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e1traordinary items and ta1(iii5i.) GI GII GIII IR R 01ceptional items 2rofit before e1traordinary items and ta1(.5.i) 01traordinary items 2rofit before ta1(.ii5.iii) Ta1 01penseH i)current ta1 ii)deferred ta1 2rofit(loss) for the period from continuing operations(.ii5.iii) 2rofitI(@oss) from discontinuing operations Ta1 e1penses of discontinuous operations 2rofitI(loss) from discontinuing operations(after ta1)(1ii51iii) 2rofit(@oss) for the period (1iS1i.) 0arning per eCuity share i)'asic ii)3iluted

111 111 111 111 111 111 111 111 1111 111 111 111 111 1111

111 111 111 111 111 111 111 111 1111 111 111 111 111 1111

RI RII RIII RIG

RG

RGI

111 111

111 111

SOLVED E4AMPLE ON CONSOLIDATED RBT @imited owns <* per cent of the .oting power of $' @imited% its only in.estment% acCuired on $pril 8% ;**8 for 4s 8%**%**%*** The net assets of

15

$' @td on $pril 8% ;**8 were 4s 8%**%**%*** >n >ctober 8% ;**;% the in.estment in $' @imited was sold for an amount of 4s ;%**%**%*** The net assets of $' @imited on March +8% ;**; and &eptember +*% ;**; were 4s 8% =*% **%*** and 4s 8%<*%**%***% respecti.ely% the difference representing the profit for the period The summariDed consolidated financial position of RBT @imited and its subsidiary on March +8% ;**; and on &eptember +*% ;**; was as followsH

S-)5+,-.: 2articulars &>-4#0& >6 6-"3& &hare #apital 0Cuity #apital (U 4s 8* each) 4eser.es and &urplus 2rofit and @oss $ccount Minority Interest T>T$@ $22@I#$TI>" >6 6-"3& 11 6i1ed $ssets !oodwill >ther 6i1ed $ssets% "et #urrent $ssets% @oans and $d.ances ;*%**%*** <%=*%**%*** =%:*%**%*** ;*%**%*** <%**%**%*** :%<:%**%*** ;%=*%**%*** +*%**%*** 8;%<*%**%*** +%**%**%*** +:%**%*** 8+%+:%**%*** 8*%**%**%*** 8*%**%**%*** +8I*+I;**; +*I*9I;**;

15

@ess H #urrent @iabilities and 2ro.isions "et #urrent $ssets T>T$@

(8%=*%**%***) (8%,*%**%***) )%8*%**%*** 8;%<*%**%*** =%8:%**%*** 8+%+:%**%***

The gain or loss on the disposal of the in.estment in $' @imited would be computed as followsH

"et assets of $' @td on the date of disposal% i e % &eptember +*% ;**; 8%<*%**%*** @essH Minority Interest 2arentLs share in the net assets of the subsidiary 2roceeds from disposal of subsidiary @essH 2arentLs share in the net assets of the subsidiary @essH !oodwill !ain on disposal (+:%** ***) 8 )) ** *** ;%**%**%*** (8%))%**%***) (;* ** ***) +: **%***

V'ased on 'ackground Materials for &eminars on $&5;8 published by I#$IW

CONSOLIDATION OF BALANCE S%EET: $ holding company is reCuired to present to its shareholders consolidated balance sheet of holding company and its subsidiaries #onsolidated balance sheet is

15

nothing but addicting of up or combining the balance sheet of holding and its subsidiary together Aowe.er assets and liabilities are straight forward% i e added line to line and combination of share capital% reser.es% and accumulated losses are not directly added in consolidated balance sheet 2reparation of consolidated balance sheet The following points need special attention while preparing consolidated balance sheet 8 &hare of holding company and share of minority (outside shareholders) ; 3ate of 'alance sheet of holding company and that of .arious subsidiary companies must be same If they are not so necessary adjustment must be made before consolidation + 3ate of $cCuisition of control in subsidiary companies ) Intercompany owing = 4e.aluation of fi1ed assets as on date of acCuisition% depreciation% adjustment on re.aluation amount etc : The shareholding pattern of the subsidiary company as on the date on which the consolidated balance sheet is prepared

15

2articulars

6igures as at the end of current reporting period 11 11 11 against share

6igures as at the end of the pre.ious reporting period 11 11 11 11

8 &hareholdersF 6unds a)&hare capital b)4eser.es and surplus c)Money warrants allotment + "on5current @iabilities a)@ong5term borrowings b)3eferred ta1 liabilities("et) c)>ther long term liabilities d)@ong5term pro.isions ) #urrent @iabilities a)&hort5term borrowings b)Trade payables c)>ther current liabilities d)&hort5term pro.isions T>T$@ I) A88"+8 8 "on5current $ssets a) 6i1ed assets i)Tangible assets ii)Intangible assets iii)#apital work5in5progress recei.ed

; &hare application money pending

11 11 11 11 11 11 11 11 11 11 1111 11 11 11 11 11

11 11 11 11 11 11 11 11 11 11 1111 11 11 11 11 11

15

i.)Intangible assets under de.elopment b) c) d) e) ; a) b) c) d) e) f) "on5current in.estments 3eferred ta1 assets(net)

11 11

11 11

11 @ong term loans and ad.ances >ther non5current assets #urrent $ssets #urrent In.estments In.entories Trade 4ecei.ables #ash and cash eCui.alents &hort5term loans and ad.ances >ther current assets T>T$@ 11 11 11 11 11 11 11 11 11 1111

11 11 11 11 11 11 11 11 11 11 1111

"o of &hares Aolding company Minority 11 11

2roportion (J) 11 11

6or e1ample A @td acCuires <%*** eCuity shares in & @td >ut of its issued capital of 8*%*** shares% the pattern of holding will be as followsH "o of &hares 2roportion (J)

15

Aolding company Minority

<%*** ;%*** 8*%***

<*J ;*J 8**J

This proportion should be used for finding out share of pre5acCuisition and post post acCuisition profit% minority interest% and cost of control

S-)A"1 P*-6)"! -. C-.8-),1 +"1 B ) .(" S:""+: A @td acCuired <%*** shares of 4s 8* each in 7 @td on +8 March ;*88 The summariDed 'alance &heets of the two companies as on that date were as followsH 2articulars @iabilities H &hare #apital H +*%*** &hares of 4s 8* each 8*%*** &hares of 4s 8* each #apital 4eser.e !eneral 4eser.e 2rofit ? @oss $ccount @oan from I @td 'ills payable (including 4s 8%*** to A @td ) #reditors T-+ ) $ssets H 6i1ed $ssets In.estments in 7 @td at cost &tock5in5hand
15
st

A @td 4s

7 @td 4s

+***** ;=*** +<;** ;8** 8,9** 3D3200 8=**** 8,**** )**** 8**%*** =;%*** =%*** 8<%*** 8%,** =%*** 1D1,'00 8))%,** ;*%***

@oan to A @td 'ills 4ecei.able (including 4s ,** from 7 @td ) 3ebtors 'ank T-+ ) Bou are gi.en the following informationH

;%*** 8;** ;**** ;*** 3D3200 8*%*** =%*** 1D1,'00

8 7 @td made a bonus issue on +8 st March ;*88 of one share for e.ery two shares held% reducing the capital reser.e eCui.alently% but the transaction is not shown in the abo.e 'alance &heets ; Interest recei.able (4s 8**) in respect of the loan due by A @td to 7 @td has not been credited in the account of 7 @td + The directors decided that the fi1ed assets of 7 @td /ere o.er.alued and should be written down by 4s =%*** 2repare the #onsolidated 'alance &heet as at +8st March ;*88% showing your workings

S-)5+,-.: #onsolidated 'alance &heet of 7 @td and its &ubsidiary 7 @td $s $t +8 March% ;*88 @I$'I@ITI0& &hare #apital 0Cuity &hare #apital +*%*** 0Cuity shares of 4s 8* each% fully paid 4eser.es ? &urplus #urrent $ssets% @oans ? $d.ances 4s 4s $&&0T& 6i1ed $ssets !oodwill (on consolidation) +%**%*** >ther 6i1ed $ssets 8%=*%*** 8%+9%,** ++%9;* ;%<9%,** 4s 4s
st

15

!eneral 4eser.es 2 ? @ $Ic A @td Minority Interest #urrent 2ro.isions #reditors A @td 7@td 'ills 2ayable @ess H Mutual 3ues Total @iabilities ?

;=%*** +<%;** :+%;** +)%*;*

&tock 3ebtors 'ills 4ecei.able @ess H Mutual 3ues

)*%*** ;*%*** ;*%*** 8*%*** 8%;** (;**)

:*%***

+*%***

8%***

8,%9** =%*** 8%,** (;**) 8%=** Total 4,21,>20 4,21,>20 ;;%9** #ash ? 'ank ;%*** =%*** ,%***

9-*/,.2 N-+"8: 8) Aolding 2roportion A @td N8;%***I8=%*** N )I= Minority InterestN+%***I8=%*** N 8I= ;) $nalysis of profits 2I@ as on date of $cCuisition 8<%*** $ddH Interest due on 'al 8** #apital 2rofit 8<%8** 4e.enue 2rofit 5 5

15

4eser.e on $cCuisition #apital !eneral

date

of =;%*** =%*** =*%*** =%*** =,%*** ,=%8** 5==%*** ;*%8** 8:%*<* )%*;* 5 5 5 5 5

L"88: 'onus Issue @oss 4e.aluation of $ssets Aolding co )I= Minority Interest 8I+

+) #ost of #ontrol #ost of In.estment @essH 0C &hare #apital #apital 2rofit 8%;*%*** 8:%*<* 58+:*<* ++%9;* 8%,*%***

)) Minority Interest &hare #apital &hare in #apital 2rofit +*%*** )%*;* +)%*;*

T*" +!".+ -3 )- . E ,.+"*"8+ R"(",A 6)":

15

>n taking credit for interest recei.able of 4s 8** by 7 @td In respect of loan due by 7 @td % the profit and loss account balance of 7 @td will increase to 4s 8<%*** and loan to A @td will also increase to 4s ;%8** >n consolidation% inter5corporate loan of 4s ;%8** is set off and hence has not been shown in the consolidated balance sheet

BIBLOGRAP%Y

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