Question

Which accounting standard is applicable
for Consolidated financial statements
O AS-18
O AS-19
O AS-21
Partners Salam​

Answer 1

Answer:

In this write-up, I am going to discuss the preparation and presentation of the Consolidated Financial Statement. The Companies Act, 2013 in its Section 129 along with Rule 6 of the Companies (Accounts) Rules, 2014, and Accounting Standard 21 govern the provision related to the consolidation of the financial statement.

Now the question arises what is Consolidated Financial Statement? And why we need it. Though the Companies Act,2013, does not define the consolidate financial statement, however, the same is defined under the Accounting Stndard 21 as

“Consolidated financial statements are the financial statements of a group presented as those of a single enterprise”

So by definition, it is clear that the consolidated financial statement is nothing but the financial statement of the group of the enterprises presented as one.

“Group of enterprise means holding and all its subsidiaries as per the Accounting Standard 21.”

Since the consolidated financial statement is nothing but the financial statement of the group of the enterprise, so we need to understand what financial statement is. The Accounting standard 21 does not specifically define financial statement but the same is defined by the Companies Act, 2013 under Section 2 Clause 40.

Financial Statement includes-

i. a balance sheet as at the end of the financial year;

ii. a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;

iii. cash flow statement for the financial year;

iv. a statement of changes in equity, if applicable; and

v. any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):

Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;

It is important to note that, exclusion of the Cash flow from the financial statement will never be applicable in case of holding company because holding company can never be small company as per the definition of the Small Company by the Companies Act, 2013, Section 2 Clause 85. For the reference below is the definition of the Small Company.

“small company” means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;