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Consolidated Financial Statements - awaisaftab - 02-17-2009 09:11 PM

The concept of group of enterprises emerged in the early years of twenty century. The same concept was also applied in corporate sector and many companies crated group of companies. A The concept of group of enterprises/companies emerged due to various benefits which a group enjoys being a group of enterprises/companies.

Holding Company

A company that owns enough voting stock in another firm or company to control management and operations of other company or firm by influencing or electing its board of directors it is also called parent company.
Subsidiary Company
A subsidiary, in business matters, is an entity that is controlled by a bigger and more powerful entity. The controlled entity is called a company, corporation, or limited liability company, and the controlling entity is called its parent (or the parent company). The reason for this distinction is that a lone company cannot be a subsidiary of any organization; only an entity representing a legal fiction as a separate entity can be a subsidiary. While individuals have the capacity to act on their own initiative, a business entity can only act through its directors, officers and employees. (Wikipedia Encyclopedia)

Section (3) of Companies Ordinance 1984 defines holding company and subsidiary companies in the following way
91)For purposes of this Ordinance, a company or body corporate shall be deemed to be a
subsidiary of another if—
(a) that other company or body corporate directly or indirectly controls,
beneficially owns or holds more than fifty per cent of its voting securities
or otherwise has power to elect and appoint more than fifty per cent of
its directors; or
(b) the first mentioned company or body corporate is a subsidiary of any
company or body corporate which is that other's subsidiary;
(2) For the purpose of this Ordinance, a company shall be deemed to be
another's holding company if, but only if, that other is its subsidiary.
Account of Group of Companies
According to Companies Ordinance, 1984 a holding company, as defined in section 3, shall make consolidated financial statements.
The provisions of section 237 of the Ordinance lay down following provisions in this regard
There shall be attached to the
financial statements of a holding company having a subsidiary or subsidiaries, at the end of
the financial year at which the holding company’s financial statements are made out,
consolidated financial statements of the group presented as those of a single enterprise
and such consolidated financial statements shall comply with the disclosure requirement of
the Fourth Schedule and an International Accounting Standards notified under sub-section
(3) of section 234.
A group of enterprises is also liable to make financial statements or accounts of group of whole. According to IFRS -27 a group of enterprises where parent company or any enterprise neither a public company nor a private company that it also liable to prepare consolidated accounts or financial statements.
IFRS lays down the followings in this regard
A parent is required to present consolidated financial statements in which it consolidates its investments in subsidiaries [IAS 27.9] – except in one circumstance A parent is not required to (but may) present consolidated financial statements if and only if all of the following four conditions are met [IAS 27.10]

- awaisaftab - 02-23-2009 05:13 PM

I shall highly appreciate any comments,query or suggestion regarding Consolidated Financial Statement


Awais Aftab

- kamranACA - 02-23-2009 05:58 PM


I just want to place a point here for others' info that an entity which has investments in associates (where it has significant influence as defined in IAS 28) will account for such investments under equity method in its consolidated financial statements.

However, in Pakistan, while it has issued consolidated financials, it is also required to issue separate (its stand alone) financial statements. The point to remember is that, when consolidated financials have been issued, the investments in separate financial statements will not be accounted for on equity method. Rather these will be accounted for under IAS 39, or on cost etc, as may be allowed in its scenario.

In contrast, the entity which has investments in such associates but has no subsidiary, will definitely not issue any consolidated financials and in its separate (stand alone) financial statements, it will carry such investments on equity method.

This is a critical thing where people oftenly make mistakes. So it is placed here for info.



- awaisaftab - 02-23-2009 08:40 PM

Dear Kamran,

Thank you for providing above information.

I think it is clear from section 237 that a holding company shall also make consolidated financial statement along with its separate financial statements.



- kamranACA - 02-23-2009 09:07 PM


The point clarified by me was not about who has to issue the consolidated financial statements and who does not.

Rather I was discussing

- how to treat investments in associates in separate financial statements if some company also issues consolidated financial statements,; and

- how to treat investments in associates in separate financial statements if a company is not obliged to issue consolidated financial statements.

The issue is not of consolidation, rather it is of equity method accounting.



- awaisaftab - 03-09-2009 10:37 PM

Dear Kamran,

Also read my topic on group taxation. I think it is also a topic related to Consolidated Financial Statements you did not draw my attenssion regarding this issue.

The purpose of the post is to convey you that nothing is completely perfect in the world.



- kamranACA - 03-09-2009 11:24 PM


I don't know of which perfection you are talking about. If this is directed to me then be informed I am neither the perfect nor I carry such a claim.

Have you ever done a consolidation of any listed group companies in your life? It would be a good experience if you get such a chance.



- awaisaftab - 12-03-2009 07:45 PM

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by kamranACA</i>
<br />Dear

I don't know of which perfection you are talking about. If this is directed to me then be informed I am neither the perfect nor I carry such a claim.

Have you ever done a consolidation of any listed group companies in your life? It would be a good experience if you get such a chance.


<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Mr. Kamran in the above post you asked a question from me. But your question has been unreplied for a long period. I have no reluctance to accept it that I have never done a consolidation of any listed group companies or even group of partnerships. But keep it in mind majority of members of the forum is student so in my view it was an un appropriate question. As far as my personality is concerned I am ICMA finalist. But I have strong desire to come in public practice as a practicing CMA after qualifying ICMA .


Awais Aftab

- kamranACA - 12-03-2009 09:48 PM


I, in advance, convey my best wishes for you to join professional practice upon qualifying your CMA. I also wish you to qualify as early as possible.

The question raised in my last post was not aimed at to undermine your position so it cannot be treated as inappropriate. It was pursuant to my general perception that you are working as Accounts Manager, which designation is supposed to be charged with all these accounting responsibilities.

If not yet done, I wish you to get a chance of undergoing a consolidation exepreince in a complexed group structure (horizontal and vertical) having direct and indirect minority interests. You will enjoy it.



- awaisaftab - 12-04-2009 01:38 PM

Thanks for your good wishes. As far as the designation of accounts manager is concerned responsibilities often depend on the size of organization. In big organization all activities in accounts and finance departments are supervised by the Director Finance or CFO and accounts manager normally responsible for some limited function e.g I am responsible for AR and secretarial practices.


Awais Aftab

- kamranACA - 12-04-2009 05:22 PM


I believe the preparation of financials typically is done by the middle management in big setups although its analysis, ratios and pros and cons are reviwed and amended by seniors.

Seniors are normally supposed to over-see the planning, decision making, implementation and control activities.

May your experience be different.



- jihad - 12-09-2009 06:50 AM

Hi for everyone , firstly im new mem so i hope to find an acceptance from all .
im from jordan CMA from 2 years ago ,has 10 years experiance and nawadays im working as Financial controller in KSA.

- wsafca - 12-10-2009 04:49 PM


Can any body please help me on this.

If the company holds controlling interest in other company say 60%.

Investment cost 100,000
Total capital 100,000
Retained earnings at that time 10,000

After an year company purchases another 20 %

Investment cost 30,000
Total Capital 100,000
Retained earnings at that time 15,000

What will be the good will on consolidation?



- Muhammad Amir - 12-11-2009 03:34 AM

Dear Ahmed

Revised IFRS-3 follows an economic entity approach rather than the parent company appraoch. The economic entity approach views all providers of the equity as shareholders of the entity, even if they are not shareholders in the parent entity.

This revised version of IFRS 3 and IAS-27 requires the entities to compute goodwill once the control is achieved. Once the control is achieved, any further transaction, which does not result in control being lost, should be treated as the transaction between the holders' of the equity (i.e. a treasury transaction) and hence, no remeasurement of Goodwill should take place.

For Example, Company 'P' holds 60% of the Company 'S', later company 'P' further acquires 20% shares of Company 'S'. This gives the Parent entity 80% holding over 'S'. Now, this further acquisition of 20% should be dealt as the transaction between the equity holders of the company 'S'.

Prior to further 20% acquisition, there are two types of Equity holders in Company 'S'.

=======>1. Parent Company (which already holds 60%)
=======>2. Non-Controlling Interest (which holds 40%)

This further acquisition of 20% shares in Company 'S' will have two impacts on the financial positions of Both parties.

=======>1. Parent's share in 'S' will be increased by 20%.
=======>2. Interest of Non-Controlling Equity Holders will be reduced by 20%.

This effectively means that the equity holders of NCI have transferred their 20% share to Equity Holders of Parent.

The Calculation will be as follows;

Fair value of the consideration paid for further 20%======>XXXX
Decrease in NCI in net assets at the date of transaction==>(XXXX)
<font color="red"><b>*</b></font id="red">Decrease in NCI in goodwill at the date of transaction===>(XXXX)
Adjustment to the parent's equity=====================>XXXX

<b><font color="red">*</font id="red">Note that the decrease in NCI in goodwill should only be taken when the company is following Fair Value method rather than the proportionate method of goodwill.</b>

Roughly the double entry will be;

<b>DR </b> Decrease in NCI interest
<b>DR or CR</b> Balancing figure as the positive or negative movement in the equity of Parent.
<b>CR </b> Cash / Bank

<b>Now, comming back to your example, if we assume that the company is following proportionate method of goodwill.</b>


Goodwill should be calculated once the control is achieved.

Consideration transferred ================> 100,000

Less Share in Fair Value of Net Assets

Share Capital ========> 100,000
Retained Earnings ====> 10,000
Fair Value Net Assets => 110,000*60%======> (66,000)
Goodwill==================================> 34,000

<b>Non-Controlling Interest-</b>

Non-Controlling Interest at the date of acquisition;

Share Capital ===========> 100,000
Retained Earnings =======> 10,000
Non-Controlling Interest==> 110,000*40% ====> <b>44,000 (NCI)</b>

The Net Assets have increased by (115,000 - 110,000) => 5,000

<b>Therefore, NCI interest have increased by (5,000*40%) =>2,000</b>

After Acquisition of 60% Share Capital of S, P further acquired 20%.


NCI at the time of Acquisition was ====================> 44,000
Further increase in NCI (Immediately before 20% acquired)=> 2,000
Fair Value of 40% NCI immediately before 20% acquisition==> 46,000
20% Interest Transferred to Parent Entity<font color="red"><b>*</b></font id="red">=(46,000/40*20)=>(23,000)
Balance of NCI After the 20% transferred to P ============> 23,000

<font color="red"><b>*</b></font id="red">This is the fair value of the 20% Interest transferred by NCI holders to Parent Entity.

<b>Caulculation For Movement In Parent's Equity -</b>

Fair Value of The Consideration for Further 20% Acquired ==> 30,000
20% FV of Interest transferred to Parent (46,000/40*20)====>(23,000)
Negative Movement in the Equity of Parent =================> 7,000

Roughly The Entry Should be;

<b>=====DR Non-Controlling Interest ============23,000
=====DR Negative Movement in Equity========== 7,000
===============CR Cash / Bank / Other Instrument====30,000</b>


I hope it will help you.

Best Regards,

Muhammad Amir

- wsafca - 12-11-2009 04:13 PM

Thanks alot dear