Home  >  Resources  >  AS-21, AS-23, AS-27 Compliance
In India, the consolidation procedures are governed by the Accounting Standards issued by the Institute of Chartered Accountants of India (www.icai.org). The 3 most relevant standards are AS-21, AS-23 and AS-27.

AS-21- Consolidation of Subsidiaries
A subsidiary is an entity which is controlled by the parent. Control can be a function of owning more than half the voting power of the entity, or control over the composition of the board of directors.

AS-21 prescribes the consolidation procedures and covers the following topics-
how the ‘line by line’ consolidation should be done
how to compute ‘minority interest’
how to compute ‘goodwill’ or ‘capital reserve’ arising on consolidation
how to eliminate intra-group balances and transactions.
eMerge™ has been designed to meet all the requirements of AS-21-
Automatic computation of minority interest
Automatic computation of goodwill or capital reserve arising on consolidation.
Elimination of intra-group balances and transactions can be done automatically or interactively.
Shareholding % and method of consolidation are independent variables. So even if the parent does not hold more than half the voting power, it can consolidate the subsidiary in case it controls the composition of board of directors. This gives lot of flexibility to the consolidation team.
Para 26 of AS-21 prescribes a very peculiar formula pertaining to treatment of losses applicable to minority-

“The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses. If the subsidiary subsequently reports profits, all such profits are allocated to the majority interest until the minority’s share of losses previously absorbed by the majority has been recovered.”

This unique requirement of AS-21 has been built into eMerge™ logic. This saves a lot of manual computations in such situations.
AS-23- Associates
AS-23 deals with accounting for investments in “Associates” in the consolidated financial statements. “Associate” is defined as an entity in which the investor has significant influence but which is neither a subsidiary nor a joint venture of the investor.

AS-23 prescribes ‘equity method’ for consolidation of Associates. The equity method is a method of accounting whereby the investment is initially recorded at cost, identifying any goodwill/capital reserve arising at the time of acquisition. The carrying amount of the investment is adjusted thereafter for the post acquisition change in the investor’s share of net assets of the investee. The consolidated statement of profit and loss reflects the investor’s share of the results of operations of the investee.

eMerge™ has been designed to handle the ‘equity method’ prescribed by AS-23 for consolidation of associates.
AS-27 Joint Ventures
AS-27 deals with financial reporting of interests in joint ventures. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity, which is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity.

AS-27 prescribes ‘proportionate consolidation’ method in case of joint ventures. Proportionate consolidation is a method of accounting and reporting whereby a venturer's share of each of the assets, liabilities, income and expenses of a jointly controlled entity is reported as separate line items in the venturer's financial statements.

eMerge™ has built-in functionality to handle proportionate consolidation of joint ventures.
Useful links:
Text of these accounting standards issued by ICAI- http://www.icai.org/post.html?post_id=8660
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