How to Consolidate Financial Statements under IFRS ?, This article is basically about how the consolidation of the financial statements work under IFRS. We were having the consolidation of the statements under Accounting Standard – 21, but we are gradually shifting to the global perspective and we are adopting the globally accepted principles of IFRS. How the consolidation is done, when t needs to be done, exclusions from the reporting, objectives of the standard, etc. all the things is explained here. Now check more details about “How to Consolidate Financial Statements under IFRS” from below….

How to Consolidate Financial Statements under IFRS

Objectives of IFRS 10 :

IFRS 10 basically describes the way the consolidation statement should be presented and prepared when one entity has a significant control over the other. The objectives of the statement are as follows:

  1. It requires the parent entity, which is having control over one or more entities to present the consolidation statements.
  2. It will tell about the accounting requirement for the preparation of the statement.
  3. It defines the principle of control and establishes the control for the entities which are required for consolidation.
  4. It decides how to apply such principles of control.
  5. It decides the parameter for the exclusion from the consolidation of the statements.

How to decide the control of the entity ?

When the company is having the business in the many parts of the world, then it becomes difficult for the investors to judge the correct position of the company, so there has to be one single currency statement which would decide the position of the company as a whole. There has to be some basis on which the entity is said to be have been acquired the control. In IFRS-10, the controlling entity is referred as investor and the entity controlled by investor is called investee. The following points would decide the investor is having the control or not:

  1. Investor controls the investee with the existing right which gives the investor to affect the activities of the investee.
  2. Investor has significant returns which are arising from those returns.
  3. The ability of the investor to affect those returns if the investment was not there.

Changes in the Ownership Interest:

When the parent loses the control of the subsidiary with the subsidiary company, then the following would be the consequences:

  1. There would be the change in the investment pattern in the parent company’s financial statement.
  2. The gain or the loss from such change would be adjusted controlling interest.
  3. The parent recognises the investment retained in the former subsidiary when the control is lost and the subsequently accounts for it, then any amount owed by or to the former subsidiary in accordance with the relevant IFRS.

Procedure for Consolidation:

Step 1 – First of the simple steps is to merge all the assets and the liabilities, income and expenses of the parent and the subsidiaries.

Step 2 – From that deduct the investment portion or the equity portion of the subsidiary in the books of investor and relevant carrying amount in the subsidiaries books of account.


Step 3 – Now we need to eliminate the inter group transactions between the parents and the subsidiaries

Step 4 – And finally calculate Minority interest.

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