ConsolidationofFinancialStatement.

(IAS27)
Objective:

IAS27hasthefollowingobjectivesofsettingstandardstobeapplied: inthepreparationandpresentationofconsolidatedfinancialstatementsforagroupof entitiesunderthecontrolofaparent;and inaccountingforinvestmentsinsubsidiaries,jointlycontrolledentities,andassociates when an entity elects, or is required by local regulations, to present separate (non consolidated)financialstatements.

PresentationofConsolidatedAccounts

A parent is required to present consolidated financial statements in which it consolidates its investmentsinsubsidiaries.
IdentificationofSubsidiaries

Anentityistreatedassubsidiarieswhentheparentacquiresmorethanhalfofthevotingrights oftheentity.Insomecasesevenifmorethanonehalfofthevotingrightsisnotacquireditwill betreatedassubsidiaryifcontrolisevidencedbypower:

over more than one half of the voting rights by virtue of an agreement with other investors,or to govern the financial and operating policies of the entity under a statute or an agreement;or toappointorremovethemajorityofthemembersoftheboardofdirectors;or tocastthemajorityofvotesatameetingoftheboardofdirectors.

Therearecertainexceptionstotheabove. GeneralPrinciples 1. 2. Consolidated financial statements should provide true and fair view of financial conditionandoperatingresultofthebusinessgroup. Consolidated financial statements should be prepared based on legalentity based financial statements of the parent and subsidiaries that belong to the business group, which are prepared in accordance with the generally accepted accounting principles. Consolidated financial statements should display clearly financial information necessaryforinterestpartiesnottomisleadtheirjudgmentsabouttheconditionof thebusinessgroup.

3.

4.

Policiesandproceduresusedforpreparingconsolidatedfinancialstatementsshould beappliedcontinuouslyandnotbechangedwithoutreason.

Issuestoconsiderbeforestartingconsolidation:

Relationship:Indentifysubsidiaryrelationshipwithparentcompany,ifitisrequiredby IAS27tobeconsolidatedwithparent. AccountingCalendar:Incaseaccountingperiodofthesubsidiariesdifferfromthoseof theparent,thesubsidiariesshouldperformappropriateaccountingproceduresasofthe balance sheet date of the consolidated entity, which are essentially the same as the formalaccountingproceduresinpreparingfinancialstatements. AccountingPoliciesandProcedures:Inprinciple,accountingpoliciesandproceduresfor similartransactionsundersimilarcircumstancesshouldbeuniformedamongtheparent andsubsidiaries.Differencemightbeexistedincaseofnewlyacquiredsubsidiaryordue tolocalrules&regulationinforeignsubsidiary.Inthesecasesproperadjustmentshould bemadeinconsolidatedfinancialstatement. UniformChartofaccount:Consolidationinvolvecombiningthefinancialstatementsof the parent and its subsidiaries linebyline by adding together like items of assets, liabilities,equity,incomeandexpenses.Thisrequiredauniformchartofaccountacross parents and all its consolidated subsidiaries. In case of difference it must be aligned/mappedparentcompany.

GuidelinesforPreparationofConsolidatedIncomeStatements(inbrief) 1. LineByLineConsolidation:combiningthefinancialstatementsoftheparentand its subsidiaries linebyline by adding together like items of assets, liabilities, equity,incomeandexpenses 2. Eliminating Intercompany Transactions among Consolidated Entities: Items related to intercompany transactions between the parent and its subsidiary or among the subsidiaries should be eliminated. Several items need to be given specialattentiontoensurethattheconsolidatedfinancialstatementsappearas iftheyarethestatementsofasinglecompany,namely: Intercorporatestockholdings. Intercompanyreceivablesandpayables. Intercompanysales(i.e.,unrealizedprofits) 3. EliminatingUnrealizedGainsandLosses: Unrealizedgainsandlossesincludedininventories,fixedassets,orother assets that are obtained by intercompany transactions among consolidatedentitiesshouldbeeliminated . If there is a minority interest in the selling subsidiary, the unrealized gains and losses should be allocated between the parent's interest and the minority interest based on the proportionate ownership of the parent'sinterestandtheminorityinterest.

4. OffsettingInvestmentsandNetAssets. Investments by a parent in its subsidiary and the corresponding net assetsofthesubsidiaryshouldbeoffsetandeliminatedforconsolidation purpose. If there is a difference between the investments by a parent in its subsidiaryandtheoffsettingnetassetsofthesubsidiary,thedifference shouldbeaccountedforasaconsolidationadjustment(goodwill). The investments and the net assets between subsidiaries should be offset,asiftheoffsetisbetweenaparentanditssubsidiary. 5. TheMinorityInterest. Aportionofthenetassetsthatisnotattributedtotheparentshouldbe attributedtotheminorityinterest. Ifaccumulatedlossesofasubsidiarythatwouldotherwisebeattributed totheminorityinterestexceedstheaccumulatedamountoftheminority interestshouldbeattributedtotheparent'sinterest 6. Foreign Subsidiary: Financial Statements of Foreign subsidiary who is maintaining its financial record in local currency should be translated in parent company currency beforeconsolidation. RealityChecktoremember Youcantownyourself. Youcantoweyourselfmoney. Youcantmakemoneysellingtoyourself. GeneralNote 1. Parentcompanydoesnotprepareitsfinancialstatementsseparatelyandonlyprepares theconsolidatedfinancialstatements, 2. Subsidiarycompanywillprepareitsseparatefinancialstatementsaswell, 3. Parentcompanywillfollowtheconsolidationmethodbasedonitscontrolleveloverthe subsidiarycompanyasfollows: Controllevel Method Noinfluenceoversubsidiary Fairvaluemethod Significantcontroloversubsidiary Equitymethod Completecontrol Purchasemethod