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AS 21: Consolidated Financial Statements

A professional application note for accounts teams: what the standard controls, where it appears in company accounting, how to apply it and what evidence reviewers expect. Animated notes with Play, Pause, Replay, English and Hindi voice options are included below.

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AS 21: Consolidated Financial Statements: interactive explanation

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Professional scope: This is an implementation-oriented explanation for accountants, finance managers, controllers and reviewers responsible for company accounts.

1. What this standard controls

A parent presents the group as a single economic entity by combining parent and subsidiary financial statements and eliminating intra-group effects.

Current position: Included in the ICAI Accounting Standards framework, subject to entity applicability, notified rules and later amendments.

2. Where it appears in the real accounting world

01New subsidiary acquisition or disposal
02Monthly group consolidation
03Intercompany sales, balances and unrealised profit
04Minority interest and uniform policies

3. Practical application workflow

  1. Confirm control and consolidation perimeter.
  2. Align reporting dates and accounting policies.
  3. Combine like items line by line.
  4. Eliminate investment against parent share of subsidiary equity and recognise relevant difference.
  5. Eliminate intra-group balances, transactions and unrealised profits.

4. Real-world application example

Parent sells inventory to subsidiary at a profit and the inventory remains unsold at year end. The intercompany sale/purchase is eliminated and unrealised profit in closing inventory is removed from group results.

5. Journal-entry and accounting record pattern

Intercompany eliminationDr Group revenue / Cr Group cost of sales for internal sale, then eliminate unrealised profit in inventory.
Balance eliminationEliminate group receivable against corresponding payable.

Entry wording is illustrative. Actual accounts, tax effects, dimensions and narration depend on the entity’s chart of accounts and facts.

6. Month-end and year-end control file

Controls to operate

  • Legal-entity and ownership master.
  • Standard consolidation reporting pack.
  • Intercompany matching by counterparty and document.
  • Uniform policy adjustment register.
  • Consolidation journal approval and roll-forward.

Common errors and red flags

  • Consolidating based only on shareholding percentage.
  • Leaving intercompany differences unresolved.
  • Ignoring unrealised profit in inventory or assets.
  • Using different policies without adjustment.
  • Incorrect minority-interest calculation.

7. Reviewer questions

  1. Does control exist in substance?
  2. Are reporting dates and policies aligned?
  3. Do all intercompany balances match?
  4. What unrealised profit remains in group assets?
  5. Are acquisition and disposal dates correctly reflected?

Related standards: AS 13, AS 18, AS 23, AS 27

Authoritative reference:

Before approving a material conclusion, check the latest ICAI compendium, notified Companies (Accounting Standards) Rules, entity applicability and subsequent amendments.

ICAI Accounting Standards Compendium →
Companies (Accounting Standards) Rules and amendments →

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Professional note: This educational resource does not replace entity-specific analysis, the latest notified standard, law, regulation, audit judgment or professional advice.