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Consolidated Financial Statement
Accountancy
Suppose A Ltd holds 38% shares in B Ltd and B Ltd holds 25% shares in A Ltd . whole should prepare CFS ? A Ltd or Both
Answers (4)
1. Given: A Ltd holds 38% in B Ltd B Ltd holds 25% in A Ltd (cross-holding) 2. Step 1: Applying Ind AS control logic Is A Ltd control B Ltd? 38% does NOT automatically mean control Control under Ind AS 110 requires: a. Power over relevant activities b. Exposure to variable returns c. Ability to use power to affect returns With only 38%, control exists only if: Remaining shares are widely dispersed and A Ltd has de facto control But in exam questions, unless specifically stated, 38% = significant influence, not control. Is B Ltd control A Ltd? 25% = significant influence only Definitely not control 3. Step 2: Consolidation requirement When is CFS required? As per Ind AS 110: Only a parent prepares Consolidated Financial Statements. So: If there is no parent–subsidiary relationship → No CFS 4. Solution: Neither A Ltd nor B Ltd will prepare CFS Reason: Both have significant influence over each other No control exists Hence, no parent–subsidiary relationship Both companies will: Prepare Standalone Financial Statements and Account for investment using equity method (as associate) as per Ind AS 28 Summary: A Ltd holding 38% in B Ltd and B Ltd holding 25% in A Ltd indicates significant influence, not control. Since neither entity controls the other, no parent–subsidiary relationship exists. Therefore, neither A Ltd nor B Ltd is required to prepare Consolidated Financial Statements. Meaning: De facto control exists when an investor has power to direct the relevant activities of an investee in practice, despite holding less than 50% voting rights, because other shareholdings are widely dispersed or passive.
Section 19.Subsidiary company not to hold shares in its holding company. (1) No company shall, either by itself or through its nominees, hold any shares in its holding company and no holding company shall allot or transfer its shares to any of its subsidiary company and any such allotment or transfer of shares of a company to its subsidiary company shall be void. Further control exists if voting power / control exceeds 50% or through control over board. In the given scenario, CFS would not be prepared.
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