Page 255 - CA Final PARAM Digital Book.

Answer Part I -- Relevant Standards & Laws
▪ Section 129(3) of the Companies Act, 2013

▪ Companies (Accounts) Rules, 2014,
▪ Accounting Standard 21
▪ Accounting Standard 13
Part II -- Requirements of Relevant Standards & Laws
➢ Companies Act, 2013
Section 129(3) of the Companies Act ,2013
Where a company has one or more subsidiaries, including associate company and joint
venture, it shall, in addition to its own financial statements prepare a consolidated
financial statement of the company and of all the subsidiaries in the same form and
manner as that of its own.

Companies (Accounts) Rules, 2014,
The consolidation of financial statements of the company shall be made in accordance
with the provisions of Schedule III to the Act and the applicable accounting standards.
However, a company which is not required to prepare consolidated financial statements
under the Accounting Standards, it shall be sufficient if the company complies with
provisions on consolidated financial statements provided in Schedule III of the Act

➢ Accounting Standard

Accounting Standard 21 “Consolidated Financial Statements”, states that
Accounting Standard 21 “Consolidated Financial Statements”, states that a subsidiary
should be excluded from consolidation when control is intended to be temporary because
the shares are acquired and held exclusively with a view to its subsequent disposal in the
near future.

Control to be considered Temporary & AS 13
Where an enterprise owns majority of voting power by virtue of ownership of the shares
of another enterprise and all the shares are acquired & held exclusively with a view to
their subsequent disposal in the near future, the control by the first mentioned enterprise
would be considered temporary and the investments in such subsidiaries should be
accounted for in accordance with AS 13 “Accounting for Investments”.

Certain things that auditor should verify
In the case of an entity which is excluded from consolidation on the ground that the
relationship of parent with the other entity as subsidiary is temporary, the auditor should
verify that
• the intention of the parent, to dispose the subsidiary, in the near future, existed
at the time of acquisition of the subsidiary.
• The auditor should also verify that the reasons for exclusion are given in the
consolidated financial statements.

Part IV – Conclusion
➢ The intention of R Ltd. is quite clear that the control in S ltd is temporary as shares are held
exclusively with a view of subsequent disposal in the near future
➢ Therefore, R Ltd. Is not required to prepare consolidated financial statement as per AS 21.
➢ However, for the compliance of provisions related to consolidation of financial statements given
under section 129(3) of the Companies Act, 2013, R Ltd. is required to made disclosures in the
financial statements as per the provisions provided in Schedule III to the Companies Act’ 2013.
Author’s Note

• Refer author’s note of QNO 436.300.

QNO Temporary Holding (IND AS) Old Course – (M17E)
436.200 TITANIUM CNO— GA.180 New Course – (SM23)
Moon Ltd acquired 65% shares of Sun Ltd on 28th October 2016 On 25th April 2017they sold 25% shares

www.auditguru.in PARAM 13.4 | P a g e