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₹ 12 crore pooled has been invested in shares and debentures of various companies and profit earned
due to appreciation of the prices of these shares has been distributed to various shareholders of the
company. Performance of all of its investments is measured on fair value basis. Now, CA Vardhman
raised an issue while auditing financial statements of Jambu & Sudharma Investments Ltd. whether the
consolidated financial statements are required as per Section 129(3) of the Companies Act, 2013?
Analyse the above issue and give your opinion.
Answer Part I -- Relevant Standards & Laws
▪ Ind AS 110‘Consolidated Financial Statements’

▪ Section 129(3) of the Companies Act, 2013
▪ Companies (Accounts) Rules, 2014
Part II -- Requirements of Relevant Standards & Laws
➢ 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.

➢ Ind AS 110‘Consolidated Financial Statements’
However, an investment entity need not present consolidated financial statements if it is required,
in accordance with Ind AS 110‘Consolidated Financial Statements’, to measure all of its subsidiaries
at fair value through profit or loss. A parent shall determine whether it is an investment entity.
An investment entity is an entity that
obtains funds from one or more investors for the purpose of providing those investor(s)
with investment management services;
commits to its investor(s) that its business purpose is to invest funds solely for returns
from capital appreciation, investment income, or both; and
measures and evaluates the performance of substantially all of its investments on a fair
value basis.
Part III – Case Discussion
➢ In the given case, H Limited is an investment company preparing its financial statements in
accordance with Ind AS and the company had invested 25% in SI Ltd., 50% in S2 Ltd. and 60% in S3
Ltd. of the respective share capitals of the investee companies.
Part IV – Conclusion
➢ In view of provisions discussed in Ind AS 110, the Company is not required to prepare consolidated
financial statements however, for the compliance of Companies (Accounts) Rules, 2014, it shall be
sufficient if the company complies with provisions on consolidated financial statements provided
in Schedule III of the Act.

Thus, it can be concluded that ultimate authority on consolidation is AS / Ind AS as prescribed by
law and if they give some exemption it should be followed. If out of exemption some subsidiaries
are not consolidated, then list should be disclosed in notes to accounts with reason.
Author’s Note
1.
#controversy

This answer originally when provided by ICAI in suggested of NOV 18 (New) was not correct but
later on Board of Studies changed the answer after discussion with the author.
2. AS-21 , gives two exemption from consolidation.
(a) Temporary Holding
(b) Restriction on repartrition of funds
But IND-AS 110, does not gives above two exemptions.So consolidation will be required as per IND-AS
110, even in above two points (a) & (b) are applicable.

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