Library / Technical Accounting Manual: IFRS, IAS and Ind AS Equivalents

IFRS 10 - Consolidated Financial Statements

Indian equivalent: Ind AS 110 - Consolidated Financial Statements

Objective and scope

IFRS 10 sets the rule for when a parent must combine a subsidiary's accounts with its own into a single set of 'group' accounts, built entirely on the concept of control.

Core principle

A group of companies should present itself to the world as one economic entity. IFRS 10 says: if a parent controls another company, it must consolidate - add the subsidiary's assets, liabilities, income and expenses line-by-line - and show any outside owners as a non-controlling interest.

Defined terms and technical terminology

Term	Technical meaning
Control	Power over the investee + exposure to variable returns + ability to use that power to affect those returns. Usually, but not always, >50% of voting rights.
Parent	The entity that controls one or more others.
Subsidiary	An entity that is controlled by a parent.
Consolidation	Combining parent and subsidiary financials into one set of group statements, eliminating intra-group items.
Non-controlling interest (NCI)	The equity in a subsidiary not owned by the parent (minority shareholders).
Power	Existing rights giving the current ability to direct the relevant activities of the investee.

Application and worked illustrations

The three elements of control

Control isn't just about owning a majority of shares. IFRS 10 requires all three elements together: (1) power to direct the relevant activities (the ones that most affect returns); (2) exposure to variable returns (you gain or lose based on performance); and (3) the ability to use power to affect those returns. Usually >50% of voting power gives control, but control can exist with less (e.g., via contracts or dispersed other shareholders) or be absent even above 50% (e.g., if another party holds decisive rights).

Consolidation mechanics

On consolidation you add 100% of the subsidiary's assets, liabilities, income and expenses to the parent's - even if you own less than 100% - because you control the whole entity. You then eliminate intra-group balances and transactions (a sale from parent to subsidiary isn't a real group sale) and present the outsiders' share as non-controlling interest.

Worked example

ParentCo owns 80% of SubCo. Because it controls SubCo, ParentCo consolidates 100% of SubCo's ₹1 crore of assets into the group balance sheet, and shows the outsiders' 20% as a non-controlling interest within equity, with 20% of SubCo's profit attributed to them. If ParentCo sold goods to SubCo during the year, that intra-group sale and any unrealised profit in unsold stock are eliminated so the group doesn't report profit on selling to itself.

Common mistake: consolidating only the owned percentage. You consolidate 100% of a controlled subsidiary and recognise NCI - you do not 'proportionately consolidate' a subsidiary.

IND AS LINK

Ind AS 110 aligns with IFRS 10 - the same control-based model, line-by-line consolidation and NCI presentation.

Further worked illustrations

Extra numeric example - eliminating intra-group profit

Parent sells goods costing ₹1,00,000 to its subsidiary for ₹1,40,000. At year-end the subsidiary still holds half the goods unsold. The unrealised profit in that unsold stock = 50% × ₹40,000 = ₹20,000 must be eliminated on consolidation - the group can't recognise profit on selling to itself. Group inventory is reduced by ₹20,000 and group profit by ₹20,000.

Journal entry - Eliminate unrealised intra-group profit
Account	Debit (₹)	Credit (₹)
Group profit / Cost of sales	20,000
Group inventory		20,000

INDIAN REGULATORY CONTEXT

Under the Companies Act, an Indian company with subsidiaries must prepare Consolidated Financial Statements applying Ind AS 110 - full line-by-line consolidation with elimination of intra-group balances and profits, plus NCI. Standalone accounts are also filed, but investors rely on the consolidated view for the group's true picture.

TECHNICAL EDGE CASE

A company owns just 40% of an investee, but the remaining 60% is spread across thousands of tiny, dispersed shareholders who never coordinate. In practice the 40% holder always wins every vote - this is de facto control, so IFRS 10 requires consolidation despite owning less than half. Conversely, owning 55% but with another party holding decisive contractual veto rights might mean no control.

Extended technical analysis

The control model and consolidation procedures

IFRS 10 establishes a single control model applicable to all investees, including structured entities. Control exists only where all three elements are present concurrently, and must be reassessed whenever facts and circumstances change.

IFRS 10 - Control Assessment Decision Tree
■ Identify the INVESTEE and its RELEVANT ACTIVITIES (those that significantly affect returns)
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◆ ELEMENT 1 - POWER: Does the investor have existing rights giving the current ability to direct the relevant activities?
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▸ Consider: voting rights, potential voting rights, contractual arrangements, de facto control from dispersed holdings
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✖ NO POWER → No control. Assess IAS 28 (significant influence) or IFRS 9
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◆ ELEMENT 2 - EXPOSURE: Is the investor exposed to VARIABLE RETURNS from its involvement?
▼
✖ NO EXPOSURE → No control
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◆ ELEMENT 3 - LINKAGE: Does the investor have the ABILITY TO USE ITS POWER to affect the amount of those returns?
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✖ Acting as an AGENT for others → No control (principal-agent analysis, IFRS 10.B58)
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■ Acting as PRINCIPAL → CONTROL EXISTS → CONSOLIDATE from the date control is obtained

De facto control and potential voting rights

Control may exist without a majority of voting rights. IFRS 10 requires consideration of the size of the investor's holding relative to the size and dispersion of other holdings, voting patterns at previous shareholder meetings, and contractual arrangements. An investor holding 40% where the remaining 60% is held by thousands of unrelated small shareholders who have historically not coordinated may possess de facto control. Conversely, potential voting rights (options, convertibles) are considered only where they are substantive - that is, the holder has the practical ability to exercise them and exercise is not economically prohibitive.

Consolidation procedures

On consolidation the entity: combines like items of assets, liabilities, equity, income, expenses and cash flows line by line; offsets the carrying amount of the parent's investment against the parent's portion of the subsidiary's equity; eliminates in full intragroup assets, liabilities, equity, income, expenses and cash flows; and eliminates unrealised profit in intragroup transactions. Uniform accounting policies must be applied, and the reporting dates must not differ by more than three months.

Changes in ownership interest

Accounting for Changes in Ownership
Scenario	Control impact	Accounting treatment
Acquire additional shares in existing subsidiary	Control retained	Equity transaction - adjust NCI; no gain/loss; no goodwill remeasurement
Dispose of shares, retaining control	Control retained	Equity transaction - adjust NCI; no gain/loss in P&L
Dispose of shares, losing control	Control lost	Derecognise all assets, liabilities and NCI; remeasure any retained interest to fair value; recognise gain/loss in P&L; reclassify related OCI
Acquire control in stages (step acquisition)	Control obtained	Remeasure previously held interest to fair value; gain/loss to P&L; apply IFRS 3

IFRS vs Ind AS - Comparative Analysis
Aspect	IFRS / IAS position	Ind AS position (carve-out / carve-in)
Control model	Three-element model.	Ind AS 110 - fully converged.
Investment entity exemption	Investment entities measure subsidiaries at FVTPL rather than consolidating.	Ind AS 110 contains the same exemption.
Statutory requirement	IFRS-driven.	Section 129(3) of the Companies Act, 2013 independently mandates consolidated financial statements where the company has subsidiaries, associates or joint ventures.
Reporting date difference	Maximum three months.	Same; in practice Indian groups align to 31 March.