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Minority interest to be kept distinct

BS Economy Bureau

The Institute of Chartered Accountants of India (ICAI), which has issued the 21st accounting standard (AS-21) on consolidated financial statements, has specified that minority interests be presented separately in the consolidated balance sheet and income statements of the parent company.

Minority interests refer to the part of the net results of operations and net assets of a subsidiary attributable to interests, which are not owned, directly or indirectly by the parent.

Consolidated financial statements are presented by a parent also called as a holding company to provide financial information about the economic activities of its group. It reveals the economic resources controlled by the group, its obligations and the results.

According to AS-21, the minority interests in the net income of consolidated subsidiaries should be adjusted against the income of the group to arrive at the net income attributable to the parent.

Similarly, their interest in the net assets should be presented in the consolidated balance sheet separately from liabilities and equity of parent's shareholders.

The standard also specifies that intra-group balances and transactions and resulting unrealised profits be eliminated. The unrealised losses, too, should be eliminated unless the costs cannot be recovered.

The consolidated financial statements of the parent and its subsidiaries should be combined on a line-by-line basis by adding together like items of assets, liabilities, income and expenses. The cost to the parent of its investment in each subsidiary and the parent's portion of equity at the date on which investment is made should be eliminated.

While the excess of cost over the parent's portion of equity in the subsidiary at the date on which investment is made should be described as goodwill and recognised as an asset in the consolidated financial statements, the difference between the cost and equity when the cost is less than the equity should be treated as a capital reserve.

The consolidated financial statement should be prepared using uniform accounting policies for like transactions and other events and if it is not possible then the fact should be disclosed. The financial statements used in consolidation should be drawn up to the same reporting date. If it is not practicable, adjustments should be made for the effects of significant transactions.

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