What is Ind as 110?
What is Ind as 110?
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
Ind AS 110 stands for Indian Accounting Standard 110. It deals with principles of preparation and presentation of consolidated financial statements when an entity controls one or more other entities.
It is often seen that an entity owns and controls one or more entities. Like a parent company have many subsidiaries. For example, Alphabet is the parent company of Google. The parent and its subsidiaries prepare their financial statements separately to present to the true and fair view of their business.
Consolidated financial statements are the financial statements of the whole group i.e. taking the parent and its subsidiaries together. It reports the assets, liabilities, equity, income and expenses of the whole group as a single economic entity.
It helps the stakeholders to know the overall performance and positions of assets and liabilities of the whole group.
When to prepare Consolidated Financial Statements(CFS)
The requirement for the preparation of CFS depends on the control model provided by Ind AS 110. As per this model, an investor controls an investee when:
If both the conditions are fulfilled, then it can be said that the investor controls the investee and the investor has to prepare the consolidated financial statements with its investee. Every type of investor-investee relationship is judged as per Ind AS 110.
Exposure or right to variable returns
Variable returns mean no fixed returns and can vary as per the performance of the investee. Such returns can be both positive and negative. These returns include not only return on investment but also the benefits or expenses to which the investor is entitled to or has to bear respectively. Such returns are:
It is not required by Ind AS 110 for an investor to be exposed or have the right to all such variable returns, but there should be significant exposure or right.
Power to affect the variable returns from investee
An investor has power over an investee if it has existing rights that give it direct ability to affect the relevant activities of the investee
An investor generally has many rights over the investee. These rights are of two types:
However, the investor may other substantive rights like power to appoint or remove the board of directors etc.
These rights should not only exist with investors but the investor should also have the ability to exercise such rights.
Scope of Ind AS 110
The investee can be any type of entity, the structure of the investee does not matter whether it is a partnership firm, LLP, company or any Special Purpose Entity (SPE).
If any investor control one or more other entities it will be called parent entity and it will present the consolidated financial statements.
If any parent entity fulfils any of these conditions, then the presentation of consolidated financial statements is not necessary: