AS 21 Consolidated Financial Statements: A Practitioner Guide for FY 2026-27
AS 21 (Consolidated Financial Statements) is the Indian Accounting Standard that prescribes how a parent company must prepare and present consolidated financial statements for its group. The standard requires line-by-line consolidation of subsidiaries controlled by the parent and mandates specific disclosures.
The Ministry of Corporate Affairs notified AS 21 under the Companies (Accounting Standards) Rules, 2006, reaffirmed in the Companies (Accounting Standards) Rules, 2021. The standard became effective from 1 April 2001 for Level I enterprises and replaced the earlier ICAI standard issued in March 2001.
For FY 2026-27, AS 21 remains especially relevant to Indian companies outside the Ind AS regime. Family-owned conglomerates and SMEs with holding structures must comply due to Section 129(3) of the Companies Act, 2013. Many groups previously avoided consolidation but are now required to present group accounts.
AS 21 at a Glance
AS 21 establishes how a parent company consolidates its subsidiaries’ financials into a single set of statements. Its core principle is control-based consolidation. The primary users are companies with one or more subsidiaries preparing group accounts.
| Field | Value |
|---|---|
| Standard Number | AS 21 |
| Full Name | Consolidated Financial Statements |
| Issuing Body | ICAI (Accounting Standards Board) |
| Notified By | MCA, Companies (Accounting Standards) Rules, 2006 (reaffirmed in Companies (Accounting Standards) Rules, 2021) |
| Effective Date | 1 April 2001 for Level I enterprises |
| Supersedes | ICAI Accounting Standard issued in March 2001 |
| Equivalent Standard | AS 21 ↔ Ind AS 110 ↔ IFRS 10 |
| Applies To | Mandatory for all enterprises preparing consolidated financial statements under the Accounting Standards framework. Section 129(3) of Companies Act requires CFS where there are subsidiaries/joint ventures/associates. |
What is AS 21: Consolidated Financial Statements?
AS 21 requires a parent company with control over one or more subsidiaries to prepare consolidated financial statements that present the group as a single economic entity. This means combining assets, liabilities, income, and expenses of all group entities line-by-line and eliminating intra-group balances and transactions.
ICAI introduced this standard to align Indian accounting practices with international norms and improve transparency in group reporting. Before its introduction in March 2001, many Indian groups presented only standalone results; convergence with IFRS led to further enhancements.
Statutory auditors, CFOs of holding companies, finance teams in listed companies not covered by Ind AS, and CA students regularly use and interpret this standard.
Objective of AS 21
- Prescribe principles and procedures for preparation and presentation of consolidated financial statements.
- Provide financial information about the economic activities of a group as those of a single economic entity.
- Establish disclosure requirements relating to consolidation.
The objective ensures users receive transparent information about all entities controlled by a parent company. This supports the “true and fair view” principle required by Section 129 of the Companies Act, 2013 and enables informed decision-making by stakeholders.
Who Must Apply AS 21?
Entities covered
| Entity Type | Applicability |
|---|---|
| Level I enterprises | Mandatory |
| Level II/III enterprises | Mandatory if preparing CFS |
| Listed companies not under Ind AS | Mandatory |
| Ind AS-applicable companies | Follow Ind AS 110 instead |
Section 129(3) of the Companies Act, 2013 mandates consolidated financial statements where an entity has subsidiaries (including joint ventures or associates). SEBI also requires listed companies outside Ind AS scope to comply with AS framework standards including AS 23 (associates) and AS 27 (joint ventures).
Scope exclusions
Entities do not apply AS 21 when:
- Investments are in associates (see AS 23)
- Investments are in joint ventures (AS 27)
- Subsidiaries are acquired exclusively for subsequent disposal in the near future
- Subsidiaries operate under severe long-term restrictions impairing fund transfers to parent
When the standard does not apply
Investments in associates fall under AS 23. Joint ventures are governed by AS 27. Subsidiaries held exclusively for disposal or with severe restrictions are excluded as per Para 11.
Key Definitions under AS 21
| Term | Definition |
|---|---|
| Control | Ownership >50% voting power or control over board composition for economic benefit |
| Subsidiary | Enterprise controlled by another enterprise |
| Parent | Enterprise having one or more subsidiaries |
| Group | Parent plus all its subsidiaries |
| Minority interest | Portion of net results/net assets not owned by parent |
| Consolidated financial statements | Financials presenting group as a single enterprise |
Recognition and Measurement under AS 21
When to recognise
An entity begins consolidating a subsidiary from the date it obtains control, either through ownership exceeding half the voting power or through control over board composition. Control triggers include direct or indirect shareholding via other subsidiaries or contractual arrangements granting board majority appointment rights.
Consolidation continues until control ceases. If control is lost due to sale or changes in governance structure, deconsolidation occurs from that date onward.
A subsidiary may be excluded from consolidation if it is held exclusively for subsequent disposal in the near future or operates under severe long-term restrictions that significantly impair its ability to transfer funds to the parent (Para 11).
Initial measurement
On acquiring a subsidiary:
The cost of investment is allocated between:
- The parent’s share of equity at acquisition date
- Goodwill or capital reserve arising on consolidation
Goodwill arises when cost exceeds parent’s share in net assets; capital reserve arises if cost is lower than share in net assets.
**Goodwill formula:**
Goodwill = Cost of investment − Parent’s share in equity at acquisition
Capital Reserve = Parent’s share − Cost (if negative difference)
Example:
If Sundaram Holdings Ltd acquires Sundaram Logistics for Rs 30 crore when net assets are Rs 36 crore (75% stake),
Parent’s share = Rs 36 crore × 75% = Rs 27 crore
Goodwill = Rs 30 crore, Rs 27 crore = Rs 3 crore
The investment account is eliminated against corresponding equity; goodwill/capital reserve appears separately on consolidation.
Subsequent measurement
Post-acquisition:
Combine like items, assets/liabilities/income/expenses, of parent and subsidiary line-by-line.
Eliminate intra-group balances and transactions fully.
Recognise minority interest as proportionate share in net results/net assets not owned by parent; present separately from equity attributable to parent shareholders.
Goodwill on consolidation is not amortised but should be tested periodically for impairment as per AS 28 Impairment of Assets.
Uniform accounting policies must be applied across all group entities where practicable; adjustments made if policies differ significantly (Para 19-Para 20).
If year ends differ between parent/subsidiary by more than six months, adjust subsidiary results before consolidation.
Tax effects arising from intra-group eliminations must also be adjusted per [AS 22 Accounting for Taxes on Income].
Consolidation Procedure Under AS 21
The procedural steps mandated by Para 19-Para 22 are:
Combine financial statements line-by-line.
Eliminate cost of investment against parent’s portion of equity at acquisition date; recognise goodwill/capital reserve.
Identify minority interest separately within equity.
Eliminate all intra-group balances/transactions, including unrealised profits/losses from such transactions.
Align accounting policies across group entities.
Adjust results if reporting dates differ beyond six months.
This structured approach ensures that consolidated accounts reflect only external transactions and present an accurate picture of group performance as required by both ICAI guidance and Section 129(3) compliance reviews observed in practice.
Worked Examples on AS 21
Example 1: Acquisition of a Subsidiary with Goodwill Recognition
Narrative:
Sundaram Holdings Ltd acquires a controlling stake (75%) in Sundaram Logistics on April 1st, 2025 for Rs 30 crore. Net assets at acquisition stand at Rs 36 crore comprising equity capital Rs 10 crore plus reserves Rs 26 crore.
Computation Table
| Item | Calculation | Amount (Rs crores) |
|---|---|---|
| Parent’s share in net assets | Rs 36 × 75% | Rs 27 |
| Cost of investment | As paid | Rs 30 |
| Goodwill | Cost, Parent’s share | Rs 3 |
| Minority interest | Rs 36 × 25% | Rs 9 |
Journal Entry on Consolidation:
Dr Goodwill Rs 3 crore
Dr Net Assets Rs 36 crore
Cr Investment Rs 30 crore
Cr Minority Interest Rs 9 crore
This entry eliminates Sundaram Holdings’ investment against its share in subsidiary equity while recognising goodwill and minority interest per Para 13 requirements.
Example 2: Elimination of Intra-group Transactions & Unrealised Profit
Narrative:
Krishna Steel Industries sells goods worth Rs 4 crore to its subsidiary Krishna Castings at a profit margin, cost was Rs 3 crore so profit is Rs 1 crore. At year-end Krishna Castings holds unsold inventory representing sixty percent (Rs 2.40 crore cost).
Computation Table
| Item | Calculation | Amount (Rs crores) |
|---|---|---|
| Intra-group sale | Full elimination | Rs 4 |
| Unrealised profit on inventory | Profit × % unsold | Rs 1 × 60% = Rs 0.60 |
| Adjusted inventory value | Inventory, unrealised profit | Rs 2.40 - Rs 0.60 = Rs 1.80 |
Journal Entry on Consolidation:
Dr Sales (Krishna Steel) Rs 4 crore
Cr Cost of Sales (Krishna Castings) Rs 4 crore
Dr Cost of Sales (CFS) Rs 0.60 crore
Cr Inventory Rs 0.60 crore
Tax effect adjustments follow per [AS 22 Accounting for Taxes on Income]. This ensures no artificial profit remains within consolidated results due to intra-group trading, a frequent audit focus area across Indian manufacturing groups.
Disclosure Requirements under AS 21
Schedule III to the Companies Act, 2013, and AS 21 require detailed disclosures to ensure users understand the structure, composition, and material judgments in consolidated financial statements. Transparent disclosure enables stakeholders and auditors to assess group relationships, consolidation scope, and key financial impacts.
| Item | Requirement | Para Reference |
|---|---|---|
| List of subsidiaries | Disclose list of subsidiaries with country of incorporation or residence, ownership percentage, and voting power if different | Para 24 |
| Reasons for not consolidating a subsidiary | Where a subsidiary is excluded from consolidation, disclose reasons | Para 24 |
| Nature of relationship between parent and subsidiary | Where parent does not own more than half of voting power but consolidates due to board control | Para 24 |
| Effect of acquisition or disposal on financial position and results | Disclose for material acquisitions and disposals during the period | Para 24 |
| Names of enterprises consolidated | Disclose principal activities and country of incorporation | Para 24 |
| Goodwill arising on consolidation | Disclose carrying amount and movements | Para 24 |
Auditors must verify these disclosures for completeness and accuracy as part of their reporting responsibility under SA 700.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Failing to consolidate a subsidiary that is controlled even though parent owns less than 50% voting power.
- Inconsistent accounting policies between parent and subsidiary not aligned at consolidation.
- Failing to eliminate unrealised profits on intra-group transactions, particularly upstream sales (subsidiary to parent).
- Incorrect treatment of minority interest as a liability rather than a separate component within equity.
- Excluding a subsidiary from consolidation without meeting Para 11 criteria.
- Not adjusting for differences in financial year-end of parent and subsidiary (maximum six-month difference allowed).
Industry application notes
Family-owned conglomerates in India often feature complex holding structures. Section 129(3) of the Companies Act, 2013 makes consolidated reporting mandatory. Many smaller groups historically did not prepare consolidated accounts; compliance now requires careful application of AS 21.
Listed Indian companies outside Ind AS must still present consolidated financial statements. SEBI mandates CFS for such companies; AS 21 applies along with AS 23 for associates and AS 27 for joint ventures.
In real estate, project-specific SPVs are typically consolidated. Application is straightforward for wholly-owned SPVs but becomes complex when minority partners are involved, especially in developer-landowner arrangements.
AS 21 vs Ind AS 110 vs IFRS: Key Differences
The table below summarises major differences between AS 21 (Indian GAAP), Ind AS 110 (Indian Accounting Standards), and IFRS 10 (International Financial Reporting Standards) for group consolidation:
| Aspect | AS | Ind AS | IFRS |
|---|---|---|---|
| Definition of control | Voting power-based plus board control | Power + variable returns + ability to affect returns | Same as Ind AS |
| Measurement of minority interest/NCI | Proportionate share of net assets only | Choice: fair value or proportionate share | Choice |
| Goodwill amortisation | Not amortised; tested for impairment | Not amortised; tested annually | Same as Ind AS |
| Step acquisitions | Cost-based aggregation | Re-measure previously held at fair value | Same as Ind AS |
| Loss of control | Cost-based gain/loss | Fair value retained interest | Same as Ind AS |
India has adopted several carve-outs from IFRS in its transition path. The definition of control under Ind AS 110 aligns with IFRS 10 but differs significantly from the procedural test in AS 21. Measurement options for non-controlling interests are broader under Ind AS/IFRS compared to legacy Indian GAAP.
Latest Amendments to AS 21 (FY 2026-27)
No amendments have been notified to AS 21 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.
Related Standards You Should Know
- [Ind AS 110](/ind-as-110-consolidated-financial-statements/), Equivalent consolidation standard for Ind AS-applicable companies; principle-based control test.
- [AS 23](/as-23-investments-in-associates/), Investments in associates accounted under equity method.
- [AS 27](/as-27-financial-reporting-of-interests-in-joint-ventures/), Investments in joint ventures (proportionate consolidation under AS 27).
- [AS 14](/as-14-amalgamations/), Amalgamations, purchase method principles inform business combination accounting.
- [AS 28](/as-28-impairment-of-assets/), Goodwill on consolidation tested for impairment.
Need Help with AS 21 Compliance?
Patron Accounting LLP advises Indian groups on all aspects of group reporting under the Accounting Standards framework. Our team supports statutory auditors, CFOs, and finance teams in preparing compliant consolidated financial statements under Schedule III.
Our services include:
- Statutory Audit
- Financial Reporting & Schedule III compliance
- Disclosure Review
- Ind AS Advisory
Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.
Frequently Asked Questions (FAQs)
Every parent company having one or more subsidiaries must prepare consolidated financial statements as per AS 21 if it prepares CFS under the Accounting Standards framework. Section 129(3) of the Companies Act, 2013 mandates this requirement except where Ind AS applies.
Control exists when an entity owns more than half the voting power directly or indirectly through subsidiaries or controls board composition so as to obtain economic benefits from its activities. This test is simpler than the principle-based assessment in Ind AS 110.
The key differences include how control is defined (voting power vs principle-based), measurement options for non-controlling interests (proportionate share only vs fair value option), step acquisition accounting, and loss-of-control treatment. Ind AS aligns closely with IFRS while AS follows legacy Indian GAAP rules.
Minority interest represents that portion of net assets and net results attributable to interests not owned by the parent. Under AS 21, it appears separately from equity attributable to parent shareholders but within equity, not as a liability, in the consolidated balance sheet.
Yes. All intra-group balances and transactions, including sales, are eliminated fully during consolidation under AS 21. Any unrealised profit embedded in unsold inventory at year-end is also eliminated so that only external profits are reported by the group.
Goodwill arises when cost exceeds the parent’s share in net assets at acquisition date. Under AS 21, goodwill is not amortised but should be tested periodically for impairment following AS 28 Impairment of Assets.
Section 129(3) of the Companies Act, 2013 requires every company having one or more subsidiaries, including associates or joint ventures, to prepare consolidated financial statements with its standalone accounts according to prescribed standards such as AS 21 or Ind AS 110.
Yes, a subsidiary may be excluded if it is acquired exclusively with a view to subsequent disposal in the near future or operates under severe long-term restrictions impairing fund transfers to the parent. Such exclusions must be disclosed with reasons per Para 11 and Para 24.
Frequent errors include failing to consolidate controlled entities where voting power appears low but board control exists; inconsistent policies across group entities; incomplete elimination of intra-group profits; incorrect presentation of minority interests; or omitting required disclosures about excluded subsidiaries.
Yes, if year ends differ by more than six months, adjustment is required so that all group entities’ results are included up to a common date per Para 18(b). Uniformity ensures comparability across periods within consolidated accounts.
About This Article
Reviewed by CA & CS Team · Patron Accounting LLP
Technical reviewer: CA Sundram Gupta, FCA
Last reviewed: 2026-05-02
Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Accounting Standards) Rules, 2006 (reaffirmed in Companies (Accounting Standards) Rules, 2021)) · IFRS Foundation