Index

Consolidation
Financial Statements
1. Types & Features of financial statements
2. Objectives & Importance of financial statements
Consolidated Financial Statement
1. Definitions
2. Objectives of CFS
3. Scope of CFS
4. Advantages of CFS
5. Disadvantages of CFS
6. Contents of CFS
7. Steps Of CFS
8. Principals of CFS
Individual financial Statements
1. Difference between CFS & IFS

Lllustration

Introduction of Infosys
History of Infosys
Vision & Mission Statement
Policies for preparation of consolidated financial
statments
Statement of balance sheet , profit & loss , cash flow
statement of Infosys

Conclusion / Summary.

What is consolidation?
The combining of assets, liabilities and other financial items of
two or more entities into one. In the context of financial

accounting, the term consolidate often refers to the consolidation

of financial statements, where all subsidiaries report under the
umbrella of a parent company. Consolidation also refers to the
merger and acquisition of smaller companies into larger
companies. A consolidation, however, differs from a merger in
that the consolidated companies could also result in a new entity,
whereas in a merger one company absorbs the other and remains
in existence while the other is dissolved.

What are financial statements?

Financial Statements represent a formal record of the financial
activities of an entity. These are written reports that quantify the
financial strength, performance and liquidity of a company.
Financial Statements reflect the financial effects of business
transactions and events on the entity.
The four main financial statements for a small business include
the income statement, the balance sheet, the statement of cash
flow and the statement of owner's equity. Private companies and
small businesses don't need to prepare financial statements.
However, if they want to go public or need financing, a set of
financial statements will come in handy. The statements help
small business owners to compile their financial records, and
compare the performance of the current period against prior
periods and the industry average.

What Are the Types of financial Statements?

Income Statement
The basic components of an income statement are revenues,
expenses and profits. The top line usually shows the revenue and
the bottom line displays the net income or loss. Companies incur
losses if expenses exceed revenues. The size and complexity of a
company determines the number of items on the income
statement, but the key categories include sales, operating
expenses and non-operating expenses. Gross profit equals sales
minus cost of goods sold. Operating expenses include advertising,
administrative and selling costs. Cost of goods sold equals the
cost of acquiring, assembling or manufacturing products. Net
income equals sales minus the sum of the cost of goods sold,
operating expenses, interest and taxes. The income statement of
a small company may have just two headings: "sales" and
"expenses," with a list of the major items.

Balance Sheet
The balance sheet components include assets, liabilities and
owner's equity. Assets are displayed on the left side while the
other two components are shown on the right side. The basic
accounting equation states that assets must equal the sum of
liabilities and owner's equity. Assets include current assets, such

as cash and inventory, plus fixed assets, such as the plant and
other property. Liabilities include short-term liabilities, including
accounts payable, and long-term liabilities, such as bonds. A small
business may not have any long-term debt. The owners' equity
section of the balance sheet may contain just the ending balance
of the period because the statement of owner's equity shows the
calculation of the ending balance.

Statement of Cash Flow

The statement of cash flow for a large company usually groups
the cash flow into the operating, investing and financing activities
sections. However, this statement for a small business may
contain just two sections: "cash inflows" and "cash outflows."
Cash inflows include cash sales, collected receivables, investment
income and fee income. Cash outflows include salaries, interest,
rent, inventory purchases, utilities and line-of-credit balance
repayments. Net cash flow is the difference between cash inflows
and cash outflows.

Statement of Owner's Equity

The statement of owner's equity reports changes in owner's or
partners' equity between accounting periods. The key
components are the beginning equity balance, additions and
subtractions during the period, plus an ending balance. Additions

include the net income and additional owner investments, while

subtractions include dividend payments and owner withdrawals.
The ending balance equals the beginning balance plus additions
minus subtractions.

Features of Financial Statements:

1. The Financial Statements should be relevant for the purpose for

which they are prepared. Unnecessary and confusing disclosures
should be avoided and all those that are relevant and material
should be reported to the public.

2. They should convey full and accurate information about the

performance, position, progress and prospects of an enterprise. It
is also important that those who prepare and present the financial
statements should not allow their personal prejudices to distort
the facts.

3. They should be easily comparable with previous statements or

with those of similar concerns or industry. Comparability increases
the utility of financial statements.

4. They should be prepared in a classified form so that a better

and meaningful analysis could be made.

5. The financial statements should be prepared and presented at

the right time. Undue delay in their preparation would reduce the
significance and utility of these statements.

6. The financial statements must have general acceptability and

understanding. This can be achieved only by applying certain
generally accepted accounting principles in their preparation.

7. The financial statements should not be affected by

inconsistencies arising out of personal judgment and procedural
choices exercised by the accountant.

8. Financial Statements should comply with the legal

requirements if any, as regards form, contents, and disclosures

and methods. In India, companies are required to present their

financial statements according to the Companies Act, 1956.

Objectives of Financial Statement :

To know about business activities whether running at a profit or

loss.
To ascertain the financial position of the business.
To provide meaningful information about the financial activities of
a business to different persons or parties.
To provide information about the capacity of the business for
paying loan and interest thereon.
To provide information about economic resources and obligations
and their changing pattern.
Importance of Financial Statements:
The importance of financial statements lies in their utility to
satisfy the varied interest of different categories of parties such as
management, creditors, public, etc.
1.Importance to Management:
The management team requires up to date, accurate and
systematic financial information for the purposes. Financial
statements help the management to understand the

position, progress and prospects of business vis-a-vis the

industry.
By providing the management with the causes of business
results, they enable them to formulate appropriate policies
and courses of action for the future. The management
communicates only through these financial statements, their
performance to various parties and justify their activities and
thereby their existence.
A comparative analysis of financial statements reveals the
trend in the progress and position of enterprise and enables
the management to make suitable changes in the policies to
avert unfavorable situations.
2. Importance to the Shareholders:
Management is separated from ownership in the case of
companies. Shareholders cannot, directly, take part in the
day-to-day activities of business. However, the results of
these activities should be reported to shareholders at the
annual general body meeting in the form of financial
statements.
These statements enable the shareholders to know about
the efficiency and effectiveness of the management and also
the earning capacity and financial strength of the company.
By analyzing the financial statements, the prospective
shareholders could ascertain the profit earning capacity,

present position and future prospects of the company and

decide about making their investments in this company.
3. Importance to Lenders/Creditors:
The financial statements serve as a useful guide for the
present and future suppliers and probable lenders of a
company.
It is through a critical examination of the financial
statements that these groups can come to know about the
liquidity, profitability and long-term solvency position of a
company. This would help them to decide about their future
course of action.
4. Importance to Labour:
Workers are entitled to bonus depending upon the size of
profit as disclosed by audited profit and loss account. Thus, P
& L a/c becomes greatly important to the workers. In wages
negotiations also, the size of profits and profitability
achieved are greatly relevant.
5. Importance to the Public:
Business is a social entity. Various groups of society, though
directly not connected with business, are interested in
knowing the position, progress and prospects of a business
enterprise.
They are financial analysts, lawyers, trade associations,
trade unions, financial press, research scholars and teachers,

etc. It is only through these published financial statements

these people can analyze, judge and comment upon
business enterprise.

What is the meaning of consolidated financial statements?

Consolidated financial statements refer to the financial
statements which lead to the subsidiaries of the holding company
its summative accounting figure. Putting another way,
consolidated financial statements can be addressed as the
combined financial statements of a parent company and its
subsidiaries.
According to IAS 27 "Consolidated and separate financial
statements", consolidated financial statements are the financial
statements of a group presented as those of a single economic
entity.

Definitions
1. A subsidiary is a company that is controlled by another
company (known as the parent)
2. A parent (also known as a Holding Company) is a company that
has one or more subsidiaries.
3. A group is a parent and all its subsidiaries.

4. Consolidated financial statements are the financial statements

of a group presented as those of a single company.
5. Equity is the residual interest in the assets of a company after
deducting all its v liabilities.
6. Minority interest is that part of the net results of operations and
of the net assets of a subsidiary attributable to interests which are
owned, directly or indirectly through subsidiary by the parent.

7. Control.
Control means, basically,
a. The ownership, directly or indirectly through subsidiary, of
more than one-half of the voting power of a company ; or
b. Control of the composition of the board of directors of a
company so as to obtain economic benefits from its
activities. A company is considered to control the
composition of the board of directors of a company.

Objectives Of CFS :1.A parent that presents CFS should present these
statements in addition to its separate financial statements.
Users of the financial statements of a parent are usually
concerned with, and need to be informed about the financial
position and results of operations of not only the enterprise
itself

But also of the group as a whole. This need is served by

providing the

users-

a. separate financial statements of the parent ; and

b. CFS, which presents financial information about the group
as that of a single enterprise regard to the legal boundaries
of the separate legal entities.
2. CFS are presented by a parent (also known as holding
company) to provide financial information about the
economic activities of its group.
3. CFS present financial information about a parent and its
subsidiary as a single economic entity.
4. CFS show the economic resources controlled by the group,
the obligations of the group and results the group achieves
with its resources.

Scope of CFS:1. All Group Companies: This AS should be applied in the

preparation and presentation of consolidated financial
statements for a group of companies under the control of
a parent. A parent which presents CFS should consolidate
all subsidiaries , domestic as well as foreign.

2. Based on Respective FS: The CFS are prepared on the

basis of financial statements of parent and all enterprises
that are controlled by the parent.
3. Exclusions: No consolidation is done in the following
cases:
a. Amalgamations (governed by AS 14)
b. Associates (governed by AS23)
c. Joint ventures (governed by AS 27)
d. Gratuity/PF Trust of subsidiaries whose composition of the
governing bodies is controlled by the holding companies.

Advantages of CFS:The main advantages of consolidation are given below

1. Overall picture: From the consolidated financial
statements, the users
of accounts can get an overall picture of the holding
company and its subsidiaries. Consolidated Profit and loss
account gives the overall profitability of the group after
adjustments of unrealized profit involved in mutual
transactions and division of profit of the subsidiaries into
capital and revenue. Similarly, Consolidated Balance Sheet
shows the state of affairs of the group after adjustment of
mutual indebtedness and putting separately the minority
interest.
2. Share Value Of Holding Co: Intrinsic share value of the
holding company can be calculated directly from the
consolidated balance sheet.

3. Return on investments in subsidiaries: The holding

company controls its subsidiary. So its return on investments
in subsidiaries should not be measured in terms of dividend
alone. Consolidated Financial Statements provide
information for identifying revenue profit for determining
return on investment.
4. Acquisition of subsidiary: The minority interest data of the
Consolidated Financial Statement indicates the amount
payable to the outside shareholders of the subsidiary
company at book value which is used as the starting point of
negotiations at the time of acquisition of subsidiary by the
holding company.
5. Evaluation of Holding Company in the market: The overall
financial health of the holding company can be judged using
consolidated financial statements. Those who want to invest
in the shares of the holding company or acquire it, need such
data.

Disadvantages
Consolidating financial statements for parent and subsidiary
companies or related companies can provide investors and
other interested parties with a comprehensive overview of
the financial operations of the entities. However, some detail
gets lost during the consolidation process that can result in
misleading presentation. Most public companies are required
to report on a consolidated basis, but unconsolidated and

segmented information must also be reported to ensure

readers of the financial statements have all the relevant
information.
The following are the some disadvantges of CFS :

Masks Poor Performance

When income statements are brought together and reported
on a consolidated basis, the revenues, expenses and net
profit are presented as combined figures. This can hide any
profitability issues with one or more of the companies. For
example, if a subsidiary lost a substantial amount of money
in the year as a result of poor sales, financial statement
readers may not see that information if the loss is combined
with profits of the parent company.
Skews Financial Ratios
One way that investors assess the viability of a company is
by its ratios. Ratios are comparisons between financial
statement lines. For example, the current ratio is current
assets divided by current liabilities. This ratio tells investors
how well the company will be able to pay its near-term
obligations. In a consolidated financial statement, each
company's assets, liabilities and income are combined.
Financial ratios based on combined numbers may not be
representative of each company's ratios. If one of the
companies has a high level of debt compared to the equity

of the owners, that leverage would be hidden in a

consolidated statement.

Hides Inter-company Sales

All inter-company transactions are removed in a
consolidation. On one hand, this presents a truer view of the
companies by showing only financial activity with nonrelated parties. However, it also hides the level of intercompany transactions. If related companies spend most of
their time and resources selling products or services in the
group, an outside investor will not be able to assess transfer
prices or profit-shifting in the group. Both of these things can
be manipulated by companies and can affect income taxes.
Consolidation hides the extent of the inter-company activity.

Contents of CFS:
1. Which Statements: Consolidated Financial Statements
normally include
a. consolidated balance sheet.
b.consolidated statements of profit and loss, and
c. notes, other statements and explanatory material that
form an integral part thereof.
d. Consolidated cash flow statements is presented in case a
parent presents its own cash flow statements

2. Format: The consolidated financial statements are

presented, to the extent possible, in the same format as that
adopted by the parent for its separate financial statements.

Steps in Consolidation :
In order that the consolidated financial statements presents
financial information about the group as that of single
enterprise, the following steps should be taken:
1. Eliminate Parents Cost of Investment & Portion of Equity.
2. Calculate Goodwill or Capital Reserve Arising on
Investment
3. Calculate Minority Interest
4. Analyse Profits of subsidiary into Profits before and after
Acquisition.
5. Make Intra- Group Adjustments.
6. Treatment of Investments made on Different Date
6. consolidated Profit & loss statements
7. Harmonise Reporting dates
8. Harmonise Accounting policies.
The key entities used in the construction of
consolidated statements are:
1.A group is a parent entity and all of its subsidiaries

2.A subsidiary is an entity that is controlled by a parent

company
3.De-subsidiarisation
What are the principles applied in preparing
consolidated financial
statements?
The idea of consolidated financial statements is to show the
group, in line with
its substance, as a single economic entity. This is done by
replacing the cost of
investment recorded in the parents individual records and,
instead, adding in
100%, line by line, of the subsidiarys assets, liabilities,
income and expenses
to show control.

What Are Individual Financial Statements ?

A company that is owned by a parent company, but whose
individual financial statements are not included in the
consolidated or combined financial statements of the parent
company to which it belongs. Instead, this type of company
appears in the combined financial statement as an
investment.
Difference between CFS & IFS :

If one company owns part or all of another company, it may be

required to prepare a consolidated financial statement. The
companies remain separate legal entities and each maintains its
own set of books. Consolidated financial statements are often
used for reporting to investors, government agencies or applying
for loans and grants. Statement 141 from the Financial Accounting
Standards Board lays out the rules for preparing consolidated
financial statements.
Individual Financial Statements
All businesses must prepare a set of financial statements showing
the activity for the previous accounting period. This typically
includes a balance statement, income statement, statement of
cash flows and a report of shareholders' equity. The individual
financial statements show all transactions regardless of the
source of the funds. Subsidiary holdings must be shown as a stock
asset on the parent company's financial statements and
shareholders' equity on the subsidiary's financial statements.
Standalone financial statements are not required for companies
owned 100 percent by the parent but may be used for internal
management purposes.
Consolidated Financial Statements
A consolidated financial statement combines the information from
the subsidiary companies' individual financials. The entire
enterprise is treated as a single entity for accounting purposes.
You must adjust the accounts on the general ledger to represent

the ownership percentage of the parent company. Use the

company's goodwill account to post the balancing entries to your
adjustments.
Illustration :
Green Co owns the following investments in other companies:
Equity shares held Non-equity shares held
Violet Co 80% Nil
Amber Co 25% 80%
Black Co 45% 25%
Green Co also has appointed five of the seven directors of Black
Co.
Which of the following investments are accounted for as
subsidiaries in the
consolidated accounts of Green Co Group?
A Violet only
B Amber only
C Violet and Black
D All of them
Answer

Lets consider each of the investments in turn to determine if

control exists
and, therefore, if they should be accounted for as a subsidiary.
Violet Co by looking at the equity shares, Green Co has more
than 50%
of the voting shares ie an 80% equity holding. This gives them
control
and, therefore, Violet Co is a subsidiary.
Amber Co you must remember to look at the equity shares, as
despite
having the majority of the non-equity shares, these do not give
voting
power. As Green Co only has 25% of the equity shares, they do
not have
control and, therefore, Amber Co is not a subsidiary.
Black Co by looking at the percentage of equity shares, you
may
incorrectly conclude that Black Co is not a subsidiary, as Green Co
has
less than half of the voting rights. However, by looking at the fact
that

Green Co has appointed five of the seven directors, effectively

they have
control over the decision making in the company. This control
should
make you conclude that Black Co is a subsidiary.
Therefore the correct answer is C.
Illustration (2)
Pink Co acquired 80% of Scarletts Co ordinary share capital on 1
January 2012.

As at 31 December 2012, extracts from their individual

statements of financial position showed:

Pink C
$

Scarlett Co

$
Current assets:
Receivables
50,000
30,000

Current liabilities:
Payables
70,000
42,000

As a result of trading during the year, Pink Cos receivables

balance included an amount due from Scarlett of $4,600.

What should be shown as the consolidated figure for receivables

and payables?

Receivables
$

Payables

$
A

80,000

112,000

75,400

112,000

74,000

103,600

75,400

107,400

Answer
From the question, we can see that Pink Co has control over
Scarlett Co. This should mean that you immediately consider
adding together 100% of Pink Cos balances and Scarlett Cos
balances to reflect control.

However, the intra-group balances at the year end need to be

eliminated, as the consolidated accounts need to show the group
as a single economic entity in other words, the group position
with the outside world.

As Pink Co shows a receivable of $4,600, then in Scarlett Cos

individual accounts there must be a corresponding payable of
$4,600. When these balances are eliminated, the consolidated
figures become:

Receivables

($50,000 + $30,000 $4,600) = $75,400

Payables

($70,000 + $42,000 $4,600) = $107,400

Therefore, the correct answer is D, not A which completely omits

the elimination of the intra-group balances, nor answer B which
omits to cancel the corresponding payable within liabilities.

You would not select answer C, which incorrectly adds 100% of

Pink Co (the parent) and only 80% of Scarlett Co (the subsidiary).

Introduction
Infosys Limited (formerly Infosys Technologies Limited) is an
Indian multinational corporation that provides business
consulting, information technology, software engineering and
outsourcing services. It is headquartered in Bangalore, Karnataka.
[3]
Infosys is the second-largest India-based IT services company by
2014 revenues,[4] and the fifth largest employer of H-1B visa[5]
[6] professionals in the United States in FY 2013.[7] On 15
February 2015, its market capitalisation was 263,735 crores
($42.51 billion), making it India's sixth largest publicly traded
company
Infosys Limited (Infosys) is a services company that provides
business consulting, technology, engineering and outsourcing
services. The Company also offers products, platforms and

solutions to clients in different industries. Its business solutions

include business IT services, consulting and systems integration
services, products, business platforms and solutions, and cloud
computing and enterprise mobility. Business IT services comprise
application development and maintenance, independent
validation services, infrastructure management, engineering
services comprising product engineering and life cycle solutions
and business process management. Consulting and systems
integration services include consulting, enterprise solutions,
systems integration and advanced technologies. Products,
business platforms and solutions include Finacle, the companys
banking product.

History
Infosys was co-founded in 1981 by Narayan Murthy, Nandan
Nilekani, N. S. Raghavan, S. Gopalakrishnan, S. D. Shibulal, K.
Dinesh and Ashok Arora after they resigned from Patni Computer
Systems.[11] The company was incorporated as "Infosys
Consultants Pvt Ltd." with a capital of 10,000 or US$1,250 (about
$3,243 in 2015) in Model Colony, Pune as the registered office.
[12] It signed its first client, Data Basics Corporation, in New York.
[13] In 1983, the company's corporate headquarters was
relocated from Pune to Bangalore.[13]

Change in name: The company changed its name to "Infosys

Technologies Private Limited" in April 1992 and to "Infosys
Technologies Limited" when it became a public limited company
in June 1992. It was later renamed to "Infosys Limited" in June
2011.[14]
From the beginning, the company was founded on the principle of
building and implementing great ideas that drive progress for
clients and enhance lives through enterprise solutions. For over
three decades, we have been a company focused on bringing to
life great ideas and enterprise solutions that drive progress for our
clients
Infosys has a growing global presence with more than 179,000+
employees. Globally, we have 85 sales and marketing offices and
100 development centers as at March 31, 2015.

Vision and Mission of Infosys

Infosys International Inc. has a solid reputation as a business and
information technology consulting company.

Our Vision
To help our clients meet their goals through our people, services
and solutions

Our Mission
Infosys International Inc. is dedicated to providing the people,
services and solutions our clients need to meet their information
technology challenges and business goals.
Work to understand the needs and requirements of our clients
before proposing a solution
Develop responsive proposals that provide cost-effective solutions
to our clients needs
Deploy the right mix of people and products to deliver valueadded services and solutions to our clients
Follow-up on the quality of our services and solutions to our
clients
Appreciate the trust that our clients put in us as we work with
them to improve their business and information technology.

Policies for preparation of consolidated financial

statements
These financial statements are prepared in accordance with
Indian Generally Accepted Accounting Principles (GAAP) under the
historical
cost convention on the accrual basis except for certain financial
instruments which are measured at fair values. GAAP comprises

mandatory accounting standards as prescribed under Section 133

of the Companies Act, 2013 (Act) read with Rule 7 of the
Companies
(Accounts) Rules, 2014 and guidelines issued by the Securities
and Exchange Board of India (SEBI). Accounting policies have
been
consistently applied except where a newly issued accounting
standard is initially adopted or a revision to an existing
accounting standard
requires a change in the accounting policy hitherto in use.
he financial statements are prepared in accordance with the
principles and procedures required for the preparation and
presentation of
consolidated financial statements as laid down under the
Accounting Standard (AS) 21, Consolidated Financial
Statements. The
consolidated financial statements comprise the financial
statements of the company, its controlled trusts and its
subsidiaries as disclosed in
Note 2.21, combined on a line-by-line basis by adding together
book values of like items of assets, liabilities, income and
expenses after

eliminating intra-group balances and transactions and resulting

unrealised gain/loss. The consolidated financial statements are
prepared by
applying uniform accounting policies in use at the Group. Minority
interests have been excluded. Minority interests represent that
part of
the net profit or loss and net assets of subsidiaries that are not,
directly or indirectly, owned or controlled by the company
Associates are entities over which the group has significant
influence but not control. Investments in associates are accounted
for using the
equity method of accounting as laid down under Accounting
standard (AS) 23, Accounting for Investment is Associate in
Consolidated
Financial Statements . The investment is initially recognized at
cost, and the carrying amount is increased or decreased to
recognize the
investors share of the profit or loss of the investee after the
acquisition date. The groups investment in associates includes
goodwill
identified on acquisition.

Conclusion / Summary.

The combining of assets, liabilities and other financial items of

two or more entities into one.Financial Statements represent a
formal record of the financial activities of an entity. Consolidated
financial statements refer to the financial statements which lead
to the subsidiaries of the holding company its summative
accounting figure. Putting another way, consolidated financial
statements can be addressed as the combined financial
statements of a parent company and its subsidiaries A subsidiary
is a company that is controlled by another company (known as
the parent). A parent (also known as a Holding Company) is a
company that has one or more subsidiaries. A company that is
owned by a parent company, but whose individual financial
statements are not included in the consolidated or combined
financial statements of the parent company to which it belongs is
called as individual financial statements. Difference between
consolidated and individual financial statements. Then we draft
about the Infosys Co.Its introduction and history. What were the
polices adopted by Infosys to make consolidated financial
statements. Then we prepared its financial statements.