Fellow subsidiary needn’t adopt Ind AS merely because Ind AS mandatory on another subsidiary

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#Ind_AS update:

Query:

An unlisted holding company, say X Ltd., has two subsidiaries; Y Ltd. and Z Ltd. Net worth of holding company X Ltd. is Rs. 80 crore and Ind AS is not applicable on X Ltd. Ind AS is applicable to one subsidiary(Y Ltd.) because it is a listed company with net worth of Rs 50 crore. Y Ltd. is a listed company and is required to adopt Ind AS from 1st April, 2017.

X Ltd holds only 85% in Y Ltd. The remaining 15% investment in Y Ltd is done by P Ltd. P Ltd. is unlisted and has a net worth of Rs. 120 crores and hence Ind AS are not applicable on P Ltd.

X’s another subsidiary Z Ltd. is an unlisted company having net worth of Rs. 60 crore. Y Ltd. and Z Ltd. are fellow subsidiaries of X Ltd.

Whether Ind AS would be applied to Z Ltd. and P Ltd. by virtue of its applicability to Y Ltd. (i.e. holding, subsidiary, joint venture or associate companies of a company required to comply with Ind AS)?

Answer:

According to the Companies (Indian Accounting Standards) (Amendments) Rules, 2016, a listed entity having net worth less of than Rs. 500 crore should apply Ind AS from financial year beginning on or after 1st April, 2017. Further, if Ind AS applies to a company, then its holding, subsidiary, joint venture or associate companies are also required to follow Ind AS.

This does not however mean that fellow subsidiaries of a company should also apply Ind AS merely because Ind AS were mandatory on another subsidiary company of same holding company. Therefore, in the given case, Ind AS is applicable to Y Ltd. and its holding company X Ltd. Z Ltd. is a fellow subsidiary hence Ind AS shall not be applied to Z Ltd.

P Ltd. is an investor in Y Ltd. Ind AS is not applicable on P Ltd. because it neither falls in above criteria (holding, subsidiary, joint venture or associate companies) nor does P Ltd individually satisfies the Ind AS applicability criteria.

However, holding company X Ltd. may ask Z Ltd. to prepare its financial statements in accordance with Ind AS for its consolidation purpose. For this purpose, Z Ltd. has an option to adopt Ind AS voluntarily. [Source: Taxmann]

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