Sri Lanka Accounting Standard-LKAS 27

Consolidated and Separate Financial

Statements
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LKAS 27

Sri Lanka Accounting Standard-LKAS 27

Consolidated and Separate Financial Statements
Sri Lanka Accounting Standard LKAS 27 Consolidated and Separate Financial
Statements is set out in paragraphs 1–44. All the paragraphs have equal
authority. LKAS 27 should be read in the context of the Preface to Sri Lanka
Accounting Standards and the Conceptual Framework for Financial Reporting.
LKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
provides a basis for selecting and applying accounting policies in the absence of
explicit guidance.

Scope

1 This Standard shall be applied in the preparation and presentation

of consolidated financial statements for a group of entities under
the control of a parent.

2 This Standard does not deal with methods of accounting for business
combinations and their effects on consolidation, including goodwill
arising on a business combination (see SLFRS 3 Business
Combinations).

3 This Standard shall also be applied in accounting for investments in

subsidiaries, jointly controlled entities and associates when an
entity elects, or is required by local regulations, to present separate
financial statements.

Definitions
4 The following terms are used in this Standard with the meanings
specified:

Consolidated financial statements are the financial statements of a

group presented as those of a single economic entity.

Control is the power to govern the financial and operating policies

of an entity so as to obtain benefits from its activities.

A group is a parent and all its subsidiaries.

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Non-controlling interest is the equity in a subsidiary not

attributable, directly or indirectly, to a parent.

A parent is an entity that has one or more subsidiaries.

Separate financial statements are those presented by a parent, an

investor in an associate or a venturer in a jointly controlled entity,
in which the investments are accounted for on the basis of the direct
equity interest rather than on the basis of the reported results and
net assets of the investees.

A subsidiary is an entity, including an unincorporated entity such as

a partnership, that is controlled by another entity (known as the
parent).

5 A parent or its subsidiary may be an investor in an associate or a

venturer in a jointly controlled entity. In such cases, consolidated
financial statements prepared and presented in accordance with this
Standard are also prepared so as to comply with LKAS 28 Investments
in Associates and LKAS 31 Interests in Joint Ventures.

6 For an entity described in paragraph 5, separate financial statements are

those prepared and presented in addition to the financial statements
referred to in paragraph 5. Separate financial statements need not be
appended to, or accompany, those statements.

7 The financial statements of an entity that does not have a subsidiary,

associate or venturer’s interest in a jointly controlled entity are not
separate financial statements.

8 A parent that is exempted in accordance with paragraph 10 from

presenting consolidated financial statements may present separate
financial statements as its only financial statements.

Presentation of consolidated financial statements

9 A parent, other than a parent described in paragraph 10, shall
present consolidated financial statements in which it consolidates its
investments in subsidiaries in accordance with this Standard.

10 A parent need not present consolidated financial statements if and

only if:

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(b) power to govern the financial and operating policies of the entity
under a statute or an agreement;

(c) power to appoint or remove the majority of the members of the

board of directors or equivalent governing body and control of the
entity is by that board or body; or

(d) power to cast the majority of votes at meetings of the board of

directors or equivalent governing body and control of the entity is
by that board or body.

14 An entity may own share warrants, share call options, debt or equity
instruments that are convertible into ordinary shares, or other similar
instruments that have the potential, if exercised or converted, to give the
entity voting power or reduce another party’s voting power over the
financial and operating policies of another entity (potential voting
rights). The existence and effect of potential voting rights that are
currently exercisable or convertible, including potential voting rights
held by another entity, are considered when assessing whether an entity
has the power to govern the financial and operating policies of another
entity. Potential voting rights are not currently exercisable or
convertible when, for example, they cannot be exercised or converted
until a future date or until the occurrence of a future event.

15 In assessing whether potential voting rights contribute to control, the

entity examines all facts and circumstances (including the terms of
exercise of the potential voting rights and any other contractual
arrangements whether considered individually or in combination) that
affect potential voting rights, except the intention of management and
the financial ability to exercise or convert such rights.

16 A subsidiary is not excluded from consolidation simply because the

investor is a venture capital organisation, mutual fund, unit trust or
similar entity.

17 A subsidiary is not excluded from consolidation because its business

activities are dissimilar from those of the other entities within the group.
Relevant information is provided by consolidating such subsidiaries and
disclosing additional information in the consolidated financial
statements about the different business activities of subsidiaries. For
example, the disclosures required by SLFRS 8 Operating Segments help
to explain the significance of different business activities within the
group.

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Consolidation procedures
18 In preparing consolidated financial statements, an entity combines the
financial statements of the parent and its subsidiaries line by line by
adding together like items of assets, liabilities, equity, income and
expenses. In order that the consolidated financial statements present
financial information about the group as that of a single economic
entity, the following steps are then taken:

(a) the carrying amount of the parent’s investment in each subsidiary

and the parent’s portion of equity of each subsidiary are
eliminated (see SLFRS 3, which describes the treatment of any
resultant goodwill);

(b) non-controlling interests in the profit or loss of consolidated

subsidiaries for the reporting period are identified; and

(c) non-controlling interests in the net assets of consolidated

subsidiaries are identified separately from the parent’s ownership
interests in them. Non-controlling interests in the net assets
consist of:

(i) the amount of those non-controlling interests at the date of

the original combination calculated in accordance with
SLFRS 3; and

(ii) the non-controlling interests’ share of changes in equity

since the date of the combination.

19 When potential voting rights exist, the proportions of profit or loss and
changes in equity allocated to the parent and non-controlling interests
are determined on the basis of present ownership interests and do not
reflect the possible exercise or conversion of potential voting rights.

20 Intragroup balances, transactions, income and expenses shall be

eliminated in full.

21 Intragroup balances and transactions, including income, expenses and

dividends, are eliminated in full. Profits and losses resulting from
intragroup transactions that are recognised in assets, such as inventory
and fixed assets, are eliminated in full. Intragroup losses may indicate
an impairment that requires recognition in the consolidated financial
statements. LKAS 12 Income Taxes applies to temporary differences

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that arise from the elimination of profits and losses resulting from
intragroup transactions.

22 The financial statements of the parent and its subsidiaries used in

the preparation of the consolidated financial statements shall be
prepared as of the same date. When the end of the reporting period
of the parent is different from that of a subsidiary, the subsidiary
prepares, for consolidation purposes, additional financial
statements as of the same date as the financial statements of the
parent unless it is impracticable to do so.

23 When, in accordance with paragraph 22, the financial statements of

a subsidiary used in the preparation of consolidated financial
statements are prepared as of a date different from that of the
parent’s financial statements, adjustments shall be made for the
effects of significant transactions or events that occur between that
date and the date of the parent’s financial statements. In any case,
the difference between the end of the reporting period of the
subsidiary and that of the parent shall be no more than three
months. The length of the reporting periods and any difference
between the ends of the reporting periods shall be the same from
period to period.

24 Consolidated financial statements shall be prepared using uniform

accounting policies for like transactions and other events in similar
circumstances.

25 If a member of the group uses accounting policies other than those

adopted in the consolidated financial statements for like transactions
and events in similar circumstances, appropriate adjustments are made
to its financial statements in preparing the consolidated financial
statements.

26 The income and expenses of a subsidiary are included in the

consolidated financial statements from the acquisition date as defined in
SLFRS 3. Income and expenses of the subsidiary shall be based on the
values of the assets and liabilities recognised in the parent’s
consolidated financial statements at the acquisition date. For example,
depreciation expense recognised in the consolidated statement of
comprehensive income after the acquisition date shall be based on the
fair values of the related depreciable assets recognised in the
consolidated financial statements at the acquisition date. The income
and expenses of a subsidiary are included in the consolidated financial

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statements until the date when the parent ceases to control the
subsidiary.

27 Non-controlling interests shall be presented in the consolidated

statement of financial position within equity, separately from the
equity of the owners of the parent.

28 Profit or loss and each component of other comprehensive income are

attributed to the owners of the parent and to the non-controlling
interests. Total comprehensive income is attributed to the owners of the
parent and to the non-controlling interests even if this results in the non-
controlling interests having a deficit balance.

29 If a subsidiary has outstanding cumulative preference shares that are

classified as equity and are held by non-controlling interests, the parent
computes its share of profit or loss after adjusting for the dividends on
such shares, whether or not dividends have been declared.

30 Changes in a parent’s ownership interest in a subsidiary that do not

result in a loss of control are accounted for as equity transactions
(ie transactions with owners in their capacity as owners).

31 In such circumstances the carrying amounts of the controlling and non-

controlling interests shall be adjusted to reflect the changes in their
relative interests in the subsidiary. Any difference between the amount
by which the non-controlling interests are adjusted and the fair value of
the consideration paid or received shall be recognised directly in equity
and attributed to the owners of the parent.

Loss of control
32 A parent can lose control of a subsidiary with or without a change in
absolute or relative ownership levels. This could occur, for example,
when a subsidiary becomes subject to the control of a government,
court, administrator or regulator. It also could occur as a result of a
contractual agreement.

33 A parent might lose control of a subsidiary in two or more arrangements

(transactions). However, sometimes circumstances indicate that the
multiple arrangements should be accounted for as a single transaction.
In determining whether to account for the arrangements as a single
transaction, a parent shall consider all of the terms and conditions of the
arrangements and their economic effects. One or more of the following

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may indicate that the parent should account for the multiple
arrangements as a single transaction:

(a) They are entered into at the same time or in contemplation of

each other.

(b) They form a single transaction designed to achieve an overall

commercial effect.

(c) The occurrence of one arrangement is dependent on the

occurrence of at least one other arrangement.

(d) One arrangement considered on its own is not economically

justified, but it is economically justified when considered together
with other arrangements. An example is when one disposal of
shares is priced below market and is compensated for by a
subsequent disposal priced above market.

34 If a parent loses control of a subsidiary, it:

(a) derecognises the assets (including any goodwill) and liabilities

of the subsidiary at their carrying amounts at the date when
control is lost;

(b) derecognises the carrying amount of any non-controlling

interests in the former subsidiary at the date when control is
lost (including any components of other comprehensive
income attributable to them);

(c) recognises:

(i) the fair value of the consideration received, if any, from

the transaction, event or circumstances that resulted in
the loss of control; and

(ii) if the transaction that resulted in the loss of control

involves a distribution of shares of the subsidiary to
owners in their capacity as owners, that distribution;

(d) recognises any investment retained in the former subsidiary at

its fair value at the date when control is lost;

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(e) reclassifies to profit or loss, or transfers directly to retained

earnings if required in accordance with other SLFRSs, the
amounts identified in paragraph 35; and

(f) recognises any resulting difference as a gain or loss in profit

or loss attributable to the parent.

35 If a parent loses control of a subsidiary, the parent shall account for all
amounts recognised in other comprehensive income in relation to that
subsidiary on the same basis as would be required if the parent had
directly disposed of the related assets or liabilities. Therefore, if a gain
or loss previously recognised in other comprehensive income would be
reclassified to profit or loss on the disposal of the related assets or
liabilities, the parent reclassifies the gain or loss from equity to profit or
loss (as a reclassification adjustment) when it loses control of the
subsidiary. For example, if a subsidiary has available-for-sale financial
assets and the parent loses control of the subsidiary, the parent shall
reclassify to profit or loss the gain or loss previously recognised in other
comprehensive income in relation to those assets. Similarly, if a
revaluation surplus previously recognised in other comprehensive
income would be transferred directly to retained earnings on the
disposal of the asset, the parent transfers the revaluation surplus directly
to retained earnings when it loses control of the subsidiary.

36 On the loss of control of a subsidiary, any investment retained in

the former subsidiary and any amounts owed by or to the former
subsidiary shall be accounted for in accordance with other SLFRSs
from the date when control is lost.

37 The fair value of any investment retained in the former subsidiary at the
date when control is lost shall be regarded as the fair value on initial
recognition of a financial asset in accordance with LKAS 39 Financial
Instruments: Recognition and Measurement or, when appropriate, the
cost on initial recognition of an investment in an associate or jointly
controlled entity.

Accounting for investments in subsidiaries, jointly

controlled entities and associates in separate
financial statements
38 When an entity prepares separate financial statements, it shall
account for investments in subsidiaries, jointly controlled entities
and associates either:

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(a) at cost, or

(b) in accordance with LKAS 39.

The entity shall apply the same accounting for each category of
investments. Investments accounted for at cost shall be accounted
for in accordance with SLFRS 5 Non-current Assets Held for Sale
and Discontinued Operations when they are classified as held for
sale (or included in a disposal group that is classified as held for
sale) in accordance with SLFRS 5. The measurement of investments
accounted for in accordance with LKAS 39 is not changed in such
circumstances.

38A An entity shall recognise a dividend from a subsidiary, jointly

controlled entity or associate in profit or loss in its separate
financial statements when its right to receive the dividend is
established.

38B When a parent reorganises the structure of its group by establishing a

new entity as its parent in a manner that satisfies the following criteria:

(a) the new parent obtains control of the original parent by issuing
equity instruments in exchange for existing equity instruments of
the original parent;

(b) the assets and liabilities of the new group and the original group
are the same immediately before and after the reorganisation; and

(c) the owners of the original parent before the reorganisation have
the same absolute and relative interests in the net assets of the
original group and the new group immediately before and after
the reorganization.

and the new parent accounts for its investment in the original parent in
accordance with paragraph 38(a) in its separate financial statements, the
new parent shall measure cost at the carrying amount of its share of the
equity items shown in the separate financial statements of the original
parent at the date of the reorganisation.

38C Similarly, an entity that is not a parent might establish a new entity as
its parent in a manner that satisfies the criteria in paragraph 38B. The
requirements in paragraph 38B apply equally to such reorganisations. In
such cases, references to‘original parent’ and ‘original group’ are to the
‘original entity’.

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39 This Standard does not mandate which entities produce separate

financial statements available for public use. Paragraphs 38 and 40–43
apply when an entity prepares separate financial statements that comply
with Sri Lanka Accounting Standards. The entity also produces
consolidated financial statements available for public use as required by
paragraph 9, unless the exemption provided in paragraph 10 is
applicable.

40 Investments in jointly controlled entities and associates that are

accounted for in accordance with LKAS 39 in the consolidated
financial statements shall be accounted for in the same way in the
investor’s separate financial statements.

Disclosure
41 The following disclosures shall be made in consolidated financial
statements:

(a) the nature of the relationship between the parent and a

subsidiary when the parent does not own, directly or
indirectly through subsidiaries, more than half of the voting
power;

(b) the reasons why the ownership, directly or indirectly through

subsidiaries, of more than half of the voting or potential
voting power of an investee does not constitute control;

(c) the end of the reporting period of the financial statements of a

subsidiary when such financial statements are used to prepare
consolidated financial statements and are as of a date or for a
period that is different from that of the parent’s financial
statements, and the reason for using a different date or
period;

(d) the nature and extent of any significant restrictions (eg

resulting from borrowing arrangements or regulatory
requirements) on the ability of subsidiaries to transfer funds
to the parent in the form of cash dividends or to repay loans
or advances;

(e) a schedule that shows the effects of any changes in a parent’s

ownership interest in a subsidiary that do not result in a loss
of control on the equity attributable to owners of the parent;
and

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(f) if control of a subsidiary is lost, the parent shall disclose the

gain or loss, if any, recognised in accordance with paragraph
34, and:

(i) the portion of that gain or loss attributable to

recognising any investment retained in the former
subsidiary at its fair value at the date when control is
lost; and

(ii) the line item(s) in the statement of comprehensive

income in which the gain or loss is recognised (if not
presented separately in the statement of comprehensive
income).

42 When separate financial statements are prepared for a parent that,

in accordance with paragraph 10, elects not to prepare consolidated
financial statements, those separate financial statements shall
disclose:

(a) the fact that the financial statements are separate financial
statements; that the exemption from consolidation has been
used; the name and country of incorporation or residence of
the entity whose consolidated financial statements that
comply with Sri Lanka Accounting Standards have been
produced for public use; and the address where those
consolidated financial statements are obtainable;

(b) a list of significant investments in subsidiaries, jointly

controlled entities and associates, including the name, country
of incorporation or residence, proportion of ownership
interest and, if different, proportion of voting power held; and

(c) a description of the method used to account for the

investments listed under (b).

43 When a parent (other than a parent covered by paragraph 42),

venturer with an interest in a jointly controlled entity or an investor
in an associate prepares separate financial statements, those
separate financial statements shall disclose:

(a) the fact that the statements are separate financial statements
and the reasons why those statements are prepared if not
required by law;

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