Reasons For Exclusion From Consolidation
It is not necessary that a parent company must consolidate all its subsidiaries. Tabulate below some of the reasons that a parent company needs not to do consolidation for its subsidiaries:-
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Exclusion From Consolidation Under IAS 27 |
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A parent company is exempted from presenting consolidated financial statements where it is: |
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(a) a wholly owned subsidiary; or |
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(b) a virtually wholly owned subsidiary and it obtains the approval of the owners of the minority interest not to present consolidated financial statements. A virtually-own subsidiary is one in which the parent owns 90% or more of the voting power. |
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IAS 27 allows only two(2) circumstances when a subsidiary is excluded from consolidation. They are when: |
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(a) control is temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future; or |
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(b) it operates under severe long-term restrictions which significantly impair its ability to transfer funds to its parent. |
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