Consolidated financial statements

4.3.1 Control, not percentage, is the trigger

Consolidation means presenting the parent and its subsidiaries as if they were one economic entity. The trigger is control. IFRS 10 / Ind AS 110 define it as three cumulative elements: power over the investee, exposure to variable returns from it, and the ability to use the power to affect those returns. Owning >50% of the votes is the standard route. But control can exist below 50% (de facto control with dispersed other holders, potential voting rights) and be absent above it (court administration). US GAAP gets to the same place through two models. One is the voting-interest model (>50%). The other is the VIE model, which consolidates "variable interest entities" whose primary beneficiary you are, even without equity. It's the anti-Enron rule, written after Enron parked debt in unconsolidated SPEs. Here's the ownership spectrum:

4.3.2 The five consolidation moves

1. Combine 100% line-by-line. Add every asset, liability, revenue and expense of the subsidiary to the parent's. All of it, even if you own 80%. Consolidation shows the resources you control, not the fraction you own.
2. Eliminate the investment against the subsidiary's equity. The parent's "Investment in Sub" and the sub's share capital + reserves are two views of the same thing, and both vanish on consolidation.
3. Recognize goodwill (or a bargain gain) for the difference. You'll see how on the purchase price allocation page.
4. Carve out non-controlling interest (NCI). The 20% you don't own appears on the balance sheet as NCI, a separate component of equity. It isn't a liability, because those shareholders are co-owners, not creditors. The year's profit is split at the bottom of the income statement into net income attributable to owners of the parent and attributable to NCI.
5. Eliminate everything intra-group: intercompany sales/purchases, receivables/payables, loans and dividends. Unrealized profit on goods still in group inventory goes too, because the group can't profit by selling to itself.

4.3.3 One clean worked example: parent + 80% subsidiary

Synthetic companies, clean numbers. On 1 April 2025, Meridian Ltd buys 80% of Kaveri Components Ltd for ₹240 cr cash, paid before the balance sheets below were struck. Kaveri's identifiable net assets have a fair value equal to book value, ₹250 cr. NCI is measured at its proportionate share, which is the Ind AS/IFRS option. You'll meet the fair-value alternative on the purchase price allocation page.

Balance sheets at acquisition (₹ cr):

Walk through it. NCI = 20% × 250 = ₹50 cr. Goodwill = consideration 240 + NCI 50 − fair value of identifiable net assets 250 = ₹40 cr. Kaveri's equity (₹250 cr) and Meridian's investment (₹240 cr) both disappear. Goodwill and NCI take their place. Every other line is simple addition. Look at what consolidation did to the optics. Assets and debt both jumped, though Meridian's shareholders own only 80% of Kaveri's.

Worked example, year 1: consolidating the income statement

Year 1 (FY26). Kaveri's revenue is ₹300 cr, of which ₹80 cr was sold to Meridian and all of it resold outside the group by year-end. Its PAT is ₹60 cr and it pays a ₹20 cr dividend. Meridian standalone has revenue of ₹800 cr and PAT of ₹116 cr, which includes the ₹16 cr dividend received from Kaveri (80% × 20). At year-end Meridian still owes Kaveri ₹10 cr on trade account.

Consolidated income statement (₹ cr):

The intercompany sale nets out of both revenue and expenses. No profit adjustment is needed here, because everything was resold. Unrealized profit arrives in Worked Example 2. The dividend disappears entirely, since a group can't earn income by moving cash from one pocket to another. On the year-end balance sheet, receivables and payables are each ₹10 cr lower than the simple sum. NCI rolls forward to 50 + 12 (share of profit) − 4 (share of dividend) = ₹58 cr.

How do analysts read non-controlling interest?

Reading NCI like an analyst. (i) P/E hygiene. Market cap is a claim only on owners' profit, so set PAT attributable to owners (₹148 cr) against the parent's market cap, never total PAT. (ii) EV hygiene, which comes back in enterprise value. Consolidated EBITDA includes 100% of Kaveri, so EV must add the value of NCI. (iii) A large and growing NCI line tells you the juiciest profits may be shared. Vedanta consolidates Hindustan Zinc while owning about 62% (about 65% until stake sales in 2024 and 2025; as of October 2026, check on the BSE shareholding pattern). That means well over a third of HZL's famous cash machine belongs to minorities. Walmart's consolidated numbers include Flipkart at ~81%-owned. Reliance's consolidated accounts carry large NCI from the Jio Platforms and Retail stake sales to Meta, Google and PE investors. So always ask which subsidiary drives NCI, and whether it's the crown jewel.

Standalone vs consolidated accounts in India

India must-know: standalone vs consolidated. Indian companies publish both (Companies Act s.129(3), SEBI LODR). Analysts default to consolidated, because that's the economic entity. Standalone matters for two things. One is dividend capacity, since dividends are paid from the parent's own profits. The other is spotting games, like debt parked in unlisted subsidiaries or profits "manufactured" by selling to group entities. So the gap between standalone and consolidated numbers is a diagnostic in its own right. US filers publish consolidated only, and the same information arrives through the subsidiaries exhibit and the segment note.