Separate Financial Statements (Ind AS 27) Scope, Preparation and Presentation of Separate financial Statement

Ind AS 27, “Separate Financial Statements,” specifies the accounting and disclosure requirements for separate financial statements. Separate financial statements are those presented by an entity in which the entity could elect to account for its investments in subsidiaries, joint ventures, and associates either at cost, in accordance with Ind AS 109, “Financial Instruments,” or using the equity method as described in Ind AS 28, “Investments in Associates and Joint Ventures.” The standard aims to provide guidance on how an entity should report in its own financial statements the investments it holds in other entities, distinguishing this reporting from the consolidated financial statements, which present financial information about the group as a single economic entity.

Key Requirements of Ind AS 27:

1. Objective:

The primary objective is to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures, and associates when an entity prepares separate financial statements.

2. Scope:

Applies to entities that prepare separate financial statements in addition to consolidated financial statements or in the case where an entity is exempt from consolidation or does not have such investments.

3. Investment Accounting:

In separate financial statements, investments in subsidiaries, joint ventures, and associates can be accounted for either:

• At cost (subject to impairment)
• In accordance with Ind AS 109 (at fair value through profit or loss or through other comprehensive income)
• Using the equity method, as described in Ind AS 28 (only if the entity is a venture capital organization, a mutual fund, unit trust, or similar entity and upon initial recognition it designates its investments in such a manner)

4. Disclosure:

The standard requires disclosures that will enable users of the financial statements to evaluate the financial effects of the types of investment activities and the entity’s investments in subsidiaries, joint ventures, and associates. This includes disclosing the reasons why the entity’s separate financial statements are prepared if not mandatory by law, the method used to account for the investments listed above, and other relevant information such as the nature and extent of any significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances.

5. Presentation and Classification:

Entities must clearly identify the financial statements as separate financial statements and distinguish them from the consolidated financial statements. Investments accounted for at cost or using the equity method should be classified as non-current assets.

Separate Financial Statements (Ind AS 27) Scope:

Scope Inclusions

• Entities Preparing Separate Financial Statements:

Ind AS 27 is applicable to all entities that prepare separate financial statements that comply with Indian Accounting Standards (Ind AS).

• Accounting for Investments:

The standard covers the accounting for investments in subsidiaries, joint ventures, and associates when an entity elects, or is required by law, to present separate financial statements.

• Choice of Accounting Method:

It allows entities to account for investments in subsidiaries, joint ventures, and associates either at cost, in accordance with Ind AS 109 “Financial Instruments,” or using the equity method as described in Ind AS 28 “Investments in Associates and Joint Ventures.”

Scope Exclusions

• Measurement of Investments in Consolidated Financial Statements:

The standard does not deal with the measurement of an entity’s investments in its consolidated financial statements, which is covered by Ind AS 110 and other relevant standards.

• Entities Not Required to Prepare Consolidated Financial Statements:

Entities that are not required to prepare consolidated financial statements may still be within the scope of Ind AS 27 when they prepare separate financial statements.

• Parent Exempt from Consolidation:

The standard also applies to a parent that is exempt from preparing consolidated financial statements by virtue of meeting certain criteria set out in Ind AS 110 but opts to prepare separate financial statements.

Preparation and Presentation of Separate financial Statement:

The preparation and presentation of separate financial statements under Ind AS 27, “Separate Financial Statements,” involve specific considerations to ensure that these statements provide relevant and reliable information about an entity’s investments in subsidiaries, joint ventures, and associates.

1. Objective of Separate Financial Statements

The objective is to present investments in subsidiaries, joint ventures, and associates in a manner that is useful to investors, creditors, and other users of the financial statements. Separate financial statements are prepared by an entity, apart from the consolidated financial statements, focusing specifically on the entity’s own financial information, including its investments in other entities.

2. Accounting Policies

Entities should apply consistent accounting policies in their separate financial statements and consolidated financial statements. However, investments in subsidiaries, joint ventures, and associates can be accounted for differently in separate financial statements compared to consolidated financial statements.

3. Accounting for Investments

In separate financial statements, investments in subsidiaries, joint ventures, and associates can be accounted for using one of the following methods:

• At Cost: Initially recognized at cost and subsequently adjusted for any post-acquisition changes in the entity’s share of net assets of the investee, impairments, and distributions received.
• In Accordance with Ind AS 109: Measured at fair value through profit or loss or through other comprehensive income, depending on the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.
• Using the Equity Method: As described in Ind AS 28 “Investments in Associates and Joint Ventures,” recognizing the investor’s share of the profits or losses and other comprehensive income of the investee.

4. Presentation

Separate financial statements should be clearly identified and distinguished from other financial statements, such as consolidated financial statements. The statements should disclose:

• The fact that the statements are separate financial statements and the reasons why they are prepared if they are not required by law.
• The methods used to account for subsidiaries, joint ventures, and associates.
• Detailed information about the investments, including the list of subsidiaries, joint ventures, and associates, and reasons for not consolidating a subsidiary or not applying the equity method.

5. Disclosure

Disclosures in separate financial statements include, but are not limited to:

• The nature of the relationship with subsidiaries, joint ventures, and associates if not already apparent from other disclosures.
• The reasons why the entity does not prepare consolidated financial statements if applicable.
• A description of how the entity has accounted for its investments.

6. Preparation Basis

Separate financial statements should be prepared using the same measurement basis as the consolidated financial statements, except for the accounting of investments as permitted by Ind AS 27.