Practical guide on Consolidation – Singapore

As businesses grow, many are involved in investment activities to grow or diversify their operations, this can include acquisition or setting up businesses and other entities.

Forms of acquisition can be established in a myriad of ways and the focus in this guide is to touch on the more common options:

– Parent Subsidiary Relationship
– Setting up a Joint Arrangement or Joint Venture
– Investment in Associates

Steps on Consolidation Process

To break it down, consolidation process can be look at 3 steps.

  1. Combine: Combining balance sheet items like assets, liabilities equity, income and cash flow between parent and subsidiaries.
  2. Offsetting: Remove the carrying amount on parent’s investment in the subsidiaries and the parent equity holdings in each subsidiaries.
  3. Elimination: To remove all inter-company assets, liabilities and equity in the balance sheet. Expenses and transactional flows between entities of the group.

Lets use the concept of a Parent and a fully owned subsidiary for simple illustration. We will cover on the Balance sheet in the part 1 series. This will be followed up with the next segment on the consolidated P&L.

Firstly is to formalize the accounting captions across subsidiaries and align consistency according to the parent. This will ease the process and make it quicker to combine the figures into the respective buckets. (Note: Do ensure that the period of combination is similar)

The next process is to remove key items like investment, goodwill acquired in business combination and non controlling interest. Under the parent, items to remove are investment in subsidiary (under non current assets), and correspondingly the subsidiary should see the removal of equity under non current liabilities.

Lastly, is to take out all the inter dealings between both parent and subsidiary –  this will include transactions such as receivables and payable. The net impact you should end up with is zero across the both parent and subsidiary under consolidation.

Overview Frameworks and Consolidation Standards

The applicable standards for consolidation are FRS110 Consolidated Financial statements, FRS111 Investment in Associates and Joint venture, FRS28 on Joint Arrangements, FRS27 on Separate financial statements, and FRS112 on disclosure in other entities. The diagram illustrates an overview on the regulatory standards in Singapore on consolidation and disclosure requirements for consolidated companies:


Do also actively discuss your accountant if there are anything that can help run your business efficiently and effectively. They should be able to offer you a wealth of information obtained from experiences from handling accounts of other or related industries that they have worked with.

Posted on June 27, 2018 by Stephan Yeong

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