When an Ind AS company prepares its own separate financial statements, an investment in a subsidiary is not consolidated into that set of accounts, and an investment in an associate or joint venture is not automatically equity-accounted there. The first question is narrower: how should the investment itself be measured in the investor's separate financial statements?
Under Ind AS 27, the general answer is a choice between cost and accounting in accordance with Ind AS 109, subject to specific exceptions. ICAI's current Ind AS resource collection lists Ind AS 27, Separate Financial Statements, and its Ind AS 27 summary sets out the separate-financial-statement model. ICAI also maintains educational material on Ind AS 27 and Ind AS 28 for implementation questions.
The answer changes depending on which financial statements you are looking at
Before choosing a measurement basis, identify the financial statement set. Separate financial statements are the investor's own financial statements where investments in subsidiaries, associates and joint ventures are carried as investments. They are different from consolidated financial statements, where the group is presented as one economic entity.
That distinction prevents a common error. A parent may consolidate a subsidiary under Ind AS 110 in its consolidated financial statements, yet carry the investment in that same subsidiary at cost in its separate financial statements. Likewise, an associate may be equity-accounted under Ind AS 28 in the investor's consolidated financial statements while the investment is measured at cost or under Ind AS 109 in the investor's separate financial statements.
So the accounting method used in consolidated financial statements should not simply be copied into the separate financial statements.
Ind AS 27 gives two general measurement routes
For investments in subsidiaries, associates and joint ventures in separate financial statements, Ind AS 27 permits the entity to account for the investment:
- at cost; or
- in accordance with Ind AS 109.
The important policy discipline is that the same accounting is applied to each category of investments. In practical terms, an entity can select one basis for its subsidiaries and a different basis for another category, but it should not normally pick cost for one ordinary subsidiary and Ind AS 109 for another ordinary subsidiary merely to achieve a preferred result.
For example, a company may have a policy of carrying all subsidiaries at cost while accounting for all associates under Ind AS 109. The category-level policy should be documented and applied consistently to the investments within that category, subject to the specific Ind AS 27 exceptions discussed below.
Why the equity method is the trap in Indian separate financial statements
Professionals familiar with associate accounting often expect the equity method to appear whenever significant influence exists. That expectation is correct in the context in which Ind AS 28 requires equity accounting, but it does not make the equity method a general measurement option in Ind AS 27 separate financial statements.
ICAI's Ind AS 27 summary expressly notes that the equity method is not allowed under Ind AS 27 for these investments in separate financial statements. This is also a point where Indian Ind AS 27 differs from IAS 27, so an IFRS-oriented checklist should not be imported without checking the Indian standard.
The practical sequence is therefore: first identify whether the document is a separate or consolidated financial statement; then identify whether the investee is a subsidiary, associate or joint venture; only then apply the measurement rule relevant to that financial statement set.
Example: two subsidiaries and one associate
Assume Parent P has two subsidiaries, S1 and S2, and one associate, A1. Parent P prepares both consolidated financial statements and separate financial statements.
In the consolidated financial statements, S1 and S2 are dealt with under the consolidation requirements of Ind AS 110. A1 is dealt with under the applicable Ind AS 28 model. Those treatments answer how the group accounts are prepared.
Now look only at Parent P's separate financial statements. Suppose Parent P has adopted cost for the subsidiary category and Ind AS 109 for the associate category. It would carry both S1 and S2 using the cost policy, while A1 would be accounted for under Ind AS 109. It would not use cost for S1 and a fair-value route for S2 simply because S2's market value is easier to observe, unless a specific exception in the standards changes the result.
This example is hypothetical. The actual Ind AS 109 classification, measurement and impairment consequences depend on the instrument and facts, so the separate-financial-statement policy decision should be linked to the full applicable standards rather than reduced to a single journal entry.
Dividend income does not become an equity-method adjustment
Ind AS 27's separate-financial-statement model also affects how dividends are understood. ICAI's summary states that dividend income from a subsidiary, associate or joint venture is recognised in profit or loss when the entity's right to receive the dividend is established, whether the investment is accounted for at cost or at fair value.
This is another reason not to treat the separate financial statements as a miniature consolidation. Under the cost or Ind AS 109 route, the investment balance and dividend recognition follow the separate-financial-statement requirements; the investor does not mechanically adjust the carrying amount for its share of the investee's post-acquisition profits as though it were applying the equity method.
Held-for-sale classification can change the measurement path
There is a specific interaction with Ind AS 105. ICAI's Ind AS 27 summary explains that where an investment in a subsidiary, associate or joint venture is classified as held for sale, or is included in a disposal group classified as held for sale, the subsequent route depends on how the investment had been accounted for before that classification.
- If the investment had been accounted for at cost, the held-for-sale measurement requirements of Ind AS 105 apply.
- If it had already been accounted for in accordance with Ind AS 109, it continues to be accounted for in accordance with Ind AS 109.
This prevents an entity from treating held-for-sale classification as an automatic switch from one investment accounting policy to another. The pre-existing measurement basis remains relevant.
Some fair-value cases are not an ordinary policy choice
The cost-versus-Ind AS-109 choice should not be read as unlimited discretion. Ind AS 27 contains cases where the treatment is driven by other Ind AS requirements.
An investment entity that is required under Ind AS 110 to measure a subsidiary at fair value through profit or loss also accounts for that subsidiary in the same way in its separate financial statements. Similarly, where the relevant Ind AS 28 provisions result in specified associates or joint ventures being measured at fair value through profit or loss under Ind AS 109, that treatment carries into the separate financial statements.
These are specialised fact patterns. A normal operating parent should not use the investment-entity exception merely because fair value appears more informative or convenient.
What should be visible in the year-end accounting file
A strong separate-financial-statement working paper does not need to be long, but it should make the policy and population traceable. For each material category, it should show:
- whether the investees are subsidiaries, associates or joint ventures;
- which measurement basis has been selected for that category;
- that the basis has been applied consistently within the category;
- whether any investment-entity, specialised fair-value or held-for-sale exception applies;
- how dividends recognised during the year were supported; and
- which disclosures identify the significant investments and the method used to account for them.
ICAI's Ind AS 27 material also highlights separate-financial-statement disclosures for significant investments, including the investee's name, principal place of business, ownership interest, voting rights where different, and the accounting method used. The disclosures should therefore reconcile with the investment register and the policy actually applied in the ledger.
The decision to make before posting any year-end entry
If the ledger contains an investment in a subsidiary, associate or joint venture, do not begin by asking whether consolidation or equity accounting is familiar from the group accounts. Begin by identifying the financial statement set. In separate financial statements under Ind AS 27, the general measurement decision is cost or Ind AS 109, applied consistently by category, with the standard's specific exceptions layered on top.
For the current first-party references, use ICAI's Ind AS resource page, the official Ind AS 27 summary, and ICAI's Ind AS 27 and Ind AS 28 educational-material page. Before finalising a live set of financial statements, also confirm the current notified Ind AS text and any entity-specific presentation or regulatory requirements for the reporting period.
