Combined and explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sometimes a buyer, a lender or a regulator needs financial statements for something that is not a company in its own right: a division about to be sold, or several related businesses that do not form a group. The ICAI Guidance Note on Combined and Carve-out Financial Statements, issued in January 2017 as a first edition, says how to prepare them. It is recommendatory guidance, not law, and later changes should be checked on icai.org. Preparing such statements for a sale or a restructuring often goes with the work of our financial and legal due diligence team.
Carve-out financial statements cover one identifiable business pulled out of an entity (paragraph 9); combined financial statements aggregate the history of businesses that do not form a group for which consolidated statements can be prepared (paragraph 9). Both are special purpose statements, not general purpose financial statements (paragraph 8). Where amounts are not directly identifiable, they are allocated on a stated basis to give the fairest approximation, not to show a stand-alone business (paragraphs 21 and 27). The notes must say that the statements may not represent the position after the transaction (paragraph 40).
What they are and when they are prepared
Paragraph 2 explains the need: take-overs, demergers, spin-offs, initial public offerings and group loan arrangements require financial information for part or parts of entities, and where there is no control, consolidated statements would not be appropriate. Paragraph 11 lists three cases for combined statements: entities combined in their entirety, carve-out businesses combined, or entities combined with carve-out businesses. Examples are in paragraphs 12 and 13:
| Situation | Statements |
|---|---|
| An acquisition or disposal where the businesses are not a legal group | Combined |
| Filings required by regulation, such as an initial public offering by a real estate or infrastructure investment trust | Combined |
| Common loan arrangement for companies of one group | Combined |
| Demerger, spin-off, hiving off or acquisition of a division | Carve-out |
Combining businesses are generally under common control, but not necessarily (paragraph 4). For general merger accounting, see our guides to AS 14 and the legal side in section 232 on mergers; for group statements, AS 21.
The requirements, head by head
| Paragraphs | What the note recommends | What it means in practice |
|---|---|---|
| 15, 16 | Combined statements of whole entities follow the consolidation procedure: eliminate intra-group items; for commonly controlled entities use the carrying amounts in the parent's consolidated statements | Same elimination discipline as a group |
| 17-19 | Combined statements that include a carve-out business are prepared by first preparing the carve-out statements, then combining | Two steps |
| 20-27 | Where items are not directly identifiable, develop an allocation method, apply it consistently and disclose the basis; the purpose is an appropriate attribution, not a stand-alone view | Document the key |
| 22 | Salaries by headcount, an accounts department by relative size, with another basis if size is a poor guide | Choose the basis that reflects use |
| 23-26 | Assets by control, usage or legal ownership; third party debt by the separation agreement, or if related to the business; finance leases with the assets; income and expense with the related assets and liabilities | Interest follows debt |
| 28-30 | Examine relationships with the remaining group: trading balances as debtors and creditors; funding balances as debt if interest-bearing or with the character of debt, otherwise as equity | Classify each balance |
| 31 | Exceptional items go to the carve-out business and are accounted for under the Accounting Standards | |
| 32, 33 | Tax as if the business were a separate taxable entity | See our income-tax guides |
| 34 | Impairment indicators assessed independently for each period on the position after the combination | |
| 35 | Transaction costs are expensed as incurred | |
| 37 | Where legal capital cannot be assigned, net asset value may be shown as capital | |
| 38, 39 | Cash flow statement under the applicable Standards, direct or indirect | |
| 40-42 | Disclosures, below |
Worked example: Trivedi Group Limited carves out its packaging division
The entity and all figures in this example are invented for illustration.
Trivedi Group plans to sell its Packaging Division. The buyer asks for carve-out statements. Facts: division revenue 80,00,000 (group revenue 4,00,00,000); direct costs 50,00,000. Shared group costs are allocated under paragraph 22. The division's own customers owe 18,00,000, and customers common to the group owe 10,00,000, of which the division's share is 30 per cent by sales. The division has its own plant loan of 20,00,000; under the separation agreement the buyer takes over 25,00,000 of the group's corporate loan (paragraph 24). Interest is at an assumed 10 per cent. The group has lent the division 15,00,000 carrying interest, and a further 5,00,000 with no interest and no repayment terms. Adviser's fees for the sale are 2,00,000. Division assets: fixed assets 60,00,000, inventories 15,00,000, cash 4,00,000; trade payables 12,00,000.
Allocation of shared costs.
| Item | Group cost | Basis | Division share | Allocated |
|---|---|---|---|---|
| Accounts department | 6,00,000 | Relative size, by revenue | 80,00,000 / 4,00,00,000 = 20% | 1,20,000 |
| Payroll and HR | 12,00,000 | Headcount | 150 / 600 = 25% | 3,00,000 |
| Shared office rent | 3,00,000 | Floor area | 40 / 200 = 20% | 60,000 |
| Total | 4,80,000 |
Allocation of balances.
| Item | Working | Amount |
|---|---|---|
| Receivables | 18,00,000 own + 10,00,000 x 30% | 21,00,000 |
| Borrowings | 20,00,000 own plant loan + 25,00,000 corporate loan per the agreement | 45,00,000 |
| Interest on those borrowings (assumed 10%) | 45,00,000 x 10% | 4,50,000 |
| Group loan carrying interest: debt financing (paragraph 29) | 15,00,000 | |
| Interest on group loan | 15,00,000 x 10% | 1,50,000 |
| Funding without interest or repayment terms: not debt, so equity (paragraphs 29 and 37) | 5,00,000 |
Carve-out statement of profit and loss (before tax).
| Particulars | Amount |
|---|---|
| Revenue | 80,00,000 |
| Less: direct costs | (50,00,000) |
| Less: allocated shared costs | (4,80,000) |
| Less: finance costs (4,50,000 + 1,50,000) | (6,00,000) |
| Less: transaction costs, expensed (paragraph 35) | (2,00,000) |
| Profit before tax | 17,20,000 |
Carve-out balance sheet.
| Assets | Amount | Equity and liabilities | Amount |
|---|---|---|---|
| Fixed assets | 60,00,000 | Net assets presented as capital | 23,00,000 |
| Inventories | 15,00,000 | Remaining-group funding treated as equity | 5,00,000 |
| Receivables | 21,00,000 | Borrowings | 45,00,000 |
| Cash | 4,00,000 | Group loan carrying interest | 15,00,000 |
| Trade payables | 12,00,000 | ||
| Total | 1,00,00,000 | Total | 1,00,00,000 |
Check. Allocated costs: 1,20,000 + 3,00,000 + 60,000 = 4,80,000. Profit: 80,00,000 - 50,00,000 - 4,80,000 - 6,00,000 - 2,00,000 = 17,20,000. Balance sheet: assets 60,00,000 + 15,00,000 + 21,00,000 + 4,00,000 = 1,00,00,000; liabilities 45,00,000 + 15,00,000 + 12,00,000 = 72,00,000; equity 28,00,000 (23,00,000 + 5,00,000); 72,00,000 + 28,00,000 = 1,00,00,000. The 23,00,000 is the balancing net asset value presented as capital where legal capital cannot be assigned (paragraph 37).
The resulting position is an allocation, not what a stand-alone Packaging Division would have reported, and that must be said in the notes.
The notes the statements need
- The purpose of the statements, and a list of combining businesses with a brief description (paragraph 42(a), (b)).
- A statement of compliance with the applicable Accounting Standards, and the principal accounting policies (paragraph 42(c), (d)).
- The basis of allocation, critical assumptions, judgements and estimates (paragraph 42(e)).
- That the information may not represent the position after the transaction, and that the resulting position may not be what a stand-alone business would have had (paragraph 40).
- The extent of balances without the character of debt treated as equity, and the basis of pricing inter-group transfers (paragraph 42(h), (i)).
- Where policies are not uniform, that fact and the framework followed (paragraph 42(g)).
- Comparatives are not necessarily required (paragraph 41).
Common mistakes
- Treating the statements as general purpose statements, which paragraph 8 excludes.
- Allocating costs on a convenient basis rather than one that reflects use, without disclosing it.
- Leaving out balances with the remaining group, or classifying an interest-bearing balance as equity.
- Capitalising the sale adviser's fees instead of expensing them.
- Omitting the statement that the position may not be representative.
Need help with carve-out or combined statements?
If a sale, a demerger or a loan needs carve-out or combined statements, our team can build the allocation and the notes with you. See our financial and legal due diligence service and send us the division's records and the proposed terms.
Key takeaways
- Carve-out statements cover a business pulled out of an entity; combined statements aggregate businesses that are not a group.
- They are special purpose statements and the note is recommendatory (January 2017).
- Allocate unidentifiable items on a documented basis and disclose it.
- Classify balances with the remaining group as debt or equity by their character.
- State that the position may not be representative of a stand-alone or post-transaction position.
Read next
- Amalgamation accounting: purchase consideration and entries
- AS 14, Accounting for Amalgamations
- AS 21 Consolidated Financial Statements
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.