Mixed Basis 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.
A group with a lending arm and a manufacturing arm cannot present both faithfully in one format — so Part III allows it not to try.
The general rule
Where a company is required to prepare Consolidated Financial Statements, the company shall mutatis mutandis follow the requirements of this Schedule as applicable to a company in preparation of the Separate Financial Statements. This means that all the reporting requirements of the Schedule III need to be aggregated and reported for the group as a whole in the Consolidated Financial Statements.
Part III of Division III to Schedule III provides for General Instructions for Preparation of Consolidated Financial Statements. This is a new addition brought in under the Act.
However, where the consolidated financial statements contains elements pertaining to NBFCs and other than NBFCs, mixed basis of presentation may be followed for consolidated financial statements where both kinds of operations are significant.
The difficulty this solves is real. Division III presents assets and liabilities as financial and non-financial in order of liquidity. Division II presents them as current and non-current by reference to the operating cycle. The two are not variations of one format; they are organised on incompatible principles.
A group whose parent is an NBFC and whose subsidiary manufactures goods must consolidate both. Forcing the manufacturing subsidiary's inventories, trade receivables and payables into a liquidity-ordered financial-and-non-financial format would obscure its working capital position. Forcing the NBFC's loan book and borrowings into a current and non-current split would obscure the maturity ladder that matters most about it.
Two conditions gate the concession. The consolidated statements must contain elements pertaining to NBFCs and other than NBFCs, and both kinds of operations must be significant. A group with an incidental non-financial activity does not qualify — it consolidates on the Division III basis and the immaterial element follows.
Note also that the permission is expressed as may be followed. It is an option available where the conditions are met, not a requirement, and a group that can present coherently on one basis is free to do so.
Which definitions govern
The Act defines a "subsidiary company" and an "associate company" which is different from the definition of a "subsidiary", an "associate" and a "joint venture" under Ind AS. Rule 4A of the Companies (Accounts) Rules, inserted on 4 September 2015, requires items in financial statements to be prepared in accordance with the definitions in the applicable standards.
Accordingly, Ind AS definitions of subsidiary, associate and joint venture shall be considered for assessment of control, joint control and significant influence, even though the requirement of preparation of CFS will be governed by the Act. The companies are expected to prepare the Separate Financial Statements in addition to Consolidated Financial Statements.
The four additional requirements
- Profit or loss attributable to "non-controlling interest" and to "owners of the parent" shall be presented as allocation for the period in the statement of profit and loss; total comprehensive income attributable to each shall also be presented as an allocation, and those disclosures shall also be made in the statement of changes in equity — and, in addition to the disclosure requirements in the Indian Accounting Standards, also in respect of "other comprehensive income", in line with paragraph 81B of Ind AS 1.
- Non-controlling interests in the Balance Sheet and in the Statement of Changes in Equity, within equity, shall be presented separately from the equity of the owners of the parent.
- Investments accounted for using the equity method.
- Changes in proportion held by non-controlling interest under Ind AS 110 paragraph B96 — the adjustment to carrying amounts is recognised directly in equity and attributed to the owners of the parent, and may be presented separately as "Non-controlling Interest Reserve" shown under "Other Reserves" by specifying the nature.
These requirements indicate the need to obtain such information for all the subsidiaries and associates for preparing the Consolidated Financial Statements, including where such subsidiaries or associates are not audited under the Act.
No repetition of standalone disclosures
MCA has clarified vide General Circular No. 39/2014 dated 14 October 2014 that Schedule III to the Act read with the applicable Accounting Standards does not envisage that a company while preparing its CFS merely repeats the disclosures made by it under standalone accounts being consolidated. Accordingly, the company would need to give all disclosures relevant for CFS only.
Common mistakes
- Applying the mixed basis where the non-NBFC operations are not significant.
- Forcing a manufacturing subsidiary into a liquidity-ordered format.
- Using the Act's definitions rather than Ind AS to assess control.
- Repeating standalone disclosures unchanged in the consolidated statements.