Financial Statements

The financial statements will be produced in the following order.

• Profit & Loss

• Balance Sheet

• Cash Flow Statement

• Cash Flow Adjustments

• P&L Foot Notes

• BS Foot Notes

• Minority Interest (MI)

The financial statements will be produced from the data in forms, ICO, TB, BC and Other Adjustments.

Below mentioned are the sequence of actions that are performed when “Run Consolidation” button is hit.

SEQUENCE OF ACTIONS:

• Check if the Trial Balance has been completed for all the entities which are included in the consolidation.

  • Note: Trial Balance is one of the tasks in the project which will be available on the “Projects Overview” page. Refer screen shot below for the reference.

  • Trial balance is applicable for both standalone and consolidated financial statements.

Projects Overview

• Check if JE is posted for all the entity pairs in Load ICO and the status is completed if it is applicable. If not applicable, this check is not required.

• Load ICO is one of the tasks for each project which will be available in the projects overview screen. Please refer to the Projects Overview page screenshot above.

• ICO is applicable only if “Include Inter Company Module” is selected as “Yes” in the project creation page.

• Check if all JEs are posted for all the BC entries and the status is completed.

• Load BC is one of the tasks for each project which will be available in the projects overview screen. Please refer to the Projects Overview page screenshot above.

• Load BC is applicable for the entities if “Acquired through BC” is selected as “Yes” in the add entity screen and “FA Register” is chosen as “Yes” in BC Form. Please refer to the screenshot below.

• Check if there are any adjustments posted and/or if they are complete.

• Other Adjustments is one of the tasks for each project which will be available in the project's overview screen. Please refer to the Projects Overview page screenshot above.

• Also, Other Adjustments is not mandatory and if there are no adjustments, then the user can check “No Further Adjustments” and the status will move from In Progress to Complete.

• Once all the tasks for each project is checked, the next step is to generate a constructive trial balance from the data available in forms, TB, ICO, BC and other adjustments.

• Forms - Will be in the setup module and can be accessed via Matrix View page. The available forms are:

  • BC Form

  • Investment Form

  • Sale to MI Form

  • Further Investment Form

  • Memo Form

• TB, ICO, BC and Other Adjustments are the tasks in each project.

The constructive trial balance is generated as follows.

Opening Balance of constructive trial balance: 

If the journal date is prior to or equal to the start date, then the journal values will be posted in the opening balance. 

For ex: If the project period is from 01-Jan-23 to 30-Jun-23, and if the journal date is 01-Jan-23 or below, then these values will be posted in the opening balance. 

If the journal date is from start date + 1 to end date, then the journal values are posted in the debit and credit values in the trial balance. 

For ex: If the project period is from 01-Jan-23 to 30-Jun-23, and if the journal date is 02-Jan-23 or above, then these values will be posted in the debit and credit. 

 

The closing balance is calculated as opening balance + debit + credit.

Data from forms:

• If the form date is prior to or equal to the start date of the project, then the entries in the journals will be posted in the opening balance in the constructive trial balance.

  • For ex: Considering the BC form, if the date of acquisition is 01-Jan-2023 and the project period is 01-Apr-2023 to 30-Jun-2023. So, all the JE data (both debit and credit) will be posted in the opening balance in the trial balance.

  • Let us consider a journal entry below to explain how the opening balance will be posted.

L3	L4	Dr	Cr
PPE	Furniture	1000
Intangible asset	Patents	2000
Other Financials	Deposits with bank	3000
Right of return assets	Right of return assets		-3500
Other Financial Liabilities	Advances and deposits		-800
Investment in joint ventures	Investment in joint ventures		-1700

Considering the above journal entry, the opening balance in the trial balance is posted as follows:

L3	L4	Opening Balance	Dr	Cr	Closing Balance
PPE	Furniture	1000
Intangible asset	Patents	2000
Other Financials	Deposits with bank	3000
Right of return assets	Right of return assets	-3500
Other Financial Liabilities	Advances and deposits	-800
Investment in joint ventures	Investment in joint ventures	-1700

• If the form date is after the start date of the project, then the entries will be posted in the debit and credit in the constructive trial balance.

  • For ex: Considering the BC form, if the date of acquisition is 01-Jan-2023 and the project period is 01-Jan-2023 to 31-Dec-2023. So, all the JE data will be posted in the opening balance in the trial balance.

  • If the date of acquisition is 02-Jan-2023 and the project period is 01-Jan-2023 to 31-Dec-2023. So, all the JE data will be posted in the debit and credit in the trial balance.

Validations:

• If there are any P&L line items (L3 and L4 corresponding to Income or Expense) in the opening balance, then that must be transferred to ‘Retained Earnings (posting profit/loss) Balances’ L3 and L4 and to be posted in the opening balance.

• ‘Retained Earnings (posting profit/loss) Balances’ L3 and L4 will be available from COA Questionnaire. Please refer to the screenshot below for reference.

• As far as the Memo form is concerned, if the entry is recorded as Memo, then depending on the date, if the journal date is less than or equal to the start date of the project, the entry will be posted in the opening balance, or if the journal date is greater than the start date of the project, that entry will be posted in debit and credit in the constructive trial balance.

Data from Trial Balance:

• The trial balance data which is provided by the user from the projects overview page will be loaded as it is to the constructive trial balance which we construct.

Data from ICO:

• The Journals in the ICO will be posted in the debit and credit in the constructive trial balance.

Data from BC:

• The Journals in the BC will be posted in the debit and credit in the constructive trial balance.

Data from Other Adjustments:

• The Journals in the Other Adjustments will be posted in the debit and credit in the constructive trial balance.

• Once the opening balance, debit and credit are generated in the constructive trial balance, the closing balance will be computed as opening balance + debit + credit

• The closing balance will be posted in all the financial statements.

Financial Statements:

Profit and Loss:

• Once we have the constructive trial balance in place, all the L3 and L4 pertaining to Income and Expenses will be picked and posted in the profit & loss statement.

• For Income line items, the final value must be multiplied by –1 while presenting in the financial statements

• For Expense line items, the final value must be presented as it is.

• The order of captions to display in the balance sheet is as follows:

INCOME

L3 Captions (All L3 captions for which the corresponding L1 is Income)

Expenses

L3 Captions (All L3 captions for which the corresponding L1 is Expenses)

Profit After Tax = Total Income - Total Expenses

NOTE:

• The amount that we get in Profit After Tax will be posted in the balance sheet in the “Equity” section under the “Retained Earnings (posting profit/loss) Balances” L3 and L4.

  • “Retained Earnings (posting profit/loss) Balances” L3 and L4 will be available in the COA questionnaire.

Balance Sheet:

• Once we have the constructive trial balance in place, all the L3 and L4 pertaining to Assets and Liabilities will be picked and posted on the balance sheet.

• The order of captions to display in the balance sheet is as follows:

ASSETS -- L1 Caption

Non-Current Assets -- L2 Caption

L3 Captions (All L3 captions for which the corresponding L2 is non-current assets)

The L3 captions to be displayed in alphabetical order and this can be reordered by the user at any point in time.

Current Assets -- L2 Caption

L3 Captions (All L3 captions for which the corresponding L2 is current assets)

The L3 captions to be displayed in alphabetical order and this can be reordered by the user at any point in time.

Equity -- L2 Caption

“Profit After Tax (PAT)” amount from profit and loss statement

L3 for the same will be retained from “Retained Earnings (posting profit/loss) Balances” from COA questionnaire

L3 Captions (All L3 captions for which the corresponding L2 is equity)

The L3 captions to be displayed in alphabetical order and this can be reordered by the user at any point in time.

Other Equity -- L2 Caption

L3 Captions (All L3 captions for which the corresponding L2 is other equity)

The L3 captions to be displayed in alphabetical order and this can be reordered by the user at any point in time.

NOTE:

While presenting the equity values in the financial statements, the value must be multiplied by –1

LIABILITIES -- L1 Caption

Non-Current Liabilities-- L2 Caption

L3 Captions (All L3 captions for which the corresponding L2 is non-current liabilities)

The L3 captions to be displayed in alphabetical order and this can be reordered by the user at any point in time.

Current Liabilities-- L2 Caption

L3 Captions (All L3 captions for which the corresponding L2 is current Liabilities)

The L3 captions to be displayed in alphabetical order and this can be reordered by the user at any point in time.

The user should be able to reorder the L3 captions for assets and liabilities.

NOTE:

While presenting the liability values in the financial statements, the value must be multiplied by –1

Validation:

The validation for the balance sheet is as follows:

Total Assets (Current Asset + Non-Current Asset) = Total Equity + Total Other Equity + Total Liability (Current Liability + Non-Current Liability)

NOTE:

• Balance sheet is not calculated if the entity is marked as stop consolidation within the project period.

• For ex: If the project period is from 1st Jan 2023 to 31st Oct 2023. If an entity is stop consolidated in between the project period, then this entity should not be considered for the balance sheet.

BS FCTR:

• As mentioned in P&L, the amount that we get in Profit After Tax will be posted in the balance sheet in the “Equity” section under the “Currency Translation Reserve” L3 and L4.

  • “Currency Translation Reserve” L3 and L4 will be available in the COA questionnaire.

• The PAT will be converted in average PL rate and the balance sheet items are converted in closing BS rate, a FCTR is posted for the difference amount as follows:

  • The PAT (Total Income + Total Expense) for each individual entity must be calculated in the local currency

  • For ex: If there are 3 entities – A (INR), B (GBP) and C (USD)

  • PAT must be calculated for each entity

    • PAT of A in INR

    • PAT of B in GBP

    • PAT of C in USD

  • To calculate the PAT, all the journal entries in the application are considered except ICO journal entries.

  • Once the PAT is calculated in local currency, the FCTR for each entity is calculated as follows:

    • PAT * (average PL rate-closing rate)

  • So, in the above example, the FCTR is calculated individually for A, B and C

  • Once the FCTR is calculated individually, all the FCTR’s are added and posted on the balance sheet.

    • That is, FCTR of A + FCTR of B + FCTR of C must be posted in the balance sheet under the L3 and L4 captions of “Currency Translation Reserve” which is available from COA questionnaire.

Cash Flow Statement:

• The cash flow statement is generated from the constructive trial balance where L5 is NOT “Cash & Cash equivalents”.

• Cash flow statement is consolidated at L5 level.

• The movement of cash will be computed from the constructive trial balance in FS - Level 2 in the local currency.

• Once the constructive trial balance is in place, all the line items except the line items where L5 value is “Cash & Cash Equivalents”, will be considered.

• The starting point of cash flow statements will be PAT (Profit After Taxes) which is computed from P&L statement.

• If Income is greater than expense, then the PAT will be positive

• If income is less than expense, then the PAT will be negative

• For each L5, the movement (L6) is computed as follows:

  • Opening and closing balance must be in the functional currency

  • The movement is calculated as closing balance- opening balance

  • The opening value is converted at opening BS rate and closing value is converted at Average PL Rate for all the line items irrespective of whether it belongs to BS or P&L line items.

For Assets Line Items:

• If the closing asset is greater than opening asset, then the closing value – opening value will be negative as it is an outflow

• If the closing asset is less than the opening asset, then the closing value – opening value will be positive as it is an inflow

For Liability & Equity Line Items:

• If the closing liability or closing equity is greater than opening liability or opening equity respectively, then the closing value – opening value will be positive as it is an inflow

• If the closing liability or closing equity is less than the opening liability or opening equity respectively, then the value will be negative as it is an outflow

• The formula to calculate liability line items for cash flow is as follows:

((-1*Closing Liability) - (-1*Opening Liability)) * -1

For Income & Expense Line Items:

• For Income and Expense line items, as there will be no opening balance, the value will be inflow or outflow will be decided based on the closing balance.

• For Income line items, the value must be multiplied by -1. If the value is positive then it is inflow or if the value is negative, then it is outflow.

• For the expense line items, if the value is positive then it is inflow else it is outflow.

Validation:

• The total of L5 is calculated once all the L5s are consolidated.

• Let A = Total of all L5 items

• Once all the L5 values are consolidated, the tool will post the opening balance converted in opening BS rate and closing balance converted at closing BS rate.

• As opening and closing balances are converted at different rates and L5 items are consolidated at average PL rates, an FCTR is posted against the opening and closing balance as follows:

  • FCTR = Closing balance of cash & cash Equivalents*(closing BS rate - average PL rate) - Opening balance of cash & cash Equivalents balance * (Opening BS rate – average PL rate)

• Let B = closing balance of cash & cash equivalents at closing rate - opening balance of cash & cash equivalents at closing rate

• The check is (A+FCTR)-B = 0. This means, the cash flow statement is validated.

• Cash Flow statement is not calculated if the entity is marked as stop consolidation within the project period.

  • For ex: If the project period is from 1st Jan 2023 to 31st Oct 2023. If an entity is stop consolidated in between the project period, then this entity should not be considered for the cash flow statement.

Cash Flow FCTR:

• In the cash flow statement, 2 FCTR’s are posted, one with respect to cash & cash equivalents and the other with respect to L5’s other than cash & cash equivalents.

• The FCTR with respect to cash & cash equivalents is posted as follows:

  • FCTR = Closing balance of cash & cash Equivalents*(closing BS rate - average PL rate) - Opening balance of cash & cash Equivalents balance * (Opening BS rate – average PL rate)

• The FCTR with respect to the L5’s other than cash & cash equivalents is calculated as follows:

• Generate the cash flow statement in local currency for each individual entity

• Cash Flow = Closing balance – Opening balance of cash & cash equivalents in local currency

• The FCTR is calculated for individual entities as follows:

  • Cash flow * (closing BS rate – average PL rate) to be calculated for individual entities

  • Once the FCTR is calculated for all the entities, then it must be summed up to post the final FCTR in the cash flow statement under the caption “FCTR”.

Minority Interest:

Minority interest is calculated for subsidiaries alone.

The fields in the minority interest are as follows:

• Entity – Name of the entity

• Effective Holding

  • The effective holding is calculated as follows:

  • Consider the below group structure

	HC	A	B	C	D
A	100
B	70
C	60
D	65	20	10

• The effective holding of the holding company in each entity is calculated as follows.

Effective Holding	Calculation	Total effective holding of HC
% of HC in A	100%	100%
% of HC in B	70%	70%
% of HC in C	60%	60%
% of HC in D + % of HC in (% of A in D) + % of HC in (% of B in D)	65 + (100% of 20%) + (70% of 10%) = 65%+20%+7%	92%

• MI – 100% - Effective holding of HC

  • Considering the above example, the MI is calculated as follows:

Effective Holding	MI Calculation	Total MI
100%	100% - 100%	0%
70%	100% - 70%	30%
60%	100% - 60%	40%
92%	100% - 92%	8%

• Equity on the Project Close Date

  • The calculation of the equity on the project close date is given below:

    • Scenario 1: If the company chooses to maintain Asset Register in BC Form, the formula is as follows:

(Total Equity in Balance sheet * -1) + Total FV Adjustments (Schedule of net assets) in BC form * (100 - tax rate) % - Retained Earnings from Load BC JE - Depreciation total from Load BC table - FV on sale of asset total from Load BC table - Impairment total from Load BC table + Deferred tax income (Opening DTL – Closing DTL) from Load BC table

Load BC JE:

The retained earnings entry is highlighted in the below JE’s.

L3 and L4	Dr	Cr
Retained earnings (L3 and L4) to be picked - From COA Questionnaire	Difference between Net book value on date of transition/ acquisition (from BC form - Asset Register and consolidate for all the assets) to Date of project start (opening balance in Load BC page of all the assets and consolidate)
L3 and L4 would be chosen from BC from		Difference between Net book value on date of transition (from BC Form - Asset Register) / acquisition to Date of project start (opening balance in Load BC page of the assets at individual asset level)

L3 and L4	Dr	Cr
L3 and L4 would be chosen from BC form	DTL on transition- DTL on opening = Db DTL on transition
L3 and L4 from Retained Earnings (from COA Questionnaire)		DTL on transition- DTL on opening = DTL on transition

Load BC Table:

• Scenario 2: If the company doesn’t choose to maintain Asset Register in BC Form, the formula is as follows:

(Total Equity in Balance sheet * -1) + Total FV Adjustments (Schedule of net assets) in BC form * (100 - tax rate) %

• Scenario 3: No BC form (If the entity has Investment form)

Total Equity in Balance sheet * -1

Field Description:

• MI Allocation – MI% * Equity on the Project Close Date

• Other Adjustments – This field is entered by the user

• MI Computed – MI Allocation – Other Adjustments

• Total MI Computed – Sum of MI Computed

• MI in BS prior to allocation – Minority from Balance Sheet under the L3 and L4 caption which is equivalent to “Non-Controlling Interest” in COA Questionnaire

• Difference – Difference between Total MI Computed – MI in BS prior to allocation

• If the difference is positive, then debit retained earnings and credit non-controlling interest

• If the difference is negative, then debit non-controlling interest and credit retained earnings

• Finally, the numbers in the JE * -1 must be added in the balance sheet to its respective L3 captions as follows:

• Let us consider the following example:

Total MI computed	3284
MI in BS prior to allocation	1350
Difference	1934

As the difference is positive, then retained earnings should be debited and non-controlling interest should be credited.

Retained Earnings	DB	1934
MI	CR	-1934

NOTE:

While translating the amount to reporting currency, the amount must be translated in “Closing BS” rate.

While presenting the financial statements
Income balances *-1 = income balance in PL
Expense balances *1= expense balances in the PL
Assets *1
Liabilities *-1
Equity *-1
Assets= Liabilities + Equity

Financial Statements Generation:

To generate the financial statements, we segregate the data into different levels.

1. Load TB - Level:

• In this level, the tool will pick data from the latest version of uploaded trial balance for each entity at a project level.

• The tool will convert the amount in 2 ways.

• The balance sheet items will be converted in closing BS rate and P&L items will be converted in average PL rate. This is converted for Balance Sheet and Profit & Loss Financial statements.

• For Cash Flow Statements, find the closing balance – opening balance and convert that amount to average PL rate.

• While presenting the amount in the financial statements, the Income and Liability line items will be multiplied by -1

1. Journal - Level 1:

• In this level, the journals from all the forms, ICO, Load BC and Other adjustments is picked for each entity at a project level.

1. Journal Level -2:

• In this level, the journal entries are posted in opening balance, debit and credit based on the below condition.

• If the journal date is less than or equal to start date of the project, the values of the journals will be posted in opening balance.

• If the journal date is greater than the start date of the project, the values of the journals will be posted in debit and credit.

FS - Level 1:

• In this level, the values from Load TB, Journal level - 2 is consolidated at L3 level for both BS and P&L for all the entities as a consolidation at a project level.

• The values will be in the functional currency as well as the reporting currency of the project.

• That is, the opening balance, debit and credit are picked in the reporting currency and the tool will calculate the closing balance at L3 level for both BS items and P&L items

• The closing balance is calculated as follows.

Closing Balance = Opening Balance + Debit - (Credit * -1)

• For Cash Flow Statements, find the closing balance – opening balance and convert that amount to average PL rate for the line items where L5 is not “Cash & Cash Equivalents”.

• While presenting the amount in the financial statements, the Income and liability line items will be multiplied by -1

FS - Level 2:

• In this level, the data is segregated at the individual financial statements level.

• The values will be in the functional currency as well as the reporting currency of the project.

• That is, from FS - Level 1, the data is segregated for Balance Sheet and Profit & Loss.

• This data is posted in the respective financial statements. BS items are posted in the balance sheet and P&L line items are posted in the Profit & Loss statement.

Run Consolidation:

• On click of Run Consolidation, the tool gets data from the TB, generates data in Journal level 1, journal level 2, FS – Level 1 and FS – Level 2 with respect to all the entities in the project.

• Post project Any changes in the forms or investments in the setup page will not be reflected until the project is refreshed.

• The refresh button will also work the same way as the ‘Run Consolidation’.

• All the data, that is, data from the TB, generates data in Journal level 1, journal level 2, FS – Level 1 and FS – Level 2 will get generated once again when the refresh button is hit.

• If any new entity is added post project creation, then this change will not get reflected in the ongoing project.

• If there is change in any of the forms or in the project workspace, then the tool will prompt to rerun the financials.