Consolidated financial statement of JSW S.A. Capital Group for 2012

2.2. Consolidation

1. Subsidiaries
   Subsidiaries are all the companies (including special-purpose vehicles) for which the Group may govern their financial and operational policies; this usually coincides with the Group holding the majority of votes in their decision-making bodies. When assessing whether or not the Group controls an entity, the existence and impact of the potential voting rights, which can be exercised or replaced in the given moment, are taken into consideration. Subsidiaries are subject to full consolidation as of the date on which the Group assumes control over them. Subsidiaries cease to be consolidated on the date on which such control is discontinued.
   The Group’s acquisition of subsidiary entities is settled by the purchase method. Remuneration paid for the acquisition of a subsidiary is set as the fair value of assets delivered and liabilities incurred or equity instruments issued by the Group. A remuneration payment covers the fair value of assets or liabilities resulting from agreeing upon a conditional element of remuneration under the agreement. The costs associated with the acquisition are captured in the financial result when they are incurred. The identifiable acquired assets and liabilities and contingent liabilities acquired during a business combination are initially recognized at their fair value as at the acquisition date. For each acquisition, the Group captures non-controlling interest in the acquired entity at their fair value or at the proportional part of net assets of the acquired entity attributable to the non-controlling interest.
   The surplus of the price paid and the fair value of any prior shares in acquired company's equity as at the acquisition date over the fair value of the Group's share in the identifiable net assets acquired is recognized as goodwill. If that amount is lower than the fair value of net assets of the subsidiary acquired at a bargain price then the difference is recognized directly in the financial result.
   Intragroup transactions, settlements, revenues, costs and unrealized profits from transactions between Group companies are eliminated. Unrealized losses are also eliminated, but only after a review of the assets to which they are related for impairment. The subsidiaries apply the same accounting principles as the Group does.
2. Non-controlling interest and transactions with non-controlling shareholders
   The Group treats transactions with non-controlling shareholders as transactions with holders of the Group's equity. In the event of an acquisition from non-controlling shareholders, the difference between the price paid and the acquired share in the subsidiary's net assets at their book value is captured in equity. Profits or losses on disposals to non-controlling shareholders are also posted in equity.
3. Associates
   Associated companies are all the entities on which the Group exerts significant influence but does not control them; this usually coincides with the Group holding from 20 to 50% of all the votes in their decision-making bodies. Investments in associates are settled using the equity method and initially recognized at cost.
   The Group's share in the financial result of the associated companies is captured in the financial result right from the acquisition date, its share in other comprehensive income of associated companies is captured in other comprehensive income, while its share in movements in other capital from the acquisition date – in other capital. The book value of the investment is adjusted by the aggregated changes of the balance from the acquisition date. Where the Group's share in the value of losses of an associated company becomes equal to or greater than the Group's stake in that entity including other possible unsecured receivables, the Group no longer recognizes further losses, unless it accepted any obligations or undertook to make payments on behalf of that associated company.
   Unrealized profits resulting from transactions between the Group and associated companies are eliminated pro rata to the Group's interest in the associated entity. Unrealized losses are also eliminated, unless the transaction provides evidence for impairment of the transferred asset component. Where necessary, the accounting principles used by the associated companies were changed to ensure compliance with the accounting principles applied by the Group. Profits and losses in associated companies on account of dilution are captured in the consolidated financial result.
4. Combination of businesses remaining under common control
   In order settle a combination of businesses remaining under common control, the Group applies the pooling of interest method. The method is based on the assumption that both before and after the transaction, the combining entities were controlled by the same shareholder. Accordingly, the consolidated financial statements reflect the continuity of common control and do not reflect any changes in the value of net assets to fair value (or recognition of new assets) or valuation of goodwill, since none of the combining entities is actually being acquired. The pooling of interest method used by the Group involves an aggregation of amounts recorded in the individual items of the statement of financial position of the acquired entities, as well as revenues and costs and profits and losses of the merging entities, starting from the merger date. The difference between the acquisition price and the acquired net assets is settled through equity.