Skip to main content

Purpose of Consolidation of Financial Statements







Meaning and definition of Consolidated Financial Statements



Consolidated financial statements refer to the financial statements which lead to the subsidiaries of the holding company its summative accounting figure. Putting another way, consolidated financial statements can be addressed as the combined financial statements of a parent company and its subsidiaries.



According to IAS 27 "Consolidated and separate financial statements", consolidated financial statements are the financial statements of a group presented as those of a single economic entity.



As stated by Investopedia, the consolidated financial statements enable you to determine the general health of an entire group of companies as compared to a company’s stand alone position. This is because these financial statements provide an aggregated look at the financial position of a company and its subsidiaries.



Purpose of consolidated financial statements



The key purpose of preparing consolidated financial statements is reporting the financial condition and operating result of a consolidated business group, which is considered as a single entity comprised of more than one companies under a common control (also counting entities other than “companies”)



General principles of consolidated financial statements



The general principles involved in consolidated financial statements are:



1. A consolidated financial statement should essentially provide true and fair picture of financial condition and operating result of the business faction.



2. A consolidated financial statement needs to be prepared on the basis of legal-entity based financial statements of the parent company and its subsidiaries which belong to the business faction, and prepared in accordance with the GAAP.



3. A consolidated financial statement needs provide a clear vision about the financial info requisite for interested parties not to mislead their judgments about the business groups’ condition.



4. The procedures and policies used for preparing consolidated financial statements need to be applied ad infinitum and should not be changed without any reason.



Checklist for preparation of consolidated financial statements



1. Estimate group holdings and establish each entity’s status in the question.



2. Ascertain the fair value of acquired assets and calculate net assets of the subsidiary.



3. Estimate goodwill arising on acquisition.



4. Adjust for any intra-group activities.



5. Estimate the balance carried forward on consolidated retained earnings.



6. Estimate the balance carried forward on consolidated reserves.

Comments

Post a Comment

Popular posts from this blog

Intercompany Eliminations with Journal Entries

Intercompany Eliminations Explained intercompany eliminations happen for business combinations. The whole thing kind of confuses me. Can you explain the process and the journal entries to record the intercompany eliminations? Answer: Remember that in a business combination, we are trying to eliminate any transactions between the parent and the subsidiary so that we only have transactions with 3rd parties left after our consolidating entries. So, let’s assume Company A owns Company B and A sells $120,000 of inventory to B. Let’s also assume that Company A gets a 40% margin on all sales and Company B has 30% of the inventory remaining at the end of the year. With this set of facts, they could ask you a wide variety of questions on the CPA exam. One of the tricks to solving problems involving intercompany eliminations is to understand the entries that A and B would book in these cases. One of the other tricks is understanding the relationship between cost and margin percentage. ...
Post a Comment
Read more

Procure to Pay (P2P) Process Folow with Journal Entries

Procure to Pay process flow. 1. Requester: Request for goods & the same goes for an approval 2. PR is created & routed for approval 3. Once approved, PO is created. 4. Sourcing activities like, Choosing the right Vendor, Payment info happens meanwhile, 5. PO is routed for approval 6. PO is sent to the supplier.& Vendor signs the agreement (Payment terms) 7. Supplier will send the goods along with Invoice.(PO Number mentioned) 8. Good received & GRN entry is made. 9. Invoice is sent to the AP team 10. AP team process the Invoice (3 way match) - GL coding will be automatically pulled. 11. process for Payment Few Journal Entries examples are as followed. 1. Goods Received Ware House Dr        Inventory a/c             Cr                    GRNI a/c 2. Inv. Regis...
Post a Comment
Read more

End to End Journal Entries for Purchase Orders

  Creating end-to-end journal entries for purchase orders involves recording the financial transactions associated with the entire procurement process. Here's a step-by-step breakdown of journal entries related to the purchase order process: 1. Request for Purchase: When a department identifies the need for goods or services and generates a Request for Purchase (RFP) or Purchase Requisition, no financial transactions are recorded at this stage. 2. Vendor Selection and Quotation Comparison: No financial transactions are recorded during the vendor selection or quotation comparison stage. 3. Purchase Order Creation: Once the Purchase Order is created and approved internally, the following journal entry is made: Copy code Debit: Purchase Order Liability Credit: Accounts Payable This entry recognizes the commitment to pay the vendor for the goods or services ordered. 4. Sending the Purchase Order: When the approved Purchase Order is sent to the vendor, there is no financial transacti...
Post a Comment
Read more