The purpose of consolidated statements is to present, primarily for the benefit of the shareholders and creditors of the parent company, the results of operations and the financial position of a parent company and its subsidiaries essentially as if the group were a single company with one or more branches or divisions.

Why do parent companies prepare consolidated financial statements?

Complete Overview – Consolidated statements allow investors, financial analysts, business owners and other interested parties to get a complete overview of the parent company. At a glance, they can view the overall health of the business and how each subsidiary impacts the parent company.

Why is consolidation of financial statements of a holding company with its subsidiary necessary?

Consolidated financial statements report the aggregate reporting results of separate legal entities. Because the parent company and its subsidiaries form one economic entity, investors, regulators, and customers find consolidated financial statements helpful in gauging the overall position of the entire entity.

What is the basic principle of consolidation?

3.1. Subsidiaries are fully consolidated. The results of subsidiaries are included in the consolidated income statement from the effective date of acquisition and up to the effective date of disposal. Intra-group transactions, balances, income, and expenses are eliminated on consolidation.

How do you consolidate a subsidiary balance sheet?

The consolidation method works by reporting the subsidiary’s balances in a combined statement along with the parent company’s balances, hence “consolidated”. Under the consolidation method, a parent company combines its own revenue with 100% of the revenue of the subsidiary.

What is cost of control in consolidation?

COST OF CONTROL (COC) is the amount paid by a holding company, sometimes at a premium, for shares in its subsidiary company over and above the value they would command as an investment, in recognition of the particular benefit, which the company gains through control.

Which principle is followed while preparing consolidated financial statements?

General principles of consolidated financial statements 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.

How do you consolidate subsidiaries?

While preparing a consolidated financial statement, the parent company’s financial statements and its subsidiaries must be combined line by line by totaling together similar items such as assets, liabilities, income, and expenses.

Which condition is required to exclude a subsidiary from consolidation?

(1) an individual subsidiary may be excluded from consolidation if its inclusion is not material for the purpose of giving a true and fair view; (2) an individual subsidiary may be excluded from consolidation for reasons of disproportionate expense in respect of its value (see disproportionate expense and undue delay);