If an entity owns 100% of another entity it will usually have control.
When preparing consolidated financial statements: Profits/losses (including unrealised gains and losses) made after acquisition that are shown in the subsidiary reserves can be included in the consolidated statement of comprehensive income and in reserves in the consolidated statement of financial position.
Since each subsidiary also prepares its own standalone financial report, consolidated financial statements may seem to some to be an unnecessary extra step. An analysis of the importance of consolidated financial statements reveals these statements offer several benefits to investors, financial analysts and others who may be evaluating the health of the parent company.
In this article, we will review consolidated financial reports in more detail including the unique benefits they offer. Consolidated financial reports are prepared by any parent company that owns one or more subsidiaries.
For example, it is common for one company to purchase smaller companies that can complement the primary business and make it even stronger.
The smaller companies can help the profitability of the parent company while also continuing to operate as separate entities.
Each subsidiary must prepare its own financial statements including balance sheet, income statement, statement of cash flows and statement of retained earnings.
This information for each subsidiary is then combined using consolidation software to create consolidated financial reports that represent the financial position of the parent company as a whole.
Questions could be set requiring either one or both of these consolidated statements.
I’ll do it on a case study, with explaining what I do and why.
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Format of Financial Statement: The Format of Financial Statement shall be as per Schedule III of the Companies Act, 2013.
General Instruction for the preparation of Consolidated Financial Statement are given in the Schedule III of the CA, 2013 which provides an option to the companies to disclose the list of subsidiaries or associates or joint ventures which have not been consolidated in the consolidated financial statements along with the reason for not consolidating the financial statements.