Consolidated Financial Statements

Definition of Consolidated Financial Statement:

A consolidated financial statement is a combination of a financial statement of a parent company and its branches. This statement is important to review the financial situation of the group of companies owned by one business.

Procedures to Prepare the Financial Statement:

To present this statement the below-mentioned step must be taken:

  • While preparing the statement, it is important to combine and match all the items between the parent company and its subsidiary together and get the total. The parent company should add liabilities, assets, expenses, shares, and income
  • The investment made by the parent company to its subsidiaries and parent’s equity share of its subsidiaries should be eliminated
  • The extra cost made to the subsidiary by the parent company apart from the investment on equity share, at the day on which the funding in such subsidiary is done, should be shown as goodwill
  • When the price of the parent company investment to the subsidiary is less than the parent company’s equity share of the subsidiary, a date on which the investment is made should be mentioned as the capital reserve
  • A small portion of interest in net earnings of the consolidated subsidiary for reporting time must be acknowledged and regulated against the earnings of the group, and credited to the owner or parent company
  • A small portion of interest in net earnings of the consolidated subsidiary for reporting time must be acknowledged and provided in the consolidated balance sheet

Example of Consolidated Statement:

XYZ International has ₹ 5,000,000 of income and ₹ 3,000,000 of assets mentioned in its financial statement. However, XYZ also governs five subsidiaries, which has an income of ₹ 50,000,000 and assets of ₹ 82,000,000. It is very deceptive to reveal just the parent company financial statement when its consolidated outcome states a ₹ 55 million company and governs ₹ 85 million of assets.

The above mentioned is the concept, that is elucidated in detail about ‘How to Prepare Consolidated Financial Statements?’ for the Commerce students. To know more, stay tuned to BYJU’S.

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