consolidated financial statements case study

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Case Study: Consolidated Balance Sheet At Date Of Purchase

2016, Journal of Business Case Studies (JBCS)

Consolidated financial statements have gained great popularity over the last decade with the resurrection of acquisitions and the increased global expansion of business. This case study provides an actual case study of the preparation and presentation of a Consolidated Balance Sheet on the date of acquisition. An in-depth analysis is provided as to how to value the acquired entity, how to calculate Goodwill and how to measure the Non-Controlling interest portion. Work paper and adjusting entries are also highlighted to help facilitate the consolidation process.

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Reporting Requirements

Cost and Equity Methods

Company Examples

The bottom line.

Corporate Finance
Financial statements: Balance, income, cash flow, and equity

Consolidated Financial Statements: Requirements and Examples

consolidated financial statements case study

Consolidated financial statements are financial statements of an entity with multiple divisions or subsidiaries. Companies often use the word consolidated loosely in financial statement reporting to refer to the aggregated reporting of their entire business collectively. However, the Financial Accounting Standards Board defines consolidated financial statement reporting as reporting of an entity structured with a parent company and subsidiaries.

Private companies have very few requirements for financial statement reporting, but public companies must report financials in line with the Financial Accounting Standards Board’s Generally Accepted Accounting Principles (GAAP) . If a company reports internationally, it must also work within the guidelines laid out by the International Accounting Standards Board’s International Financial Reporting Standards (IFRS) . Both GAAP and IFRS have some specific guidelines for companies that choose to report consolidated financial statements with subsidiaries.

Key Takeaways

Consolidated financial statements are strictly defined as statements collectively aggregating a parent company and subsidiaries.
GAAP and IFRS include provisions that help to create the framework for consolidated subsidiary financial statement reporting.
If a company doesn’t use consolidated subsidiary financial statement reporting, it may account for its subsidiary ownership using the cost or equity methods.

Investopedia / Michela Buttignol

Understanding Consolidated Financial Statements

The consolidation of financial statements integrates and combines all of a company's financial accounting functions to create statements that show results in standard balance sheet , income statement , and cash flow statement reporting. The decision to file consolidated financial statements with subsidiaries is usually made on a year-to-year basis and is often chosen because of tax or other advantages that arise. The criteria for filing a consolidated financial statement with subsidiaries is primarily based on the amount of ownership the parent company has in the subsidiary.

Generally, 50% or more ownership in another company defines it as a subsidiary and gives the parent company the opportunity to include the subsidiary in a consolidated financial statement. In some cases, less than 50% ownership may be allowed if the parent company shows that the subsidiary’s management is heavily aligned with the decision-making processes of the parent company.

If a company has ownership in subsidiaries but does not choose to include a subsidiary in complex consolidated financial statement reporting, then it will usually account for the subsidiary ownership using the cost method or the equity method .

Private companies will usually make the decision to create consolidated financial statements that include subsidiaries on an annual basis. This annual decision is usually influenced by the tax advantages a company may obtain from filing a consolidated vs. unconsolidated income statement for a tax year.

Public companies usually choose to create consolidated or unconsolidated financial statements for a longer period of time. If a public company wants to change from consolidated to unconsolidated, it may need to file a change request. Changing from consolidated to unconsolidated may also raise concerns with investors or complications with auditors, so filing consolidated subsidiary financial statements is usually a long-term financial accounting decision. There are, however, some situations where a corporate structure change may call for a changing of consolidated financials, such as a spinoff or acquisition.

Private companies have very few requirements for financial statement reporting, but public companies must report financials in line with the Financial Accounting Standards Board’s Generally Accepted Accounting Principles (GAAP). If a company reports internationally, it must also work within the guidelines laid out by the International Accounting Standards Board’s International Financial Reporting Standards (IFRS). Both GAAP and IFRS have some specific guidelines for entities that choose to report consolidated financial statements with subsidiaries.

Generally, a parent company and its subsidiaries will use the same financial accounting framework for preparing both separate and consolidated financial statements. Companies that choose to create consolidated financial statements with subsidiaries require a significant investment in financial accounting infrastructure due to the accounting integrations needed to prepare final consolidated financial reports.

There are some key provisional standards that companies using consolidated subsidiary financial statements must abide by. The primary one mandates that the parent company or any of its subsidiaries cannot transfer cash, revenue, assets, or liabilities among companies to unfairly improve results or decrease taxes owed. Depending on the accounting guidelines used, standards may differ for the amount of ownership that is required to include a company in consolidated subsidiary financial statements.

Consolidated financial statements report the aggregate reporting results of separate legal entities. The final financial reporting statements remain the same in the balance sheet, income statement, and cash flow statement. Each separate legal entity has its own financial accounting processes and creates its own financial statements. These statements are then comprehensively combined by the parent company to final consolidated reports of the balance sheet, income statement, and cash flow statement. 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.

Ownership Accounting: Cost and Equity Methods

There are primarily three ways to report ownership interest between companies. The first way is to create consolidated subsidiary financial statements. The cost and equity methods are two additional ways companies may account for ownership interests in their financial reporting. Overall, ownership is usually based on the total amount of equity owned. If a company owns less than 20% of another company's stock, it will usually use the cost method of financial reporting. If a company owns more than 20% but less than 50%, it will usually use the equity method .

Berkshire Hathaway Inc. (BRK.A, BRK.B) and Coca-Cola (KO) are two company examples. Berkshire Hathaway is a holding company with ownership interests in many different companies. It uses a hybrid consolidated financial statements approach, as seen in its financials. For example, its consolidated financial statement breaks out its businesses by Insurance and Other, then Railroad, Utilities , and Energy. Its ownership stake in publicly traded company Kraft Heinz (KHC) is accounted for through the equity method.

Coca-Cola is a global company with many subsidiaries. It has subsidiaries around the world that help it to support its global presence in many ways. Each of its subsidiaries contributes to its food retail goals with subsidiaries in the areas of bottling, beverages, brands, and more.

What Is Consolidated vs. Separate Financial Statement?

A separate financial statement reports on the finances of a single entity. A consolidated financial statement reports on the entirety of a company with detailed information about each subsidiary.

How Do Consolidated Financial Statements Work?

Consolidated financial statements report a parent company's financial health and include financial information from its subsidiaries.

What Are the Requirements for Consolidated Financial Statements?

If a parent company has 50% or more ownership in another company, that other company is considered a subsidiary and should be included in the consolidated financial statement. This also applies if the parent company has less than 50% ownership but still has a controlling interest in that company.

Consolidated financial statements include the aggregated financial data for a parent company and its subsidiaries. Private companies have more flexibility with financial statements than public companies, which must adhere to GAAP standards.

Financial Accounting Standards Board. " S99 SEC Materials ."

Berkshire Hathaway via U.S. Securities and Exchange Commission. " Form 10-Q ."

Coca-Cola. " Form 10-K, Exhibit 21.1 ." Click on Documents, then EX-21.1.

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Example: How to Consolidate

Let’s be more practical today and learn some advanced accounting techniques.

After summaries of standards related to consolidation and group accounts, I’d like to show you how to prepare consolidated financial statements step by step .

I’ll do it on a case study, with explaining what I do and why. If you don’t like reading, you can skip to the end of this article and watch my video.

If you’d like to revise a theory first, then please read my summary of IFRS 3 Business Combinations and IFRS 10 Consolidated Financial Statements , both of them contain video in the end.

What’s the situation?

Here’s the question:

Mommy Corp has owned 80% shares of Baby Ltd since Baby’s incorporation.

Below there are statements of financial positions of both Mommy and Baby at 31 December 20X4.

Prepare consolidated statement of financial position of Mommy Group as at 31 December 20X4. Measure NCI at its proportionate share of Baby’s net assets.

Please note here that in the above statements of financial position, all assets are with “+” and all liabilities are with “-“ . I use it this way because for me it’s easier to verify and identify mistakes, but it’s up to you.

3 Steps in Consolidation Procedures

I have described the consolidation procedures and their 3-step process in my previous article with the summary of IFRS 10 Consolidated financial statements , but let me repeat it here and follow these steps:

Combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries;
the carrying amount of the parent’s investment in each subsidiary; and
the parent’s portion of equity of each subsidiary;
Eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group.

Step 1: Combine

After you make sure that all subsidiary’s assets and liabilities are stated at fair values and all the other conditions are met, you can combine, or add up like items.

It’s very easy when a parent (Mommy) and a subsidiary (Baby) use the same format of the statement of financial position – you just add Mommy’s PPE and Baby’s PPE, Mommy’s cash and Baby’s cash balance, etc.

Therefore, when a group controller calls you every five minutes to remind you the consolidation package, you’ll know why!

In our case study, combined numbers looks as follows:

Of course, there are some strange and redundant numbers, for example both Mommy’s and Baby’s share capital, but we haven’t finished yet!

Step 2: Eliminate

After combining like items, we need to offset (eliminate) :

and of course, recognize any non-controlling interest and goodwill.

So let’s proceed. The first two items are easy – just remove Mommy’s investment into Baby (CU – 70 000), and remove Baby’s share capital in full (CU + 80 000).

As there is some non-controlling interest of 20% (please see below), you need to remove its share in Baby’s post-acquisition retained earnings of CU 9 000 (20%*CU 45 000).

Wait a second – how do we know that all Baby’s reserves (retained earnings) of CU 45 000 are post-acquisition?

Well, the question says that Mommy has owned Baby’s shares since its incorporation , therefore full Baby’s retained earnings are post-acquisition.

Be careful here, because you absolutely need to differentiate pre-acquisition retained earnings from post-acquisition retained earnings , but here, we’re not going to complicate the things.

Then we need to recognize any non-controlling interest and goodwill.

Non-controlling interest at 31 December 20X4

Mommy has owned 80% of Baby’s share and therefore, non-controlling interest owns remaining 20% of Baby’s net assets.

The question asks to measure non-controlling interest at proportionate share on Baby’s net assets, so here’s how it looks like at the end of the reporting period:

Baby’s net assets are CU 125 000 as at 31 December 20X4 , including Baby’s share capital of CU 80 000 and Baby’s post-acquisition reserves of CU 45 000.

Non-controlling interest at 31 December 20X4 is 20% of Baby’s net assets of CU 125 000, which is CU 25 000 . Recognize it with minus, as we are crediting equity with non-controlling interest.

Initial recognition of goodwill

There might be some goodwill arisen on initial recognition. If you’d like to learn more about goodwill, please refer to the article about IFRS 3 Business Combinations .

Let’s calculate it. Please don’t forget that we calculate goodwill based on numbers on acquisition , not on 31 December 20X4.

The goodwill is calculated as:

Fair value of consideration transferred : in this case, we simply take Mommy’s investment in Baby of CU 70 000;
Add any non-controlling interest at acquisition : here, we’re not adding the non-controlling interest calculated above, as it’s the measurement on 31 December 20X4. At acquisition, the value of non-controlling interest is 20% of Baby’s net assets on its incorporation of CU 80 000 (share capital only). It equals CU 16 000.
When a business combination was achieved in stages, you would need to add the acquisition-date fair value of the acquirer’s previously-held equity interest in the acquiree, but in this example, it’s not applicable,
Deduct Baby’s net assets at acquisition: CU – 80 000.

Goodwill acquired in a business combination comes to CU 6 000 (70 000 + 16 000 – 80 000).

The elimination entry looks as follows (sign “+” indicates a debit entry; sign “-“ indicates a credit entry):

I have transferred this journal entry into our consolidation worksheet and it looks as follows:

Eliminate Intragroup Transactions

Parents and subsidiaries trade with each other very often.

However, when you look at both parent and subsidiary as at 1 company, which is the purpose of consolidation, then you find out that there’s no transaction at all.

In other words, group has not performed any transaction from the view of some external user.

Therefore you need to eliminate all transactions happening within the group , between a parent and its subsidiaries.

Looking to above individual statements of financial position of Mommy and Baby you see that Mommy has a receivable to Baby of CU 8 000 and Baby has a payable to Mommy of CU 8 000 . Perhaps these 2 items relate to the same transaction between them and we need to eliminate them, by debiting payables and crediting receivables :

Final steps

After we have completed all steps or consolidation procedures, we can add up all the combined numbers with our adjustments and thus we arrive at consolidated statement of financial position.

You can revise all the steps and formulas in Excel file that you can download at the end of this article.

Here’s how it looks like:

Please note the following facts:

Consolidated numbers are simply sum of Mommy’s balance, Baby’s balance and all adjustments or entries (Steps 1-3).
Mommy’s investment in Baby’s shares is 0 as we eliminated it in the step 2. The same applies for Baby’s share capital and consolidated statement of financial position shows only a share capital of Mommy (parent).
There’s a goodwill of CU 6 000 and non-controlling interest of CU 25 000, as we have calculated above.
Mommy’s retained earnings of CU 62 000 in full, and
Mommy’s share (80%) on Baby’s post-acquisition retained earnings of CU 45 000, that is CU 36 000

Exam-style consolidation

I know that many of you prepare for your exams and this is NOT the way how you learned consolidation during exam preparation courses.

OK, I understand.

I prefer this way of making consolidation by far, because here, you go systematically, step by step. You can deal with each adjustment in a separate column and as a result, your numbers will always balance. You will never forget anything.

The “exam-style” of making consolidated financial statements is good and easy when there are just a few issues or complications.

However, to make you happy, you can find the same case study solved “by the exam-style” in the attached excel file that you can download in the end of this article.

Is consolidation really easy?

But in most cases, there is lots of issues or circumstances that you need to take into account and exactly their significance and amount makes it all difficult.

What issues? For example:

Consideration transferred for acquiring the shares may involve not only cash, but also some other forms, such as share issue, contingent consideration, transfers of assets, etc.
Non-controlling interest can be measured at fair value instead of at proportionate share.
There might be some unrealized profit on transactions within the group and it needs to be eliminated.
There might be some transfer of property, plant and equipment at profit within the group and as a result, you need to adjust both unrealized profit and depreciation charge, too.
Goodwill might be either positive or negative (=gain on a bargain purchase). Moreover, it can be impaired.
Subsidiary’s net assets might be stated in the amounts different from their fair value , or even not recognized at all.
Subsidiary may show both pre-acquisition retained earnings and post-acquisition retained earnings . You need to be extremely careful in differentiating them and dealing with them separately.

I can go on and on, but I don’t want to discourage you. However, if you need to know more about all these issues, I have covered them fully in my premium learning package the IFRS Kit , so please check out if interested.

DOWNLOAD EXCEL FILE HERE

Please watch the video here:

Further reading: Here’s the example of consolidation where a subsidiary has different functional currency than its parent. You’ll learn how to translate the subsidiary’s financial statements.

Here, you can learn the opposite process – disposal of subsidiary (deconsolidation) .

If you like this example and explanations, please help me spread a word about it and share it with your friends. Thank you! 1518169940415 -->

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227 Comments

Hi Silvia, thanks for the insightful article. I have question on how to attribute post-acquisition profit to NCI where a shareholders’ agreement exists that modifies the profit entitlement of the subsidiary’s shareholders. Lets consider an example of a 60% owned subsidiary and the agreement between its shareholders’ provides the following:

1. The 40% share capital to be contributed by the other shareholders (hereafter referred to as “NCI”) shall be paid up by the parent company (who is the 60% shareholder) in form of advancement to NCI.

2. The advancement shall be repaid to the holding company by way of setting off against future dividend to be distributed to NCI.

In the absence of the above factors, the consolidated income statements of the parent company should report the profit attributable to the parent company and NCI based on their respective ownership interest. This would result in attributing CU 40 to NCI if the current year profit of the subsidiary is CU 100.

However, having the additional factors in mind, if the advancement owed by NCI is CU 40, and should there be any dividend distribution in the future, NCI will never get paid for the CU40 profit attributed to them because the payment will instead be diverted to the holding company to settle the advancement they owe. In that sense, should the CU 40 profit be attributed to NCI at the first place?

When we need to adjust the Subsidiary net assets to fair value – do we do revaluation entries in the consolidate statements ?

For example, if we need to recognise client lists or provisions that wouldn’t be in the individual statements – do we debit assets client lists and credit p&l

Or debit PPE – credit revaluation reserve ?

What about the provisions for probable liabilities ?

Hi Daniel, you do all adjustments when consolidating, but in the separate statements. If you are subscribed to our courses, there’s a full solved example about it.

How to account for the pre – acquisition deficit in an asset acquisition? In a business combination, this would be accounted when calculating goodwill.

You can read and watch the video about it here .

What is the difference between GAAP and IFRS when considering consolidation to GAAP financials in the US.

Basically they are completely different sets of accounting and reporting rules. Please see more here.

If I have company A which has associate B and B has subsidairy C 100% Now Company A wants to acquire full C What the impact in books of Company A and Company B

I just wanted to thank you for this amazing, wonderful and extraordinary work you do for us students. You really make IFRS more digest. you are a STAR!

Thanks Silvia. Helpful. Few requests, pl.. 1)Step 2: Eliminate – removing Baby’s share capital in full ,ie.CU 80 000. Could we remove only 64000, ie. the parent’s portion of Baby’s equity instead? 2)Removal of 20% NCI of Baby’s post-acquisition retained earnings: Why is this required, pl.?

Hi Selva- What is the possible case, that a dividends from subsidiaries are shown on the consolidated statement of cash flow only ?!

Hi Silvia, I have a question on consolidation and I hope that you can share your opinion on this problem. The background of the case was as follows:

Company A asked its directors to set up a company (Company B) in Country X in the 1980s. The shares in Company B are registered under the individual directors name. Company B operates independently from Company A and there was no information whether Company A has control over Company B.

In 2020, the new management of Company A sued the former directors and claimed that the shares held by them in Company B are in trust for Company A. In 2021, Company A won the suit and the Court passed a judgment saying that Company A is the rightful owner of the shares in Company B. The Court also ordered the former directors to pay Company A legal costs and all the dividends (plus interest) they received from Company B in those years. In 2022, the shares in Company B are successfully transferred to Company A and Company B become a wholly owned subsidiary of Company A.

My questions are:

(a) Is this a prior year adjustment? Can Company A recognise Company B as subsidiary in 2022 on the basis that Company A does not have control over B until the shares have been transferred?

(b) If Company A recognised Company B as subsidiary in 2022, what is the “cost of investments” amount to be recorded in A books? Is it legal fees incurred by Company A or the share capital of Company B?

(c) How does Company A record the compensation received (past dividends, interest and legal costs) from the former directors?

(d) How does the above transactions recorded in the Group level?

Thank you for your help. Kelvin

Thank you Silvia for your illustration , If you don’t mind I have two questions regarding the consolidation, the first one why we eliminate the retained earnings that exits at the acquisition date (or before the acquisition date) ? is it like the amount that it’s hidden for the future that the investor will take it from the investee ? the second question when we eliminate intragroup transactions regarding purchasing of PPE or Inventory : if the sale is made from the parent to its subsidiary why we do not reduce the subsidiary share for unrealized profit since the subsidiary will take part of the net Assets (equity) that are attributable to (non-controlling interest)? in other words if the net assets affected for the group the net assets for the non-controlling interest will be affected also. Thank you in advance. Regards, Mohammad Obeid

1. Because they enter in the goodwill calculation and do not belong to the group as they were achieved prior acquisition date. 2. Because the parent made unrealized profit, not the subsidiary, in your outlined transaction. Mohammed, I strongly recommend you to look inside the IFRS Kit, because these questions are all solved there.

Thank you for your response and advice, In reference to answer No. 2 , in your videos when the Subsidiary made sale to its parent you allocate the amount of unrealized profit also to Controlling interest(parent share in Retained Earnings , 80% of the total amount) although the amount of unrealized profit should reflect the non-controlling interest. Thanks in advance.

And that is correct. However in your question, you asked about the opposite situation.

yes but your answer is ” Because the parent made unrealized profit, not the subsidiary” regarding the reason of not allocating part of unrealized profit to non-controlling interest despite we calculate the percentage of unrealized profit to controlling interest in the case when the subsidiary made a sale to its parent.

Thank you for your Answer, Regarding answer No.1 if this is the case then all Assets and Liabilities that are acquired by the parent at the acquisition date are not belong to that investor because the Investee who assume these Assets and Liabilities, it’s like the retained earnings that achieved prior to the acquisition date right ?

No. Please see more in the IFRS Kit.

Thank you Silvia for your illustration, I have a question about the elimination for “related party” transactions, can we say that the reason of not including these transactions in the consolidated Financial Statements is these transactions are not between Arm’s length transactions and therefore it does not reflect the Commercial substance of the transaction since one party has control over another? For example the transfer pricing between the parent and subsidiary in different countries its just transfer the retained earnings or “Capital” from one country to another to avoid the taxation. Thank you in advance. Regards Mohammad Obeid

No. The reason for not including them in consolidated financial statements has nothing to do with commercial substance. They are included because if we treat the group as one entity, then these transactions are between “individual departments” within the same entity, so from the outside view, there are no transactions.

How do we consolidate if the acquisition date happened in the middle of the year?

Hi jan, basically you consolidate balance sheet in full and profit or loss only since the acquisition date until the end of the reporting period. Profit or loss items incurred from the beginning of the period til the acquisition date are considered pre-acquisition and enter into calculation of goodwill and NCI. I cover it quite well with practical examples in the IFRS Kit, so please check that out if interested.

Hi Silvia, An individual is a shareholder in both parent and subsidiary companies. Will his interest be added to the interest held by the parent company in determining the minority interest in a subsidiary company? Thanks

Hi Silvia, Thank you very much for the good work, We can leisurely learn and love to read the content. You can reshape people by sharing your knowledge.

I want to pay for IFRS kit, how do I do it? In Uganda

Please write me via Contact form. Thank you!

if there are intercompany sales. is the minority interest calculated based on the eliminated net income.for eg if the standlone net income of the subsidiary is 20,000 after elimination it is 15,000. then minority interest share of earnings will be 15000 multiplied by ownership % of minority interest?

Ok Silva i know that the Consolidation one of the several difficult techniques independently makes a difference ….. what is the other techniques from your Opinion would you talk to us about it thank you too much for all you Do for us here

Hi Sylvia and everyone else,

Hope you all are doing well,

Can you please shed some light on my below questions regarding the presentation of Accounts ?

My question is that if we have audited the Interim accounts for the period ended 31-Dec-2020 and we have purchased a subsidiary in this particular period only (before this period, Parent had no subsidiary ), so, do we have to show unconsolidated accounts or not, for the 30-June-2020 period end (for Balance sheet) to show it as comparative Accounts ?

And for PnL, to show comparative accounts for 31-Dec-2019, do we have to consolidate it or not in order to present it as comparative accounts for 31-Dec-2020 period end audit.

Thanks. Simplify a quite involving process.

Hi Sylvia, Thanks for this article. Just a follow up question, will there be any change if baby( the subsidiary) should have share premium in her book.

Hi Silvia just looked at your youtube video and have subscribed, im currently confused as to what method i should use and how to calculate NCI at % of net assets and at Full Fair value, would you be able to assist me and tell me which method would be better and why? Again it will be different depending on the depending GAAP but lets just say UK Expander plc wishes to acquire a 70% stake in Target plc by purchasing 280 million of Target’s 400 million £1 ordinary shares. Target currently has retained earnings of £1,360 million and is not expecting to issue any shares or pay any dividends in the immediate future. The purchase of Target will be paid for through a combination of immediate and deferred cash payments. Expander will pay £5,000 million of cash at the date of acquisition, plus a further £2,000 million in two years’ time. Target has some valuable brands, trade names and internet domain names. These are not currently recognised in Target’s financial statements. The estimated fair value of these assets is £3,500 million and these brands and domain names are estimated to have a useful life of approximately 8 years. Expander has not yet determined whether it should measure non-controlling interest in its subsidiaries on the basis of a proportionate interest in the identifiable net assets of the subsidiary or whether it should use the “full goodwill” method. The fair value of a 30% holding in Target is estimated to be £2,500 million. Where appropriate you may assume a discount rate of 5% per annum.

What does mean by “subsuming intangible assets in goodwill”?

Hello, Why does the subsidiary share capital remain the same at acquisition and at balance sheet date ? and why do we show parent’s share capital only, in consolidated financials?

waiting for your reply thank you

Dear Silvia, Thank you for the great article. May I ask a question on revaluation please? If a parent company revalue its investment in subsidiary and recognize a surplus, then how I can eliminate or offset the carrying amount of the parent’s investment in subsidiary(which is revalued); and the parent’s portion of equity of each subsidiary(which is unchanged). Would you please guide me? Thank you.

HI. SILVIA, X company purchased 960000 million shares from other one a few years ago. At the time subsidiary had $190 million in reserves. The fair value of non – controlling interest at the date of acquisition was $330 million. How can i work out group structure, % of parent share

Hi Silvia, baby company sold the goods to mommy company at DAP price; therefore the freight cost should be bear by baby company.

In consolidation level, baby company sales = mommy company cost of good sold; should baby company need to report the freight cost for consolidation? the freight cost is paid by baby company to outside forwarder.

how do you calculate legal/statutory reserve at the consolidated level.

hie SILVIA I AM FINDING IT DIFFICULT TO WORK CONSOLIDATION QUESTION OF A GROUP WITH TWO SUBSIDIARIES HOW CAN I DO IT

How would I calculate Goodwill if NCI is measured at Fair Value

Good day i would like to know what happens when the group sells an asset outside,how do we recognize the transaction? second uestion,when the inventory must be eliminated and there is the net realizable value used, what should i do?

Hello, great tutorial. However, how would you adjust these figures if there were some pre-acquisition earnings to apportion out?

Hi Silvia, Thanks greatly for your very helpful explanation, I do have a situation where one of our companies had completed the acquisition of 70% of CS equity of another company on December 31, 2019, so do I still need to do the consolidated financials for the year 2019 based on this scenario ?

Thanks very much.

hi Sivlia! what has to haapen if the parent and subsidiary have different reporting dates?

Hi Silvia! One question: Why don’t you incorporate fair values in the consolidated?

Simplicity is the key. This is a basic example to teach the basic technique. For more advanced examples, there’s IFRS Kit .

Please need explanation on this. If a company previously become an associate of the parent entity, parent entity owned less than 50%, later become a subsidiary, the ownership shares increased, how would I put the entries to recognize as a subsidiary from an associate in consolidation?

Hi Douglas, please read this article .

Hi Silvia, If a subsidiary is at loss position, will the NCI be written down to negative value? Or zero is the bottom for the loss absorption by NCI? Many thanks Alice

Yes, negative value.

Thank you very much Silvia!

Hi silva i just need you help to ward the direct business combination acquisition cost. When cash is paid for different direct acquisition related types the assets of the combiner business specially cash account is affected. But, my question which capital accounts of combiner business parallel affected. Because, IFRS 3 stated that the acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, Debit-expense & Credit cash…..

Hi Silvia, I have this below question that really hope to get your help with: the Mother Co sold some shares of its Son Co to NCI. The shares were issued at a higher price so the capital $$ received is higher than the percentage of holdings given. Illustrated like below: Share Capital $800 total, Son Co 600 and NCI 200, but holding percentage Son Co 80% and NCI 20% So on console elimination the above all eliminated by $$. The current year (assume all post acquisition) retained earnings $100. If portion between Mother group and NCI by holding percentage it would be $80/$20, but if portion by $amount injected then it would be $75/25. For verification the total assets are $900 (800 + 100), portion by percentage of holding it would be $720/180. It doesn’t support either above elimination computation results for NCI: i.e. 1/ $200 + $20 = $220, or 2/ $200 + 25 = $225 So what I did wrong? Desperately waiting for your reply. Many thanks! Alice

Dear Alice, I would like to recommend you our online advisory service – our consultants can answer exactly to these highly specific questions within 2 business days. S.

and by the way it’s the Son Co sold 18% of holdings to NCI for 180, so no goodwill for Son Co or Grandpa Co, I think. Many thanks Alice

Hi Silvia, if the intermediate holding company (Son Co) doesn’t provide consolidation because the utmost holding entity (Grandpa Co) provide the consolidation, would 1) the Grandson Co be consoled first with Son Co and then Son Co console with Grandpa Co, or 2) Grandpa Co console directly with both Son Co and Grandson Co, i.e. Son and Grandson be treated like two individual and parallel entities in the Grandpa Co’s consolidation? And if it’s the 2) situation how the intragroup elimination should be provided? Many thanks

Hi Alice, I would say the option 2 is more probable 🙂 Of course, if Grandpa fully controls both companies, then all intragroup balances need to be eliminated in full. Well, I will write an article about complex consolidation soon!

Thank you Silvia! Yet a further question: if the Son Co and Grandson Co are both foreign currency entity, say, Singapore Dollar. Son invest SGD1000 into Grandson Co. Grandpa Co is USD (the group’s console report currency), for consolidation what exchange rate should be used for the Son’s investment of SGD1000 in Grandson Co? for 1st, 2nd, 3rd… years? Many thanks Alice

Alice, for all currency questions, I recommend reading this article . S.

Thanks Silvia. I did read that articles multiple times… maybe I should post the question under that article? My question is the different currency is NOT between the ultimate holding Co (the console entity), but between the two subsidiaries of it that are both the same foreign currency. Anyways, I posted another question that I desperately needed answer on, but it disappeared? I’ll post again. Many thanks Alice

Hi there, I am not sure if I am asking this question on the correct platform, but this is bothering me a bit in terms of consolidation. What do you do if a Trust has the majority Shareholding? Let’s say they have control and it is not an Investment entity. How does it work exactly? Will the trust present Financial Statements? And what will your consolidation look like?

Hi Charne, the first question is: is the trust following IFRS? Is the trust presenting its financial statements under IFRS? This is the question and the answer depends on the legislation of the trust’s jurisdiction and trust’s intentions (if voluntary application is selected) – not on IFRS. If the answer is yes, then in most cases the trust is not exempted from consolidation – but it also depends on the specific structure of the trust.

Hi Silvia, Your explanation is so good!

Could you please explain why Mommy has invested 70k only but the Share capital of Baby becomes 80k?

Well, it seems that Mommy did not buy 100% share in Baby 🙂

Hi Silvia, Thanks for the nice presentation. During the consolidation of my subsidiaries and parent company A/C, i face below problem and want your kind support.. Let The the parent company is “X” and there are two subsidiaries “Y” & “Z” and X holding 99.5% share of Y & Z, and also Y holding 1 % share of Z. Now I am confused how can i eliminate the investment of Y in Z share during the consolidation.

Hi, good presentation.

Interested to receive updates regarding this.

Hi Silvia, This is a good article. i would like to more and more. Regards Mohamed Fouad

Query on alignment of Accounting Policies under IFRS Consolidated Financial Statements: Let say both parent and subsidiary had invested in unlisted / unquoted security of Co. A If parent determined the fair value of such security using income approach at CU 100 and for the same security in Co. A subsidiary determines fair value using market approach at CU 130. Is alignment required in consolidated financial statement? Or can this be allowed on the basis that fair value is an accounting estimate?

Requesting some clarity in such scenario.

I really appreciate what you are doing to us I personally benefited a lot from this article thank you

Consolidated financial statements and global tax policy (OECD BEPS) insights from a multijurisdictional case study

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This article addresses the relationship between consolidated financial statements and achievement of global tax policy objectives (OECD BEPS) against the background of a case study. Major instruments for preventing tax avoidance are strongly linked with consolidated financial statements. Irrespective of the accounting standard applied (IFRS, US GAAP, and German GAAP), a systematic gap in the group accounting regulations regarding the effective inclusion of entities without members and shareholdings in the consolidated financial statements can be shown. This applies to foundations that are set up as structured entities. The non-inclusion of such legal entities in the consolidated financial statements considerably jeopardises the information function and the core objectives of group accounting. Furthermore, the tax policy goals of the European Union (EU) or Organisation for Economic Co-operation and Development (OECD) to combat cross-border profit shifting and tax avoidance (BEPS) are negatively affected, as relevant instruments such as the interest limitation rule according to Art. 4 of the Anti-Tax Avoidance Directive (ATAD) are linked to the consolidated financial statements. In addition, the hybrid mismatch rule under Art. 9 ATAD is affected, as their scope of application relates to entities that are fully included in consolidated financial statements drawn up in accordance with the IFRS or the national financial reporting system. The same applies to CFC taxation under Art. 7 ATAD, which is based on the concept of control of the foreign entity (majority of the voting rights, capital interest or more than 50% of the profits). The effectiveness of the inclusion rules of the group accounting regulations has a significant international tax policy dimension and superior economic relevance. Thus, the study develops solutions to include structured foundations and entities without members in the consolidated financial statements. Furthermore, solutions for the further development of the OECD base erosion and profit shifting instruments connected to group accounting are presented to achieve global tax policy goals.

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Kollruss, T.W. Consolidated financial statements and global tax policy (OECD BEPS) insights from a multijurisdictional case study. SN Bus Econ 2 , 118 (2022). https://doi.org/10.1007/s43546-022-00294-3

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Consolidated and consolidating financial statements: accounting insights in procurement, introduction to consolidated and consolidating financial statements.

Unlocking the mysteries of financial statements is like digging into a treasure trove of insights for businesses. And when it comes to procurement, mastering the art of consolidated and consolidating financial statements can be a game-changer. But what exactly do these terms mean? How do they differ from each other? And how can they revolutionize your procurement strategies ?

In this blog post, we’ll unravel the secrets behind consolidated and consolidating financial statements. We’ll explore their benefits in procurement , shed light on potential challenges, and provide you with best practices for accurate financial reporting. So grab a cup of coffee and get ready to delve into the fascinating world of accounting insights in procurement!

Understanding the Difference between the Two

When it comes to financial statements in procurement, it’s important to have a clear understanding of the difference between consolidated and consolidating financial statements. While these terms may sound similar, they actually refer to two distinct accounting practices.

Consolidated financial statements are a summary of the financial activities of a parent company and its subsidiaries. This means that all the assets, liabilities, revenues, and expenses of these entities are combined into one comprehensive statement. Consolidated financial statements provide an overall picture of the entire business group’s performance and are often used by investors and stakeholders to assess its financial health.

On the other hand, consolidating financial statements focus on individual companies within a group. These statements present separate information for each subsidiary or entity within a larger corporate structure. Consolidating financial statements help analyze each subsidiary’s contribution to the overall group’s performance.

The key distinction lies in their level of detail: consolidated financial statements offer an aggregated view while consolidating ones delve into specific entities’ finances. Both types serve different purposes but work together in providing valuable insights for decision-making.

By understanding this difference, businesses can make more informed decisions based on accurate data analysis tailored to their specific needs. Whether you’re assessing your organization as a whole or evaluating individual subsidiaries’ performances, having access to both consolidated and consolidating financial statements ensures comprehensive insight into your procurement process .

Benefits of Using Consolidated and Consolidating Financial Statements in Procurement

When it comes to procurement, having accurate financial information is crucial for making informed decisions and ensuring transparency. This is where consolidated and consolidating financial statements come into play, offering a range of benefits.

These statements provide a comprehensive view of the financial health of an organization. By consolidating the financial data from different subsidiaries or business units, companies can get a holistic picture of their overall performance. This allows procurement teams to assess the financial stability and viability of potential suppliers before entering into any agreements.

Consolidated and consolidating financial statements help in identifying cost-saving opportunities within procurement operations . By analyzing the expenses across various entities or departments, organizations can identify areas where efficiency improvements can be made. This enables them to negotiate better terms with suppliers or streamline processes to reduce costs .

Furthermore, these statements facilitate compliance with regulatory requirements. Many industries have specific accounting standards that need to be followed when reporting financial information. Consolidated and consolidating statements ensure that companies meet these standards by providing a unified view of their finances.

In addition, using consolidated and consolidating financial statements enhances risk management capabilities in procurement. Organizations can identify potential risks by analyzing key metrics such as debt levels, liquidity ratios, or profitability across multiple entities. This helps in evaluating supplier risk profiles and mitigating any potential threats to the supply chain.

These statements improve decision-making by providing accurate and reliable data for analysis. Procurement professionals can use this information to evaluate supplier performance based on key metrics like revenue growth or profitability trends over time.

Utilizing consolidated and consolidating financial statements in procurement brings numerous advantages such as gaining insight into overall company performance, identifying cost-saving opportunities, ensuring compliance with regulations, enhancing risk management capabilities, and facilitating informed decision-making.

Challenges in Implementing Consolidated and Consolidating Financial Statements

Implementing consolidated and consolidating financial statements in procurement can present various challenges that organizations need to navigate. One major challenge is the complexity involved in gathering and integrating financial data from multiple subsidiaries or entities within a corporate group. Each entity may have its own accounting systems, policies, and practices, making it difficult to consolidate the information accurately.

Another challenge lies in ensuring consistency and standardization across different reporting periods. Timely communication and collaboration between finance teams are crucial for aligning accounting principles, reconciling intercompany transactions, eliminating duplications or omissions, and addressing any discrepancies that arise during the consolidation process.

Furthermore, language barriers, cultural differences, and varying regulatory requirements across jurisdictions can complicate the consolidation of financial statements for multinational corporations with operations in different countries. Understanding local regulations regarding currency translation methods, tax treatments, or disclosure requirements becomes essential to ensure compliance while preparing consolidated reports.

In addition to these technical challenges, there may also be resistance to change within an organization when implementing new processes for consolidated financial reporting. Stakeholders might be accustomed to traditional reporting methods or reluctant to adopt new technologies or accounting standards.

Overcoming these challenges requires a dedicated effort towards streamlining processes through automation tools such as enterprise resource planning (ERP) systems or specialized software designed specifically for consolidation purposes. It also necessitates ongoing training and education for staff members involved in financial reporting to stay updated on relevant accounting standards and best practices.

Despite these challenges, organizations who successfully implement consolidated and consolidating financial statements gain valuable benefits such as enhanced visibility into overall performance metrics across their entire corporate structure. This enables better decision-making by identifying areas of improvement or potential cost savings within procurement strategies at both individual entity levels as well as on a group-wide basis.

Best Practices for Accurate Financial Reporting in Procurement

When it comes to accurate financial reporting in procurement, there are several best practices that organizations should follow. These practices not only ensure transparency and compliance but also provide valuable insights into the financial health of the company. Let’s explore some key strategies for maintaining accuracy in financial reporting.

First and foremost, it is essential to establish clear guidelines and processes for recording procurement transactions. This includes documenting all purchases, sales, and expenses accurately and consistently. By maintaining comprehensive records, companies can easily track their financial activities and identify any discrepancies or errors.

Another important practice is to regularly reconcile procurement data with other financial documents such as invoices, receipts, and bank statements. This helps verify the accuracy of recorded transactions and ensures that all information aligns correctly.

Implementing robust internal controls is crucial for preventing fraud or misrepresentation of financial data. Companies should have checks in place to review approvals, monitor spending limits, and validate vendor information. Regular audits can help identify any weaknesses or potential risks within the procurement process.

Utilizing technology solutions such as enterprise resource planning (ERP) systems can greatly enhance accuracy in financial reporting. These systems automate various tasks like invoice processing, purchase order management purchase order management ing – reducing manual errors while improving efficiency.

Regular training sessions for employees involved in procurement processes can significantly contribute to accurate financial reporting. Educating staff on proper record-keeping techniques, compliance requirements, and ethical business practices fosters a culture of accountability within the organization.

By implementing these best practices consistently across their procurement operations, companies can ensure accurate financial reporting that provides valuable insights into their overall fiscal health. Ultimately this helps make informed decisions regarding budgeting, cost control measures, and strategic planning. In conclusion accurate financial reporting plays a critical role in driving success within an organization’s procurement function

Case Studies: Companies Successfully Utilizing Consolidated and Consolidating Financial Statements

When it comes to the world of procurement, having accurate financial reporting is essential for making informed decisions. Many companies have realized the benefits of using consolidated and consolidating financial statements in their procurement processes . Let’s take a look at some case studies that highlight how these statements have helped businesses streamline their operations and achieve success.

One such company is ABC Manufacturing, a global supplier of industrial equipment. By implementing consolidated financial statements, they were able to gain a comprehensive view of their subsidiaries’ financial health. This allowed them to identify areas of inefficiency and implement cost-saving measures across the board.

Another success story comes from XYZ Pharmaceuticals, a leading player in the healthcare industry. Through consolidating financial statements, they were able to accurately assess the performance of their various business units. This enabled them to reallocate resources effectively and focus on areas with high growth potential.

Furthermore, DEF Retail Corporation utilized consolidating financial statements to track expenses across its multiple retail chains. By analyzing data from each store individually, they were able to identify trends and make informed decisions about inventory management and pricing strategies.

These case studies clearly demonstrate how consolidated and consolidating financial statements can provide valuable insights into procurement processes. With accurate data at hand, companies are better equipped to optimize resource allocation, improve operational efficiency, and ultimately drive profitability.

By leveraging these best practices in financial reporting within procurement processes, companies can ensure greater transparency throughout their supply chain operations. It’s evident that incorporating consolidated and consolidating financial statements is not only beneficial but also crucial for long-term success in today’s competitive business landscape.

Consolidated and consolidating financial statements play a crucial role in procurement, providing valuable insights into the financial health of an organization. By combining the financial data from multiple entities within a company, these statements offer a holistic view of the overall performance and position.

Understanding the difference between consolidated and consolidating financial statements is essential for accurate reporting and decision-making in procurement . Consolidated financial statements consolidate the accounts of subsidiaries or other entities under common control, while consolidating financial statements provide detailed information about individual entities within a group.

The benefits of utilizing consolidated and consolidating financial statements are abundant. They allow procurement professionals to assess risks more effectively, identify cost-saving opportunities, negotiate better contracts with suppliers, and make informed decisions based on comprehensive financial analysis.

However, implementing consolidated and consolidating financial statements can present some challenges. It requires consolidation accounting expertise, meticulous record-keeping across multiple entities, ensuring consistency in accounting policies, dealing with intercompany transactions accurately, and complying with complex regulatory requirements.

To ensure accurate reporting in procurement using these types of financial statements, it is important to follow best practices such as maintaining proper documentation for intercompany transactions, reconciling discrepancies between different entity records promptly, conducting regular audits to verify accuracy and completeness of data entries.

Real-life case studies provide inspiration for companies looking to leverage consolidated and consolidating financial statements effectively. Organizations like XYZ Inc., ABC Corp., have successfully utilized these reports to streamline their procurement processes resulting in significant cost savings while improving supplier relationships .

In conclusion,

Consolidated and consolidatingfinancialstatements are powerful tools that enable organizations to gain deeper insights into their finances when it comes to procurement operations. By understanding their differencesand implementing best practicesinaccuratefinancialreporting,theypoise businessesfor success.

The abilitytoanalyzethecomprehensive data frommultipleentitieswithinacompanyprovidesprocurementprofessionalswiththeinformationthey needtomakeeducateddecisionsandreduceriskswhileforgingstrongersupplierpartnerships.

In the ever-evolving world of procurement , consolidated

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Major loops between Standalone vs Consolidated Financial Statements

An investor is often confused in terms of which financial statements should be used to make investment decisions i.e. to analyze standalone vs consolidated financial statements or both.

Let us understand what is the difference between both and which should an investor analyze or are both equally relevant.

What are Standalone Financials?

Standalone financial represents the financial statement of the entity as a single entity i.e. the financial represents only the position of the single entity.

By analysing the standalone financials the investor will not be aware of the position of its subsidiaries which might affect its investment decisions.

For Instance, the parent company might be a debt-free company but the subsidiaries of that company may be heavily debt-laden and hence this vital information could be missed out on the standalone financials.

What are Consolidated Financials?

Consolidated financial represents the financial position of the group as a whole i.e. the parent along with its subsidiaries.

By analyzing the consolidated financial statement the investor gets an overall view of the position of the entity i.e. the shortcoming of the standalone is overcome by analyzing the consolidated financials.

Also Read : Consolidated Financial Statements

The consolidated gives an overall view of the entity and makes the investor better informed about making the investment decisions.

For instance, the heavy debt in the books of the subsidiary which was being missed while analyzing the standalone finances of the parent could be identified in analysing the consolidated financial.

However, because the subsidiaries form one economic entity thus investors, regulators, and customers find consolidated financial statements more beneficial to gauge the overall position of the entity.

For Instance ,

The parent and the subsidiary perform transaction among them as if they are unrelated. An automaker, for example, might own the company that makes its transmissions, but still pays that company for the transmissions it provides.

The parent company supports the subsidiary during struggling time in a hope to recover the amount paid to subsidiary from its operation.

Transactions of this nature will appear on standalone financial statements because they affect the profitability of the standalone units. But such transactions do not appear on consolidated statements because they don’t affect the overall nature of the larger company.

When a parent owns stock in a subsidiary, the stock have different treatment in the books of parent and subsidiary, the stock appears as an asset on the parents standalone balance sheet but as equity on the subsidiary’s sheet.

When the parent buys something from the subsidiary, or vice versa, each accounts for the transaction to be shown separately on its cash flow or income statements. If one party lends money to the other, the treatment is different from both perspectives; the loan is an asset on the lenders balance sheet and a liability on the borrowers.

During consolidation, intra company transactions will be eliminated to avoid double recording of the transactions..

The listed companies do not disclose detailed financial position of their unlisted subsidiaries in the annual report. Therefore, to find out the utilization of cash or investment made by the subsidiary companies, an investor needs to compare the standalone and consolidated financials.

Financial Statements – Case Study

To compare standalone and consolidated financial statements, let’s assume that a company XYZ Ltd only makes investments in subsidiaries and it does not have any other business operation of its own.

The only income XYZ Ltd shows in its profit and loss statement (P&L) is the dividend income received by it from its subsidiaries.

Further let us assume that all the subsidiaries of ABC Ltd are making huge losses.

But sometimes the subsidiaries survive by taking loans from banks and use these loans to declare dividends for its shareholders like XYZ Ltd.

If in such a situation, while analysing XYZ Ltd, an investor considers only the standalone financials of XYZ Ltd,

Then it will be found that XYZ Ltd has very little debt and is showing profits due to the dividend received from its investments in its subsidiaries

However, if the investor analyses the consolidated financials of XYZ Ltd, then they would immediately come to know that XYZ Ltd (as a group including its subsidiaries) is making huge losses and have loans outstanding.

The investor would immediately become aware of the problems being faced by XYZ Ltd.

Therefore, after analysing consolidated financials of XYZ Ltd, the investor may take a better informed investment decision.

Which Financial statements should be used for analysis?

From the above understanding of the consolidated and standalone financial statements, we could conclude that analyzing the consolidated financial statement is better than analyzing the standalone financial statement.

In analyzing the consolidated financials the investor is well informed about all the transactions and information which might be missing in analyzing the respective standalone financials.

For instance, the debt structure which looks good in the parent book and heavily indebted in the subsidiary book might be correctly captured and understood in the consolidated financials.

Moreover, for a better-detailed analysis, the investor should lay more emphasis on the consolidated financials but at the same time analyze the standalone along with it because it will give a detailed analysis and better understanding of the financials on an individual basis also.

Also Read : How to better analyse Financial statement of a company

Comparative analysis of EBITDA

Company: Tata Motors Ltd

Below is the quarterly financials of Tata Motors Ltd both consolidated and standalone.

Analyse the EBITDA in both the financials below:-

By analysing the EBITDA from both standalone and consolidated basis, we derive that the major portion of the ebitda are from the subsidiaries.

The company’s standalone ebitda makes up a very small portion of the consolidated ebitda and hence any major changes in the subsidiaries in any aspect will have a larger impact on the group as a whole.

Therefore, for making any decisions regarding this company, a close watch needs to be kept on its subsidiary’s operation because they play a significant role in the group as a whole.

Comparative analysis of Trade Receivables

Now let us analyse the Trade Receivables of Tata Motors for both standalone and consolidated basis for the year ended 31/03/2018.

We need to analyse the trade receivables in both standalone and consolidated financials.

The reason being, the transaction between the parent and the subsidiary will automatically be cancelled in the consolidated financials.

This implies that the company needs to analyse the subsidiary’s receivables carefully because they make up a major portion and any default on their end will affect the company.

Hence this will help in knowing the quantum of receivables between parent and subsidiary.

This can be noticed by the investor only if they analyse both the standalone and consolidated financials of the company.

Comparative analysis of P/E for the quarter ended 31/3/2018

On a consolidated basis, the company’s P/E is 6.63.

The investor will not be able to calculate P/E ratio if analysing only standalone financial because the standalone earnings are negative.

Therefore the P/E could only be calculated on a consolidated basis as the earnings are positive.

Hence the investor will be benefitted by analysing financials both standalone and consolidated.

Comparative analysis of PAT

Below is the quarterly performance of Tata Motors for the quarter ended 31/12/2018

The consolidated performance, reports a negative PAT.

The company said it took one-time exceptional non-cash charge for asset impairment of 3.1 billion pounds and the overall performance was dented on account of JLR.

The overhang of Brexit with no clarity is affecting the business of its subsidiaries.

By analysing the company’s performance on a standalone basis, the company reported a positive PAT.

Thus by analysing the company on a standalone basis it seems profitable business, but when clubbed

with the subsidiary’s performance it shows sign of problems.

The China issues,uncertainty of Brexit are all hampering the company on a consolidated basis.

Hence all these factors have to be considered because they affect the company to a great extent.

However the company is stating that the domestic business continues with strong momentum and is delivering market share and profitable growth.

Key takeaways

By understanding the difference between standalone and consolidated financial statement in detail, we could conclude that analysing the financials from a consolidated standpoint is better than analysing the financials with standalone point of view.

The consolidated financial being analysed along with standalone basis will give the investor an in-depth analysis and also the chances of any material information being missed or misinterpreted could be reduced..

Any investment decision should be taken only after analysing both the Standalone and Consolidated Financials for companies having subsidiaries.

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One View Financial Statements

Understanding the Consolidated Income Statement Case Study

This case study walks you through the steps to set up and generate a consolidated income statement using the One View Financial Statements (OVFS) feature. It is intended to help you gain a deeper understanding of how to use the functionality to generate the financial statement outcomes that you desire. You should be familiar with the One View Financial Statements feature before beginning this case study.

A consolidated statement includes the account balances for a range of companies or business units. For example, you might need a consolidated income statement to show the revenue and expenses for all business units in a company.

When you set up the consolidated income statement, you will set up row definitions to obtain account balances and descriptions for your revenue and expense accounts. You will also set up a subtotal row definition that you will use to provide interim totals within your income statement for categories such as the gross margin and operating expenses. Each of the row definitions will be a section in the report, such as revenue, direct costs, gross margin, and so on.

You will set up column definitions to show current and prior period account balances, and year-to-date and prior year-to-date account balances. You will also set up columns in the BI Publisher Layout Editor (Layout Editor) to show calculated amounts, such as the percent of revenue and the change in the amounts from the last year to the current year.

After you create the column and row definitions, and create the statement definition, you will create a statement version and layout. You will then run the statement to confirm that the results are what you expected.

The following images show the Consolidated Income Statement that you will create in this case study. Your results might be slightly different, depending on the data in the system that you use and on the placement and formatting of components:

Consolidated Income Statement Page 1 of 4)

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Reporting Entity in the Consolidated Financial Statements: Theory and Case Study

Introduction.

Debate on local government financial statements has considerably increased over the years, also due to the various public sector accounting reforms inspired by the assumption that improving the mechanisms of public governance will result in better public sector performance (Ongaro, 2008; Hoque, 2008; Ongaro et al., 2008). Among the reporting tools implemented to measure, plan, control and communicate performance, in recent years consolidated financial statements has become increasingly important both for the practitioner and the academic debate (IFAC, 2000; IFAC, 2005; Walker, 2009; Karlsson et al., 2010; Walker, 2011; IFAC 2013).

Recently, Eurostat has launched the EPSAS Expert Working Group with the aim to outline the suitability of International Public Sector Accounting Standards (IPSAS) and to assess the member countries experiences. Part of this process is to evaluate the scope of the Consolidated Financial Statements and the possible different criteria to identify the Public Sector group’s boundaries. This last point is of relevance as recalled by the recent EPSAS Conceptual Framework Reflection Paper (Epsas, 2018; PWC, 2018), under which Public Sector Reporting Entities should provide Financial Report based on decision making and accountability considerations. This point is supported by the consideration that Public Sector Entity or Group of Entities is defined as the “ability to take economic decision and engage in economic activities for which it is responsible and accountable in law or otherwise accountable to service recipients or resources providers”.

In this regard, Italy offers an important experience since it was one of the first countries in the European Union to expressly provide for compulsory adoption, owing to the large number of entities controlled by local governments (Grossi et al., 2008; Teodori et al., 2009; Teodori et al., 2011). In Italy, although the provision for the consolidated financial statements has been present for several years in the legal system, voluntary drafting was abandoned only with Legislative Decree no. 118/2011, introducing the obligation for local governments with more than 5,000 inhabitants to draw up a consolidated financial statements as from 2016-2017, after an initial “trial” period.

Recent Italian public sector accounting reform aims to represent the financial performance of the local government group as a whole with particular reference to the need to manage and control public sector finance. The objective of Italian public sector consolidated financial statements is to provide information on the financial position and financial performance of the local government and its controlled institutions and companies and non-controlled entities. Consolidated financial statements should show the results of the management’s stewardship of the resources entrusted to it. This implies that consolidated financial statements represents a suitable document to measure, plan and control the performance of the local government group as a whole.

Key Terms in this Chapter

local government : Municipality.

Objectives of the Consolidated Financial Statement : Aim of the consolidated report.

Users : Stakeholders interested in consolidated report.

Consolidated Report : Financial statement of an economic entity in which the assets, liabilities, net assets/equity, revenue, expenses and cash flows of the controlling entity and its controlled entities are presented as those of a single economic entity.

Consolidation Area : Controlling entity and its controlled entities. Consolidation area define the boundaries of consolidated report.

IPSAS : International Public Sector Accounting Standard.

Uses : Modality of utilization of the consolidated report.

Complete Chapter List

IMAGES

Consolidated Financial Statement Case Study 1
(PDF) Case Study: Consolidated Balance Sheet At Date Of Purchase
Consolidated Financial Statements Template
Consolidated Financial Statements: Requirements and Examples
Case Study: Financial Analysis Tutorial
Consolidated Financial Statements

VIDEO

How to prepare a consolidated Question (BS)?
IAS -IFRS
IAS -IFRS
IAS & IFRS
Audit of Consolidated Financial Statements
Consolidated Financial Statements (Part 4)

COMMENTS

A Case Study on The Consolidation of Financial Statements of Entities Affiliated Through Direct Consolidation Procedure
[Show full abstract] Swiss GAAP FER, IFRS and US GAAP as well as 10 case studies on the individual topics and one comprehensive case study. "Consolidated Financial Statements - An Introduction ...
Case Study: Consolidated Balance Sheet At Date Of Purchase
Consolidated financial statements have gained great popularity over the last decade with the resurrection of acquisitions and the increased global expansion of business. This case study provides an actual case study of the preparation and presentation of a Consolidated Balance Sheet on the date of acquisition.
Financial Statements Examples
The first of our financial statements examples is the cash flow statement. The cash flow statement shows the changes in a company's cash position during a fiscal period. The cash flow statement uses the net income figure from the income statement and adjusts it for non-cash expenses. This is done to find the change in cash from the beginning ...
PDF Consolidated Financial Statements IFRS 10
International Financial Reporting Standard 10 Consolidated Financial Statements (IFRS 10) is set out in paragraphs 1-33 and Appendices A-D. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the Standard.
Consolidated Financial Statement
A consolidated financial statement is maintained to help parent companies and their subsidiaries to have a ready reference of all the units' financial status consolidated at one place. A parent company, when it owns a significant stake in another company, the latter is called a subsidiary. Even if both have separate legal entities and both ...
PDF Module 9—Consolidated and Separate Financial Statements
separate financial statements of the parent, if any ; • prepare combined financial statements, if any; and • identify the disclosures that are required to be made in consolidated, separate and combined financial statements. IFRS for SMEs Standard The IFRS for SMEs Standard is intended to apply to the general purpose financial statements of
Consolidated Financial Statements: Requirements and Examples
Consolidated financial statements are the combined financial statements of a parent company and its subsidiaries . Because consolidated financial statements present an aggregated look at the ...
Preparing simple consolidated financial statements
Although Pink Co only owns 80% of Scarlett Co, it controls 100%. Consolidated financial statements reflect control, not ownership. It would be a fundamental mistake in any consolidation question to ever pro-rate a subsidiary's statement of financial position where there is less than 100% ownership. (3). Adjustments for unrealised profits
PDF The impact of IFRS 10 on consolidated financial reporting
Column (2) presents the results of estimating a Probit regression testing the impact of IFRS 10 on the likelihood of consolidation of subsidiaries with ownership levels at or below 50%. All continuous variables are winsorized at the 1% and 99% levels. Standard errors are clustered by year.
Example: How to Consolidate
In our case study, combined numbers looks as follows: Of course, there are some strange and redundant numbers, for example both Mommy's and Baby's share capital, but we haven't finished yet! ... The "exam-style" of making consolidated financial statements is good and easy when there are just a few issues or complications. Special For You!
Consolidated financial statements and global tax policy ...
This article addresses the relationship between consolidated financial statements and achievement of global tax policy objectives (OECD BEPS) against the background of a case study. Major instruments for preventing tax avoidance are strongly linked with consolidated financial statements. Irrespective of the accounting standard applied (IFRS, US GAAP, and German GAAP), a systematic gap in the ...
Preparing a consolidated statement of financial position
100,000. Plus the % of post-acquisition profit (80% x 15,000) (w2) 12,000. 112,000. Finally, the consolidated statement of financial position can be prepared. The parent's investment in the subsidiary is eliminated as an intra-group item and is replaced with the goodwill. The assets and liabilities are then added together in full (100%) as ...
PDF Consolidated Financial Statements
The financial statements were approved and authorised for issue by Council on 4 July 2020 and signed on its behalf by: J Gu, President B Sheehan, Chair of Audit Committee The accompanying notes to the financial statements, on pages 11 to 45, are an integral part of this statement. Association of Chartered Certified Accountants
Case Studies
This chapter presents four case studies which provide examples of financial information upon which liquidity, leverage, profitability, and causal calculations may be performed. The first two case studies also contain example ratio summary and analysis. Two discussion cases are also provided, followed by questions related to the financial ...
Consolidated and Consolidating Financial Statements: Accounting
These case studies clearly demonstrate how consolidated and consolidating financial statements can provide valuable insights into procurement processes. With accurate data at hand, companies are better equipped to optimize resource allocation, improve operational efficiency, and ultimately drive profitability.
Major loops between Standalone vs Consolidated Financial Statements
Understand the major loops between standalone and Consolidated financial statements via case study and comparative analysis of EBITDA. ... Financial Statements - Case Study. To compare standalone and consolidated financial statements, let's assume that a company XYZ Ltd only makes investments in subsidiaries and it does not have any other ...
Understanding the Consolidated Income Statement Case Study
This case study walks you through the steps to set up and generate a consolidated income statement using the One View Financial Statements (OVFS) feature. It is intended to help you gain a deeper understanding of how to use the functionality to generate the financial statement outcomes that you desire. You should be familiar with the One View Financial Statements feature before beginning this ...
PDF AP1: Case study
Objective and task. • The objective of this case study is to provide evidence to the Board about whether it is possible to define operating profit. • IAS 1 Presentation of Financial Statements does not require entities to present an operating profit subtotal. However, it requires entities to present additional subtotals when such ...
Consolidated Financial Statements A Complete Study
Description. Welcome to this Course Consolidated Financial Statements A Complete Study. In Consolidated Financial Statements, Financials of parent company and its subsidiaries will be consolidated as if they are a single economic entity. Preparation of Consolidated Financial Statements involves highly technical and complicated procedures ...
Reporting Entity in the Consolidated Financial Statements: Theory and
Reporting Entity in the Consolidated Financial Statements: Theory and Case Study: 10.4018/978-1-7998-1385-9.ch003: Eurostat and EPSAS Expert Working Group are engaged to outline the suitability of International Public Sector Accounting Standards (IPSAS) in the process of ... In Italy, although the provision for the consolidated financial ...
Solved Case Study 2 Required: You are required to use the
Case Study 2 Required: You are required to use the Consolidated Financial Statements of Ryanair. i. Prepare a set of basic financial ratios (maximum of 8 ratios) for the Company covering the last 2 years of operation and critically evaluate the Company's financial performance. (16 marks) ii. Compare the last year's financial ratio results of ...