Combined Financial Statements

Question 1

When are consolidated financial statements required?

Answer 1

When controlling financial interest of the firms being consolidated rests directly or indirectly with one of the firms (a parent) to be included in the consolidation.

Question 2

When would combined financial statements be appropriate (rather than consolidated)?

Answer 2

1. ) Common control - One individual (not a corp) owns a controlling interest in two or more businesses that have related operations
2. ) Common management - two or more businesses under common management
3. ) Unconsolidated Subs - A parent lacks effective control over two or more subs for which it shows summary results

Question 3

What is the main difference in the preparation of financial statements between consolidating financial statements and combining financial statements?

Answer 3

In consolidating financial statements, the investment accounts of the parent company in the other companies being consolidated are eliminated against the parent’s percentage ownership of the equity of those companies. In combining financial statements, any investment one combining company has in another combining company is eliminated against the owned company’s equity in the amount of the investment, not in the amount of percentage ownership. Therefore, there can be no difference between the dollar amount of the investment and the dollar amount of equity eliminated.

Question 4

What is the main different between when combined financial statements would be appropriate and when consolidated financial statements would be appropriate?

Answer 4

Consolidated financial statements must be prepared only when one of the companies being consolidated (a parent company) has controlling interest, either directly or indirectly, in the other companies being consolidated. Combined financial statements can be prepared when there is no single company (parent company) that has control of the companies being combined