Financial 4 - Consolidated FS F

Question 1

General Consolidation Notes

Answer 1

• The liabilities of any company which is greater than 50% owned by the Parent should be included in the consolidated FS
• RULE: At the date of acquisition, the consolidated equity and retained earnings will be equal to the parent company’s equity and retained earnings plus the FV of any non-controlling interest. The subsidiary company’s equity accounts are eliminated

** Non Controlling Interest is the percentage of equity that the Parent does not own

• Under the equity method (parent owning 100% of subsidiary’s income), the parent’s income already includes the subsidiary’s income. The subsidiary’s income will be eliminated in the consolidation process. Income will also need to be adjusted by the impact of any intercompany transactions
• If the Parent owns only 95% of the Sub, than they will report 95% of income on the Consolidated FS

Question 2

Asset Consolidation

Answer 2

• Acquisition Method requires 100% of fair value of the subsidiary’s assets are to be recognized.

Therefore, assets are to be reported on the consolidated BS as the FV of the subsidiary’s assets plus the BV of the Parent’s assets