Definition of Consolidation

Consolidation means the joint reporting of a group of two or more companies’ financial statements. The standards require that when investor acquires control over the investee by purchasing more than 50% of the shares of investee, the investor is required to prepare consolidated financial statements. 

How investor acquires control over investee:

Suppose there are two companies Company A and Company B. Both are preparing financial statements separately. Now suppose that owners of Company A acquired 100% of the shares of company B and now both companies controlled by the owners of Company A. After the acquisition a new group is formed that contains both companies A and B. Now Company A is a parent and Company B is Subsidiary. 

Example:

What are Consolidated Financial Statements?

A parent company is required to prepare the combined financial statements that will report the information about both companies. Such statements are called consolidated financial statements. Consolidated financial statements combine the individual financial statements of both parent and subsidiaries. 

What are the different types of Consolidate Financial Statements?

The consolidated financial statements are of five types:

1. Consolidated Statement of Comprehensive Income

2. Consolidated Statement of Financial Positions

3. Consolidated Statement of Cash Flows

4. Consolidated Statement of Changes in Equity

5. Notes to the Consolidated Financial Statements. 


See the video lecture on Consolidated Statement of Financial Position or Balance Sheet.


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