Discuss the effects of intercompany transactions when consol

Discuss the effects of intercompany transactions when consolidating financial statements. Your discussion should include the effects on both the parent and the subsidiary.

Solution

Effects of intercompany transactions when consolidating financial statements

Objective:-

This Statement should be applied in the preparation and presentation of consolidated financial statements for a group of enterprise under the control of a parent. This Statement should also be applied in accounting for Investment in subsidiaries in the separate financial statements of apparent.

Definition:-

Control: It is defined as under

The ownership, directly or indirectly through subsidiary, of more than one- half of the voting power of an enterprise: or Control of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activates.

A Subsidiary is an enterprise that is controlled by another enterprise (known as the parent )

A Parent is the enterprise that control one or more subsidiaries.

A group is a parent and all its subsidiaries.

Consolidated financial statements are the financial statements of a group presented as those of a single enterprise.

Equity is the residual interest in the assets of an enterprise after deducting all its liabilities.

Minority Interest is that part of the net results of operations and of the net results of operations and of the net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiaries, by the parent.

Presentation of Consolidated Financial Statements:-

A Parent which presents consolidated financial statements should present these statements in addition to its separate financial statements, will improve comparison of performance among different enterprise for the same period and among different accounting periods for the same enterprise.

Scope of Consolidated Financial Statements:-

A Parent which presents consolidated financial statements should consolidate all subsidiaries, domestic as well as foreign.

Consolidation Procedure:-

In preparing consolidated financial statements, the financial statements of the parent and its subsidiaries should be combined on a line by line basis basis by adding together like items of assets liabilities, income and expenses, In order thet the consolidated financial statements present financial information about the group as thet of a single enterprise, the following steps should be taken:-

A minority interest in the net assets consists of:-

Other Points:-

Disclosure:-

Following disclosures should be made in consolidated financial statements:-