Consolidation accounting refers to the process of fusing the financial statements of multiple subsidiaries into one financial result for the parent organisation. The final financial statement is the reflection of the different financial results of the different ancillary entities, including the original assets of the company.
When a parent entity holds more than 50% of the shares of the company, the process of combining the financial results of several subsidiaries into a combined parent company is called a consolidation account. All these can be done with the appropriate consolidation accounting method. In this method, the account will combine the subsidiary’s balances in one single statement, which also includes the balance of the parent company. Further, the parent company will add its revenue to the revenues of the respective subsidiaries. There are two rules that govern the procedure:
During consolidation, the subsidiary assets will be combined with the assets of the parent company’s balance sheet. The same goes for company liabilities. In case the parent company pays a greater value to the subsidiary’s assets, then it results in minimising the liabilities of that particular subsidiary. Moreover, the extra amount goes to the goodwill of the balance sheet.
While consolidating the owner’s equity, the subsidiary equity disappears. The subsidiary ceases to exist only for the purpose of the financial statements. It also covers the money that has to be returned when the company gets liquidated, or the debt was paid off.
When Is The Consolidated Financial Statement Required?
You need the financial statement for consolidation policy, consolidation procedure, elimination of intercompany services, and preparing the consolidated financial statement. The main purpose of the consolidated financial statement is to present a report to the shareholders and creditors of the parent company. The report will cover the results of the operations and the financial position of the parent company and its essential subsidiaries. The consolidated statement is much more valuable than separate statements as it is an accurate presentation of the financial standing when several companies are grouping directly or indirectly with the financial interests of other entities.
To know more about how to consolidate your accounts in Malaysia, contact Bestar Consulting today.