Consolidated vs consolidating balance sheet
Parent Company invests 10M in the company for 100% of its equity. At the end of the year, Parent must create a consolidated statement for itself and Child Inc.Assuming no other transactions occur in the year, the consolidated statement would look like the following: As can be seen above, the elimination adjustment is necessary so as not to overstate the consolidated balance sheet.
However, the proportionate part of net income is shown as a separate line item in income statement as Non Controlling Interest.
If the elimination adjustment were not made, the consolidated assets of both companies would total 30,000,000, which is not true as money was simply moved between the two companies.
In other words, not making the elimination adjustment would result in a false creation of value.
Parent Company has recently just begun operation and, thus, has a simple financial structure. Parent, the sole owner of Parent Company, injects M cash into his business. As such, Parent Company’s balances are now 20M in assets and 20M in equity.
The next month, Parent Company sets up Child Inc, a new subsidiary.
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25, 2012 - PRLog -- Companies report two types of financial statements when they have majority stake in other entities. when Company A has more than 50% stake in Company B, Company A (Holding Company) will report both standalone and consolidated financial statements in its quarterly and annual reports.