How to Prepare Consolidation of Financial Statements with Examples PDF
Preparing consolidation of financial statements is a crucial task for any company that has subsidiaries or investments in other entities. Consolidation involves combining the financial statements of a parent company and its subsidiaries into a single set of financial statements. This process helps provide a comprehensive view of the financial position and performance of the entire group. In this article, we will discuss the steps involved in preparing consolidation of financial statements with examples, and provide a downloadable PDF for further reference.
Step 1: Identify the Parent and Subsidiary Companies
The first step in preparing consolidation of financial statements is to identify the parent company and its subsidiaries. The parent company is the entity that owns more than 50% of the voting shares of the subsidiary. Once the parent and subsidiary companies are identified, gather their financial statements, including balance sheets, income statements, and cash flow statements.
Step 2: Eliminate Intercompany Transactions
Intercompany transactions are transactions between the parent company and its subsidiaries. These transactions need to be eliminated to avoid double-counting. Examples of intercompany transactions include sales, purchases, loans, and interest income. To eliminate these transactions, prepare a worksheet that lists all the intercompany transactions and their amounts. Then, subtract the amounts of these transactions from the consolidated financial statements.
Step 3: Eliminate Non-controlling Interest
Non-controlling interest refers to the portion of a subsidiary’s equity that is not owned by the parent company. This interest needs to be eliminated from the consolidated financial statements. To do this, calculate the non-controlling interest by multiplying the percentage of ownership by the subsidiary’s net assets. Subtract this amount from the consolidated equity section.
Step 4: Prepare Consolidated Financial Statements
After eliminating intercompany transactions and non-controlling interest, prepare the consolidated financial statements. This includes a consolidated balance sheet, income statement, and cash flow statement. The consolidated balance sheet will show the total assets, liabilities, and equity of the entire group. The consolidated income statement will show the total revenues, expenses, and net income of the group. The consolidated cash flow statement will show the cash inflows and outflows of the entire group.
Step 5: Download the Examples PDF
To help you better understand the process of preparing consolidation of financial statements, we have created a downloadable PDF with examples. This PDF includes a step-by-step guide, along with real-life examples of intercompany transactions, elimination of non-controlling interest, and preparation of consolidated financial statements. Download the PDF by clicking the link below:
[Download Examples PDF]()
Conclusion
Preparing consolidation of financial statements is a complex process that requires careful attention to detail. By following the steps outlined in this article and utilizing the examples provided in the downloadable PDF, you can ensure that your consolidated financial statements are accurate and complete. Remember to always consult with a professional accountant or financial advisor if you have any questions or concerns during the consolidation process.
