Accounting consolidating statements
Even when consolidation is necessary, you can still produce separate financial statements for the two companies for your own internal use.
But those prepared for the outside world -- lenders, potential investors, government agencies and so on -- should be consolidated.
In most cases, the price the parent pays for a subsidiary will be greater than the value of the subsidiary's net assets -- its assets minus its liabilities.
When this is the case, the "extra" goes on the balance sheet as an intangible asset called "goodwill." For example, say you paid 0,000 for a company with assets valued at 0,000 and 0,000 worth of liabilities.
There is one exception: Financial transactions between the subsidiary and the parent do not appear in the consolidated income or cash flow statements.
With consolidation, the parent company reports the financial results of the subsidiary on its own financial statements -- as if the subsidiary doesn't exist as a separate entity at all.
Successful businesses commonly encounter opportunities to grow through acquisitions -- by buying up competitors or other businesses.
When your business acquires a controlling stake in another, accounting rules require you to consolidate your financial statements.
In business, consolidation or amalgamation is the merger and acquisition of many smaller companies into a few much larger ones.
In the context of financial accounting, consolidation refers to the aggregation of financial statements of a group company as consolidated financial statements.Consolidated financial statements combine the financial statements of separate legal entities controlled by a parent company into one set of financial statements for the entire group of companies.