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GROUP CONSOLIDATED FINANCIAL STATEMENTS

GROUP CONSOLIDATED FINANCIAL STATEMENTS

Consolidated financial statements represent the financial performance of a group of companies, where one company, the parent company, has control over one or more subsidiary companies. The consolidated financial statements provide a comprehensive view of the financial position, financial performance, cash flows and changes in equity of the group. The purpose of consolidating financial statements is to provide information on the financial performance of the entire group for stakeholders such as investors, creditors, and regulatory bodies.

The process of consolidating financial statements involves the aggregation of financial information from the parent company and the subsidiary companies. The consolidated financial statements are prepared by combining the individual financial statements of the parent company and its subsidiaries. The financial statements are combined by adjusting the accounting data to eliminate any inter-company transactions and balances. Also, the consolidated financial statements should follow the same accounting policies and methods as used by the parent company.

The consolidation process starts with the identification of subsidiaries. A subsidiary is a company that is controlled by another company, known as the parent company. The parent company must have control over the subsidiary to be consolidated. Control means the parent company has the ability to direct the financial and operational policies of the subsidiary. The parent company must own at least 50% of the voting rights in the subsidiary company.

Once the subsidiaries are identified, they are accounted for by the parent company using either the proportionate consolidation method, equity method, or the acquisition method. The acquisition method is the most common method of accounting for subsidiaries.

The acquisition method involves the parent company acquiring the subsidiary company’s assets and liabilities, including goodwill if any. Goodwill is a premium paid over and above the fair value of the assets acquired. Goodwill represents the value of the subsidiary’s brand, customer base, or other intangible assets. The goodwill is recorded as an asset on the parent company’s consolidated balance sheet but is subject to an annual impairment review.

After the acquisition or the initial consolidation, the parent company needs to eliminate any inter-company transactions and balances between the parent company and subsidiaries. Inter-company transactions and balances occur when a subsidiary company transacts with the parent company. These transactions should be eliminated as they impact the consolidated financial statements. For example, if the subsidiary company sells goods or provides a service to the parent company, this income should be eliminated as it is considered revenue between entities within the same group.

Once the elimination entries are made, the consolidated financial statements are prepared. The consolidated financial statements present the group’s financial position, financial performance, cash flows, and changes in equity as if it were a single entity. The consolidated financial statements include a consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of cash flows, and consolidated statement of changes in equity.

The consolidated balance sheet shows the assets, liabilities, and equity of the parent company and its subsidiaries. The assets and liabilities, including goodwill, are summed up, and the equity of the minority shareholders, if any, is treated as non-controlling interest in the consolidated financial statements. The consolidated income statement shows all the revenues and expenses of the parent company and its subsidiaries. The revenues and expenses are summed up to determine the group’s overall profit or loss for the financial period.

The consolidated statement of cash flows shows the cash inflows and outflows of the parent company and its subsidiaries. The cash flows are categorized as operating, investing, and financing activities. The consolidated statement of changes in equity shows how the equity of the parent company and its subsidiaries has changed during the financial period. The equity is presented as non-controlling interest, retained earnings, and other reserves.

In conclusion, consolidated financial statements provide a comprehensive view of the financial position, financial performance, cash flows, and changes in equity of a group of companies. The process involves aggregating the financial information from the parent company and its subsidiaries by eliminating any inter-company transactions and balances. The consolidated financial statements are prepared by combining the individual financial statements of the parent company and its subsidiaries, using the same accounting policies and methods as used by the parent company. Consolidated financial statements help stakeholders make a better-informed decision about the group’s financial health and growth prospects.

The above article is provided only for information purposes. It should not be consider as a professional advice. We recommend you to ask for a professional advice before acting on any information provided.  Should you require a professional advice please contact us at info@elaaccounting.com or call us at (+357 99 832578).

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