Consolidation

Description

When the investor firm exercises full control over the investee because it owns the majority of shares in the investee, the required accounting treatment is referred to as consolidation. The investor firm (parent company) that controls the investees (subsidiaries) is required by IFRS and U.S. GAAP to prepare consolidated financial statements of the group of companies under common control. This note aims to provide the basics of consolidation accounting that are essential for managerial purposes. As a manager, you will be involved in strategic decisions that will result in the acquisition of other firms. The assessment of the investment opportunity will require an estimate of the new group's consolidated accounts if the acquisition is made.

Learning Objective

After reading this note, you should be able to perform initial consolidations and understand consolidated accounts. This note uses examples to help explain different issues such as eliminating intercompany transactions and dealing with goodwill and minority interests.

Related Documents

• Introduction to Financial Accounting
• Introducción a la contabilidad financiera (IESE)
• The Balance Sheet
• El balance de situación
• The Income Statement
• The Statement of Cash Flows: Direct and Indirect Method
• Accounting for Inventories
• Accounts Receivable Valuation
• Noncurrent Assets
• Liabilities: General Issues
• Long-Term Debt and Bonds
• Shareholders' Equity
• Tax Accounting

Keywords

Accounting Financial accounting financial reporting Financial statements