Consolidated financial statements

🧾 Consolidated Financial Statements (CFS) – Complete Guide

Consolidated Financial Statements present the financial position and results of a parent company and its subsidiaries as one single economic entity.

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📘 Definition

Consolidated financial statements combine the assets, liabilities, income, and expenses of the parent company with those of its subsidiaries—eliminating intercompany transactions to avoid double-counting.

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🧠 Why Prepare Consolidated Statements?

• To reflect the true financial position of the group

• Required by accounting standards (IFRS, GAAP, Ind AS)

• Useful for investors, regulators, and stakeholders

• Avoids misleading results from separate financials

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🧩 Key Elements of Consolidation

Component	Consolidation Treatment
Assets & Liabilities	Combined line by line
Income & Expenses	Combined line by line
Intercompany Transactions	Eliminated (sales, loans, dividends)
Minority Interest / NCI	Reported separately for non-controlling share in subsidiary

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🧮 When to Consolidate?

A company must consolidate a subsidiary if it controls it, meaning:

• Holds >50% of voting rights

• Has power to govern financial/operating policies

• Has significant influence (in some cases with joint control)

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🧾 Example – Consolidation Steps

Let’s say Parent Co. owns 80% of Subsidiary Co.

Step 1: Line-by-line addition

Combine assets, liabilities, revenue, and expenses of both companies.

Step 2: Eliminate intercompany transactions

• Remove internal sales, interest, dividends

• Remove intra-group balances (e.g., receivable vs payable)

Step 3: Account for Non-Controlling Interest (NCI)

• Recognize the 20% of net assets & profit not owned by parent as NCI

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📊 Journal Entries (Conceptual)

➤ Eliminate Intercompany Sales:

Sales A/c (Subsidiary) ............. Dr  
     To Purchases A/c (Parent)

➤ Eliminate Intercompany Receivable:

Accounts Payable (Parent) .......... Dr  
     To Accounts Receivable (Subsidiary)

➤ Record NCI in Equity:

Net Assets × NCI % = NCI on balance sheet

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🧾 Required Consolidated Statements

Statement	Includes
Consolidated Balance Sheet	All group assets, liabilities, equity
Consolidated Income Statement (P&L)	Group revenue, expenses, profit
Consolidated Cash Flow Statement	Net cash flow for the entire group
Notes to Accounts	Subsidiary details, NCI treatment, adjustments made

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🔍 Key Terms

Term	Meaning
Non-Controlling Interest (NCI)	Portion of net assets/profit not owned by the parent
Full Consolidation	100% of line items added; minority interest shown separately
Equity Method	Used when ownership is 20–50%; only share of profit/loss shown

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✅ Standards Governing Consolidation

Region	Standard
IFRS	IFRS 10 – Consolidated Financial Statements
US GAAP	ASC 810 – Consolidation
India	Ind AS 110 / AS 21

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📎 Summary Table

Aspect	Individual FS	Consolidated FS
Shows group as one entity?	❌	✅
Intercompany balances?	Included	Eliminated
NCI shown?	❌	✅
Required for listed companies?	❌	✅ (if control exists)