A consolidated financial statement (CFS) is the "

financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...

of a group in which the

assets In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

, liabilities, equity,

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...

expenses An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition i ...

and

cash flows Cash flow, in general, refers to payments made into or out of a business, project, or financial product. It can also refer more specifically to a real or virtual movement of money. *Cash flow, in its narrow sense, is a payment (in a currency), es ...

of the

parent company A holding company is a company whose primary business is holding a controlling interest in the Security (finance), securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own Share ...

and its

subsidiaries A subsidiary, subsidiary company, or daughter company is a company completely or partially owned or controlled by another company, called the parent company or holding company, which has legal and financial control over the subsidiary company. Unl ...

are presented as those of a single

economic entity An economic entity is one of the assumptions made in generally accepted accounting principles. Almost any type of organization or unit in society can be an economic entity. Examples of economic entities in accounting are hospitals, companies, m ...

", according to the definitions stated in

International Accounting Standard International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a standardised way of describing the company's fi ...

27, "Consolidated and separate

financial Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

statements", and

International Financial Reporting Standard International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a standardised way of describing the company's fina ...

10, "Consolidated financial statements".

Consolidated statement of financial position

Consolidated accounts are prepared after the accounts for the constituent companies have been prepared. While preparing a consolidated financial statement, there are two basic procedures that need to be followed: first, cancelling out all the items that are accounted as an asset in one company and a liability in another, and then adding together all uncancelled items. There are two main type of items that cancel each other out from the consolidated statement of financial position. * "Investment in

subsidiary A subsidiary, subsidiary company, or daughter company is a company (law), company completely or partially owned or controlled by another company, called the parent company or holding company, which has legal and financial control over the subsidia ...

companies" which is treated as an asset in the parent company will be cancelled out by "share capital" account in subsidiary's statement. Only the parent company's "share capital" account will be included in the consolidated statement. * If trading between different companies in one group takes place, then the payables of one company will be cancelled out by the receivables of another company.

Legislation

In the United Kingdom, section 399 of the

Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...

requires parent company

director Director may refer to: Literature * ''Director'' (magazine), a British magazine * ''The Director'' (novel), a 1971 novel by Henry Denker * ''The Director'' (play), a 2000 play by Nancy Hasty Music * Director (band), an Irish rock band * ''D ...

s to prepare group accounts unless an exemption applies. Small groups are exempt, where total net assets are below £5.1m, annual turnover is less than £10.2m, or the average number of

employee Employment is a relationship between two party (law), parties Regulation, regulating the provision of paid Labour (human activity), labour services. Usually based on a employment contract, contract, one party, the employer, which might be a cor ...

s is below 50. Two of these three conditions must be met.

Specific approaches to consolidation

Goodwill arising on consolidation

Goodwill Goodwill or good will may refer to: * Goodwill (accounting), the value of a business entity not directly attributable to its assets and liabilities * Goodwill ambassador, occupation or title of a person that advocates a cause * Goodwill Games, a f ...

is treated as an

intangible asset An intangible asset is an asset that lacks physical substance. Examples are patents, copyright, exclusive franchises, Goodwill (accounting), goodwill, trademarks, and trade names, reputation, Research and development, R&D, Procedural knowledge, ...

in the consolidated statement of financial position. It arises in cases where the cost of purchase of shares is not equal to their par value. For example, if a company buys shares of another company worth $40,000 for $60,000, there is a goodwill worth $20,000. Proforma for calculating goodwill is as follows: ''Goodwill'' Fair value of consideration transferred Plus fair value of non-controlled interest at acquisition Less ordinary share capital of subsidiary company Less share premium of subsidiary company Less retained earnings of subsidiary company at acquisition date Less fair value adjustments at acquisition date

Non-controlling interests

If the parent company does not own 100% of shares of the subsidiary company, there is a proportion of the net assets owned by an external shareholder. This proportion that is related to outside investors is called the

minority interest In accounting, minority interest (or non-controlling interest) is the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The magnitude of the minority interest in the subsidiary company is generally less than ...

or non-controlling interest (NCI). The proforma for calculating the NCI is as follows: ''Non-controlling interest'' Fair value of NCI at acquisition date Plus NCI's share of post-acquisition retained earnings or other reserves

Intra-group trading

A group of companies may have trade relations with each other, for example, where company A buys goods for one price and sells them to another company inside the group for another price. Thus, company A has earned some revenue from selling, but the group as a whole did not make any profit out of that transaction. Until those goods are sold to an outsider company, the group has unrealised profit.

Consolidated statement of financial position

Legislation

Specific approaches to consolidation

Goodwill arising on consolidation

Non-controlling interests

Intra-group trading

See also

References

Further reading