Combined Financial Statements

Question 1

When do you combine financial statements?

Answer 1

• Common Control: One individual owns two or more entities
• Common management: Two or more entities under common management
• Unconsolidated subsidiaries: Combine results of two or more unconsolidated subsidiaries

Question 2

What is the process of combining financial statements

Answer 2

• Eliminate intercompany transactions and balances
• Intercompany gains and losses
• Intercompany ownership/equity
• There is no goodwill because there wasn’t an acquisition

Question 3

If a subsidiary owns equity in the other subsidiary, what needs to happen?

Answer 3

It needs to be eliminated:

Example: If Tom owns 100% of P Corp and 80% of S Corp, while P owns the remaining 20% of S Corp. The 20% between P&S needs to be eliminated.