Consolidated financial statements are prepared when a parent-subsidiary relationship has been formed. An investor is considered to have parent status when control over an investee is established or more than 50% of the voting stock of the investee has been acquired.
2. When a parent and subsidiary relationship exists, consolidated financial statements are prepared in recognition of 3. The valuation of a promise to receive cash in the future at present value is valid because of the accounting concept of 4. Continuation of an accounting entity in the absence of evidence to the contrary is the basic concept of 5.
Answer (d) is correct because when a parentsubsidiary relationship exists, the financial statements of each separate entity are brought together, or consolidated. When financial statements represent a consolidated entity, the concept of economic entity applies.
Answer (a) is incorrect because reliability is a concept that applies to all financial statements, not just consolidated financial statements. Reliability is a primary quality that makes accounting information useful for decision making. This quality should be found in all statements.
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When a parent-subsidiary relationship exists consolidated financial statements are prepared?
Consolidated financial statements are prepared when a parent-subsidiary relationship has been formed. An investor is considered to have parent status when control over an investee is established or more than 50% of the voting stock of the investee has been acquired.
When one company has a controlling financial interest in another company consolidated financial statements are typically prepared Unless?
It is mandatory for consolidated statements to be prepared when one company has control (i.e. owns more than 50% of the outstanding common voting stock) of another company – unless that control is transitory or outside the hands of the majority owner (e.g. when the company or companies are in administration).
Who is responsible for preparation of consolidated financial statements?
As per Accounting Standard 21, the parent shall prepare a consolidated financial statement for its group enterprise.
Are consolidated financial statements likely to be more useful to the owners of the parent company or to the noncontrolling owners of the subsidiaries Why?
Parent company shareholders are likely to find consolidated statements more useful. are more likely to provide useful information to the noncontrolling shareholders. A parent company has the ability to exercise control over one or more other entities. stock ownership.
When a parent and subsidiary relationship exists?
A parent company subsidiary relationship exists when one company controls another by owning majority voting stock.
When subsidiary financial statements are consolidated?
Consolidated financial statements provide a true and fair view of an organisation’s financial health across all divisions and subsidiaries. They are required when one company owns more than 50% of the outstanding common voting stock of another company, but there are many rules and regulations to account for.
How financial statements are prepared for parent and subsidiary?
Consolidation Procedures While preparing a consolidated financial statement, the parent company’s financial statements and its subsidiaries must be combined line by line by totaling together similar items such as assets, liabilities, income, and expenses.
Why are the financial statements of the parent and its subsidiaries consolidated?
Because the parent company and its subsidiaries form one economic entity, investors, regulators, and customers find consolidated financial statements helpful in gauging the overall position of the entire entity.
When should consolidated financial statements be prepared?
Typically, organizations prepare consolidated financial statements four times a year, quarterly and then again in an annual report.
How consolidated financial statements are prepared?
Consolidated financial statements are prepared by combining the parent’s financial statements with the subsidiary’s. When an investor acquires less than 20% outstanding common stock of another company, it shows the investment using the fair value method (also called cost method).
Who has to make consolidated financial statements?
The 2013 Act mandates preparation of consolidated financial statements (CFS) by all Companies, including unlisted Companies, having one or more subsidiaries, joint ventures or associates. Previously, the Securities and Exchange Board of India (SEBI) required only listed Companies to prepare CFS.
What does consolidated financial statement include?
Consolidated financial statements are the “financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent company and its subsidiaries are presented as those of a single economic entity”, according to International Accounting Standard 27 “Consolidated and …
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Answer: The correct answer is letter “B”: Entity.Explanation: The Accounting Entity principle or Economic Entity principle states that a commonly co-owned group of businesses can entitle to be a single entity with the purpose to generate a consolidated financial statement.A business entity could be considered to be a sole proprietorship, partnership, or corporation.
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