Question

two reasons consolidated statements are useful?

two limitations of consolidated statements?

Answer 1

First of all consolidated financial statements are the financial statements of both the parent company along with the subsidiary company combined.

Uses of consolidated financial statements:

1. The shareholders, investors and other parties who are interested in the business can get the overall view of the company at a single stretch as lot of stress is reduced by combining the financial statements of both the companies or else viewing the statements separately is much difficult to get a complete overview of the company.

2. These consolidated statements purifies the matter to the simplified form by eliminating the transactions occurred between the parent company and the subsidiary company.

Limitations of the Consolidated financial statements:

1. By consolidating financial statements the true profits or losses are not disclosed to the level of say 100% because of the blurring of the profits or losses by combining the statements of parental ones and the subsidiaries.

2. The parties who are interested in the business say shareholders, investors, analysts of the business do not get a clear view of the required ratios and also the amount of inter company sales happened which regulated the overview of the tax rates the companies are paying separately and also the true profitable activity of each company.