In the preparation of consolidated financial statements, why are adjustments required to the subsidiaries assets and liabilities if the carrying amounts are not equal to fair value?

In the preparation of consolidated financial statements, why are adjustments required to the subsidiaries assets and liabilities if the carrying amounts are not equal to fair value?

Using the following example, demonstrate the adjustment required when the subsidiary has a contingent liability for damages disclosed, for which the fair value is determined to be $10,000. Explain in detail the journal entry, line by line. Then show how this would be posted in the consolidation worksheet, highlighting the effect to the group's financial statements.

Example (the subsidiary has a contingent liability for damages for which the fair value is determined to be $10,000.)

Expert Solution

In the preparation of consolidated financial statements, why are adjustments required to the subs...

In the preparation of consolidated financial statements, why are adjustments required to the subsidiaries assets and liabilities if the carrying amounts are not equal to fair value?

Using the following example, demonstrate the adjustment required when the subsidiary has a contingent liability for damages disclosed, for which the fair value is determined to be $10,000. Explain in detail the journal entry, line by line. Then show how this would be posted in the consolidation worksheet, highlighting the effect to the group’s financial statements.

In the books of subsidiary:

Profit and loss a/c Dr. 10000

To Contingent liability a/c 10000

Parent a/c Dr. 10000

To profit and loss a/c 10000

In the books of parent:

Profit and loss a/c Dr. 10000

To subsidiary a/c 10000

Notes to accounts:

Contingent liability of $10000 in subsidiary books occured due to dam

ekkarill92 answered 2 years ago

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Question

In the preparation of consolidated financial statements, why are adjustments required to the subsidiaries assets and liabilities if the carrying amounts are not equal to fair value?

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