Q9-6. What accounting method is used when a stock investment represents more than 50% of the...

Q9-6. What accounting method is used when a stock investment represents more than 50% of the investee company’s voting stock and allows the investor company to “control” the investee company? Explain.

Expert Solution

There are various methods of Consolidation i.e., when one company owns stocks of another company and as a result a Relationship develops between them which require Consolidated Financial Reporting.

When a stock investment represents more than 50% of the Investee Company's Voting Stock and allows the Investor Company to "Control" the Investee Company, ACQUISITION METHOD OF CONSOLIDATION is used to prepare the Consolidated Financial Statements.

Under this method, the Holding/Parent Company includes all the assets and liabilities of the Subsidiary Company and records Non Controlling or Minority Interest in Equity Section which represents Claim of outsider's on the Subsidiary's Net Assets.

The major steps for consolidation are:

a. Measure the Assets and Liabilities at their Fair Values.

b. Measure the non controlling interest.

c. Measure the Consideration Paid and Gooodwill/Capital Reserve arising out of the same.

d. Prepare the Consolidated Financial Statements.

ekkarill92 answered 1 year ago

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