The case for consolidated financial statements (CFS) presumes that the separate legal entity principle can be...

The case for consolidated financial statements (CFS) presumes that the separate legal entity principle can be ignored. Is this presumption valid, in your view? Explain your position.

Solutions

Expert Solution

Consolidated Financial statement presume Single Economic Entity concept.

In consolidation we present the financial statements of the whole group as if it were of a single entity and portray the net income and position of assets and liabilities.

This presumption is valid.

The reasons being:

1. Some companies might be formed only to enjoy the undue advantage of taxes etc. without any basic operations, such companies might be exposed due to consolidation.

2. Some entities might be formed just to join the chain of companies borrowing loans and lending them to sister concerns, individually their financial statement shows many numbers but when consolidated, the intercompany holdings and borrowings are eliminated and the actual position of the assets and liabilities can be known by the users of the financial statements and their investors and even by the governmental agencies.

3. Sales among group companies are also eliminated in the consolidated financial statements to show how much the group as a whole has sold to the external market and how much of the profits are earned from external market.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Which of the following is a limitation of consolidated financial statements? Consolidated financial can mask the...

Which of the following is a limitation of consolidated financial statements? Consolidated financial can mask the performance of weaker companies. Ratios and percentages derived from consolidated financial statements can be deceptive because they are composite (weighted) averages. Consolidated statements can eliminate detail about product lines, divisional operations, and the relative profitability of various business segments Answers “a” and “b” only All of these are limitations of consolidated financial statements.

"Consolidated Financial Statements – Intra-Entity Asset Transactions" The consolidation process required for the intra-entity transfer of...

"Consolidated Financial Statements – Intra-Entity Asset Transactions" The consolidation process required for the intra-entity transfer of depreciable assets is different from the requirements for inventory and land. Analyze the current consolidation process for intra-entity transfer of depreciable assets and suggest at least one (1) improvement to the process. Provide an example to support your recommendation. Assume that company P (parent) uses the equity method to account for its investment in company S (subsidiary). Company P purchases inventory items from...

what constitutes "consolidated financial statements. Explain the meaning of consolidated financial statements. the definition of consolidated...

what constitutes "consolidated financial statements. Explain the meaning of consolidated financial statements. the definition of consolidated financial statements from the FASB's Master Glossary. outline the year-end steps to comply with the new FASB statements.

Explain the concept of the separate legal entity of a company from its owner

Which of the following statement is true? a. A corporation is a legal entity separate from...

Which of the following statement is true? a. A corporation is a legal entity separate from its owners. b. Reporting procedures are the same for private and public corporations. c. A limited liability company is only a corporation for professionals such as lawyers and accountants. d. Corporations can be either public or non for profit e. None of the statements are true

Which of the following statements is not true regarding separate entities? a. Generally a separate entity...

Which of the following statements is not true regarding separate entities? a. Generally a separate entity is legally distinguished from its owners. b. Income earned by separate entities is taxed at the individual owner level. c. A separate entity must have its own employer identification number. d. A separate entity must file a tax return.

Terms and Definitions A corporation is a legal entity, distinct and separate from the individuals who...

Terms and Definitions A corporation is a legal entity, distinct and separate from the individuals who create and operate it. As a legal entity, it can sell shares of ownership, called stock. In many cases, a dollar amount may be assigned to each share of stock; this is called the ????? of the shares. When only one class of stock is issued, it is called ?????? . A corporation may issue more than one class of stock. In this case,...

true or false 1. A business organized as a separate legal entity owned by stockholders is...

true or false 1. A business organized as a separate legal entity owned by stockholders is a sole proprietorship. 2. Management of a business enterprise is the major internal user of information. 3. Owner's rights to assets supersede creditors in a liquidation event. 4. One way of stating the accounting equation is: Assets - Stockholders’ Equity = Liabilities 5. The normal balance of an asset is a credit.

What is a C corporation? A legal entity separate and distinct from its owners for corporate...

What is a C corporation? A legal entity separate and distinct from its owners for corporate income tax purposes. A business structure defined by federal law, where owners have limited liability. An unincorporated organization with two or more members who carry on a trade or business activity. A legal entity that is not subject to corporate income tax.

Question A.1 Internal rules control the relationship between the company as a separate legal entity and...

Question A.1 Internal rules control the relationship between the company as a separate legal entity and its two main constituents – its members and officers (e.g. directors and company secretary). Identify and explain the ways companies can set up their internal rules briefly.

Subjects