Question

What is the difference in reporting income from a subsidiary in the parent’s separate income statement and in consolidated financial statements? (Please not the answers from Textbook Solutions)

Answer 1

Difference : As per the provisions of IFRS 10 -

Consolidated Financial Statements:

1. A consolidated financial statement includes all the subsidiary businesses where the owner has a controlling interest and also the subsidiaries that are wholly-owned. A parent shall prepare and present consolidated financial statements in which it consolidates its investments in all its subsidiaries in accordance with the respective standards.

2. Consolidated financial statements are prepared for the group of businesses that are owned by the same parent company. These statements provide information about the overall financial performance of the parent company when all subsidiaries are observed together as one entity.

3. The consolidated balance sheet reports the assets, liabilities and capital of all the businesses taken together and the consolidated income statement reports the combined revenue of all businesses taken together.

4. However, there is one important aspect to be followed while preparing Consolidated Financial Statements that its not the same as adding together the subsidiaries figures because there are some certain transactions called 'intracompany transactions' must be excluded from the consolidated financial statements, otherwise there will not be a True & Fair view of the operations of the Parent Company.

Individual financial statements :

1. It is also known as standalone financial statements. These statements are prepared for an individual business and provide information about the performance of the business for a specific period – say monthly, quarterly, yearly, etc.

2. These reports generally include a balance sheet, income statement/ profit & loss statement, statement of cash flow/fund flow and a shareholder equity report also called as Earning per Share.

3. Individual financial statements are often prepared even if a business is 100% owned by a parent company, simply for internal management purposes.rmation will be captured in the consolidated financial statements. However, individual financial statements are often prepared even if a business is 100% owned by a parent company, simply for internal management purposes.

4. In short, these statements shows how the business is doing financially and gives a general overview of the money that is coming in and going out of the business.

CRUX:

Consolidated financial statements provide all the information about subsidiaries at one place. On the other hand reporting income from a subsidiary in the parent’s separate income statement is very difficult to understand and can cause misunderstanding in obtaining the accurate information about subsidiaries financial aspects in general.