Question

1*Identify the two basic objectives of all the consolidations and be sure to discuss the effects on the financial statements of each company.

2*What intra-entity transfers are and identify a reason why intra-entity transfers occur frequently among companies that make up a business combination

3*Explain where an uncontrolled interest should be presented in a consolidated balance sheet. Use an example as part of your explanation.

Answer 1

According to GAAP (Generally Accepted Accounting Principles), parent companies must prepare consolidated financial statements to report on the financial well-being of both the parent company and all its subsidiaries.

These statements are often prepared with the use of financial consolidation software which takes financial figures from each individual subsidiary and combines them into one overall report

Benefits of Consolidated Financial Reports

Consolidated financial reports are a GAAP requirement for good reason. Some of the many benefits of consolidated financial reports include:

Complete Overview – Consolidated statements allow investors, financial analysts, business owners and other interested parties to get a complete overview of the parent company. At a glance, they can view the overall health of the business and how each subsidiary impacts the parent company.

Updates to Consolidated Financial Statements – Over time, consolidated financial statements will continue to evolve to make the process of evaluating a parent company even more transparent. One of the reasons for this is that in the past some companies have used consolidated reports to hide losses and liabilities in special subsidiaries that were created specifically for hiding these financial problems. The Financial Accounting Standards Board and the International Accounting Standards Board regularly revisit the definitions and requirements for consolidated statements in order to make them more reliable and easier to use.

SUMMARY: Consolidated financial statements can be complex to prepare, especially for parent companies that include many subsidiaries. However, consolidation software has made preparation easier and standards boards like FASB and IASB regularly work to improve the process. Knowing all the important benefits of consolidated financial statements, it is easier to understand why GAAP requires them.

Uncontrolled interest is shown in balance sheet under liability side

Under shareholder fund as part of reserve and surplus

Intra entries

It includes such as

Bills payable

Bills receivable

Unrealised profit on stock transfer

These entries occur because when holding transfer goods to subsidiary or subsidiary transfer goods to holding , and when they at last combine then the profit which is unrealised because of intra transfer gets eliminated .

Bills payable and bills receivable means when one is holding and other is subsidiary and when one holding is debtor for another subsy or holding is creditor for subsy and when they gets combine .

Then the creditor and debtor gets cancelled..