Consolidating net income occurs with subsidiary and parent companies. A parent company is a company that owns other companies, called subsidiaries. Consolidating financial statements is a process done when multiple companies are owned by one company, combining all financial statement of the companies together forming one consolidated statement, of each type. Net income is the bottom figure found on an income statement. The consolidated net income is the bottom figure of all these companies added together.
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Difficulty:
Moderate
Instructions
1
Find the income statements for all subsidiary companies of one parent company. The parent company's income statement is also needed. Net income is found by subtracting total revenues minus total expenses. The definition for consolidated net income is the difference between the consolidated revenue amount and the consolidated expense amount.
2
Determine ownership percentages. Sometimes subsidiary companies are only partially owned by a parent company. If a subsidiary company is fully owned by the parent company, 100 percent of the net income is used. If a subsidiary company is only partially owned by the parent company, only the portion owned is used in the consolidated net income amount.
For example, if a subsidiary company has $50,000 in net income and is 25 percent owned, $12,500 of net income is included in the consolidated net income amount.
3
Begin with the parent company's net income amount. For example, assume the parent company had $200,000 in net income for the year. It is important when calculating consolidated net income that the same year's income statements are used.
4
Add the subsidiary company's net income amounts remembering to include the correct percentages. If two subsidiary companies are involved, both of these company's net income amounts are used.
Assume the first subsidiary involved is the example used above; therefore include $12,500 for this company. Assume the second subsidiary is 100 percent owned by the parent company and the net income they had was $40,000.
5
Add all the net income amounts together. Adding the three amounts, $200,000 plus $12,500 plus $40,000, makes the consolidated net income for these companies $252,500.
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