How to Use a Full Consolidation Method to Make a Consolidated Income Statement
A consolidated income statement is a combined financial report of a business entity and its subsidiaries. Full consolidation method is an approach for preparing financial statements that involves transferring 100 percent of the balances of accounts of the subsidiaries to the consolidated income statement. In the full consolidation method, the interests of subsidiaries are integrated with the interests of the parent company in the consolidated income statements. The full consolidation method is applied under the provisions of the International Accounting Standards (IAS 27). The IAS regulations make the use of the full consolidation method compulsory for any company that holds more than 50 percent of voting rights over a subsidiary either directly or indirectly.
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Instructions
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Compare the method that was used to prepare the income statements of the parent company and the subsidiaries. Ensure that all of them were prepared on the same date of reporting. Note any different reporting dates, and adjust any events such as currency fluctuations that occurred in the periods separating the reporting dates.
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Measure all the assets and liabilities of the parent company and its subsidiaries using their fair value as at the date when they were acquired. Recognize any net losses on the fair value of the assets and liabilities compared to the actual costs of acquiring the assets and assuming the liabilities as goodwill. Similarly, recognize any net gains on the fair value of the assets compared to the cost of acquiring the assets and assuming the liabilities as a profit and loss item.
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Cancel out in full any inter-group balances, transactions including inter-group debts, income and expenses. Acknowledge and post any inter-group losses and impairment loss on related assets to the consolidated accounts.
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Present subsidiary owners' equity summary in the consolidated balance sheet within equity, but separate from the parent's shareholders' equity. Highlight the distribution of the interests of the owners of the subsidiaries in the reporting period and adjust them against the overall income of the group. This will enable you to determine the portion of the net income attributable to the owners of the parent company.
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Tips & Warnings
Always take note of the IAS 27 requirement that limits the maximum differences in the reporting dates of subsidiaries to three months.
Do not leave out any of the company's subsidiaries from the consolidation process because such a move would constitute a breach of the IAS regulations.
