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Why do we need to pass the consolidation elimination entry every time we prepare a consolidated financial statement

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter16: Advanced Topics Concerning Complex Auditing Judgments

Section: Chapter Questions

Problem 21MCQ

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Concept explainers

Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading structure.

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Why do we need to pass the consolidation elimination entry everytime we prepare a consolidated financial statement?
Why must the eliminating entries be entered in the consolidation worksheet each time consolidated statements are prepared?How is the beginning-of-period non-controlling interest balance determined?How is the end-of-period non-controlling interest balance determined? Provide an example.
When we are preparing consolidated financial statements, will the financial statements of the parent entity, or the subsidiary companies, as at the beginning of the financial period reflect prior consolidation adjustments? Why?
Which consolidation method should be used in preparing consolidated financial statements in accordance with IFRS? A. Proportionate consolidation method.B. Either identifiable net assets or fair value enterprise method.C. New entity method.D. Parent company method.
Prepare the set of consolidated financial statement of financial position on the date of acquisition by showing the consolidation procedures.
A worksheet is being developed to consolidate Allegan, Incorporated, and Stark Company. These two organizations have made considerable intra-entity transactions. How would the consolidation process be affected if these transfers were downstream? How would consolidated financial statements be affected if these transfers were upstream?
Key questions to consider when determining the appropriate consolidation adjustment entries include the following except for: a. What has been recorded by the legal entities? b. What is the tax effect of the adjustments made? c . Does the transaction involve the parent entity selling assets to the subsidiary, or the subsidiary selling assets to the parent entity? d. Is this a prior period or a current period transaction?
Which statement is incorrect regarding reclassification of financial assets? Group of answer choices None of these. Reclassifications are only permitted on the change of an entity's business model and are expected to occur only infrequently. An entity shall restate any previously recognized gains, losses (including impairment gains or losses) or interest. An entity shall account for transfers between categories prospectively, at the beginning of the period after the change in the business model.
The preparation of consolidated financial statements: Select one alternative: does not obviate the need for separate entities to prepare and release their own separate financial statements and should be done in accordance with IFRS 10 will eliminate the result derived from operations with parties external to the group of entities highlights income derived as a result of transactions within the group obviates the need for separate entities to prepare and release their own separate financial statements
Demonstrate the consolidation procedures to eliminate intra-entity sales and purchases balances.
Describe how, despite the fact they include different accounts, conceptually, the [C] entry under the equity method of pre-consolidation bookkeeping is the same as the [C] entry under the cost method of pre-consolidation bookkeeping.
Which of the following statements is incorrect concerning the preparation of consolidated financial statements? * A. Consolidated financial statem ents shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances. b. The financial statements of the parent and its subsidiaries shall be consolidated on a line by line basis by adding together like items of assets, liabilities, equity, income and expenses. c. Intragroup balances, transactions, income and expenses shall be eliminated in full. d. When the reporting dates of the parent and a subsidiary are different, the difference shall be no more than six months.