Chapter 3, Problem 3.1Q

What is the basic idea underlying the preparation of consolidated financial statements?

To determine

Concept Introduction:

Consolidation:The consolidation financial statements are the one which is prepared for providing a consolidated view of financials of the company having subsidiary companies. Consolidation can take place either by acquisition or purchase of voting stock or by merger.

The basic idea of underlying the preparation of consolidated financial statement.

Explanation of Solution

As per the new Companies Act 2013, all listed or unlisted companies having one or more subsidiary including joint venture, associate company are required to prepare consolidated financial statement along with their standalone financial statement for every financial year.

The basic idea for preparing the consolidated financial statements is that the financial position of the parent company and it’s all subsidiaries can be determined and the end results of the operations of both the companies can be ascertained. This is done on the basis of that the companies are working as a single unit.