Methods of consolidating subsidiaries

In other words, the parent’s owner’s equity is representative of the entire group’s owner’s equity.

Paul Cole-Ingait is a professional accountant and financial advisor.

Maintaining such accounts payable and receivable in the consolidated financial statement would be as good as saying that the group owes itself money, a situation that is practically unrealistic.

Eliminate inter-company investments -- that is, is the parent’s shareholding stakes in the subsidiaries.

This is because a pending payable of one unit is essentially a receivable of another unit owned by the same umbrella organization.

To eliminate the entries for account payables and receivables, debit and credit the amount in the consolidated accounts payable and consolidated accounts receivable, respectively.

Equity accounting may also be appropriate where the holding falls outside this range and may be inappropriate for some entities within this range depending on the nature of the actual relationship between the investor and investee.

Control of the investee, usually through ownership of more than 50% of voting stock, results in recognition of a subsidiary, whose financial statements must be consolidated with the parent's.

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Equity accounting is usually applied where an investor entity holds 20–50% of the voting stock of the associate company.The ownership of less than 20% creates an investment position, carried at historic book or fair market value (if available for sale or held for trading) in the investor's balance sheet. There are 16 references cited in this article, which can be found at the bottom of the page.The shareholding structure of the parent and the subsidiaries is reported in the owner’s equity section of each entity’s separate balance sheet.This means the parent’s balance sheet has already stated its interests in the subsidiaries, and consolidating the interests reported in the subsidiaries’ balance sheets would be tantamount to duplication.

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