Since corporations or
companies are usually granted the power to hold title to any form of property,
one corporation or public company may own shares of stock in another. There are
several ways in which a public company can acquire or control another company.
Two or more corporations may for example, transfer their assets and liabilities
to a newly organized company and conduct business as new single unit. This types
of transaction is known as consolidated accounts.
companies are usually granted the power to hold title to any form of property,
one corporation or public company may own shares of stock in another. There are
several ways in which a public company can acquire or control another company.
Two or more corporations may for example, transfer their assets and liabilities
to a newly organized company and conduct business as new single unit. This types
of transaction is known as consolidated accounts.
When one company controls
another through the ownership of a majority of its capital stock, the
controlling company is called a holding company and the holding and subsidiary
company are legal entities, separate financial statements for the affiliated
companies (the holding company and its subsidiaries) as if they were a single
unified business. Such statements are called consolidated financial statements.
another through the ownership of a majority of its capital stock, the
controlling company is called a holding company and the holding and subsidiary
company are legal entities, separate financial statements for the affiliated
companies (the holding company and its subsidiaries) as if they were a single
unified business. Such statements are called consolidated financial statements.
When subsidiaries are
operated as separate legal entities, each subsidiary keeps a set of accounting
records and prepares separate financial statement. However, the holding company
and its subsidiaries are in effect an integrated business unit Controlled by
the board directors of the holding company and consolidated.
operated as separate legal entities, each subsidiary keeps a set of accounting
records and prepares separate financial statement. However, the holding company
and its subsidiaries are in effect an integrated business unit Controlled by
the board directors of the holding company and consolidated.
Statements are needed for
such a unit. Only consolidated financial statement can give a fair presentation
of he over all financial position and results of operations of a group of
affiliated companies.
such a unit. Only consolidated financial statement can give a fair presentation
of he over all financial position and results of operations of a group of
affiliated companies.
In a consolidated balance
sheet, the assets of the affiliated companies are combined and reported as
through only a single entity existed. For example, the amount shown as cash on
a consolidated balance sheet is the total of the cash owned by all the
affiliated companies. Liabilities of the various companies are also combined.
sheet, the assets of the affiliated companies are combined and reported as
through only a single entity existed. For example, the amount shown as cash on
a consolidated balance sheet is the total of the cash owned by all the
affiliated companies. Liabilities of the various companies are also combined.
Similarly, in a
consolidated income statement, revenue and expenses of the affiliated companies
are combined on the assumption that the result of operations for a single
economic entity is being measured.
consolidated income statement, revenue and expenses of the affiliated companies
are combined on the assumption that the result of operations for a single
economic entity is being measured.