The general procedure for consolidated

The accountant who prepares
consolidated statements usually uses a worksheet to help determine the correct
consolidated balances. The process starts with year – end parent and subsidiary
financial statement or balances. Additional information is needed about the
extent of intercompany activity and the methods used by the separate entities
to record this activity.

After the separate company
data are entered on the worksheet, accounts are adjusted to eliminate
inter-company balances because, from a consolidated point of view, inter-firm
activity has not been realized by transactions with outside independent
parties. The individual rows of the worksheet are then cross-footed to drive
the balances which will appear on the consolidated financial statement.
Worksheets are not
absolutely in simple cases where little intercompany activity has occurred, the
accountant may prepare consolidated reports directly from the original separate
company reports.
However, there are several
advantage in preparing worksheets for all consolidation. Preparing worksheets
forces the accountant to formalize his thinking and to explicitly state any
necessary adjustments.
Worksheets allow for
division of labour, so that more than one person may be engage on the project.
They also facilitate review of the consolidated work by others. Finally, having
a worksheet will help in the year’s preparation since it represents a model to
be followed.
Obviously, if worksheets
for prior year consolidation s are available, they should be consulted before
attempting this year’s consolidation. Last year’s worksheets will indicated
problems to be considered. Some pertinent data may be taken directly from the
old worksheet; other original data must be established afresh. That is relevant
data for considerations falls in two classes; that which, once calculated may
be used in all future consolidations (such as preamortized balance of goodwill)
and that which must be determined each year (such as current year’ intercompany
sales).  Thus, the first time a group of
entities are consolidations.

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