Consolidation of accounts
is deemed appropriate only when effective control over the subsidiary is
present and continuing and when the consolidated statements give a meaningful
picture of the financial position and results of operations. For example, a
subsidiary’s account should not be consolidated with those of the holding
company id control is be temporary, or if the subsidiary is facing bankruptcy.
is deemed appropriate only when effective control over the subsidiary is
present and continuing and when the consolidated statements give a meaningful
picture of the financial position and results of operations. For example, a
subsidiary’s account should not be consolidated with those of the holding
company id control is be temporary, or if the subsidiary is facing bankruptcy.
Similarly, if the assets of
a foreign subsidiary cannot be withdrawn by the holding company because of
restriction placed on such assets by foreign governments, consolidation of
accounts should be avoided.
a foreign subsidiary cannot be withdrawn by the holding company because of
restriction placed on such assets by foreign governments, consolidation of
accounts should be avoided.
When the holding company
controls a subsidiary but consolidation is not considered appropriate, the
question arises to how the investment in the unconsolidated subsidiary should
be reported in the separate financial statements of the holding company.
controls a subsidiary but consolidation is not considered appropriate, the
question arises to how the investment in the unconsolidated subsidiary should
be reported in the separate financial statements of the holding company.
For many years, both the
cost and the equity of accounting for the investment were widely used. The
equity method is now required. Under the equity method, the holding company
“accrues” its share of the subsidiary’s net income by debiting the investment
in subsidiary account had crediting earnings of unconsolidated subsidiary,
losses are debited to loss of unconsolidated subsidiary and credited to the investment
in subsidiary account ‘Dividends received are debited to cash and credited to
the investment in subsidiary account.
cost and the equity of accounting for the investment were widely used. The
equity method is now required. Under the equity method, the holding company
“accrues” its share of the subsidiary’s net income by debiting the investment
in subsidiary account had crediting earnings of unconsolidated subsidiary,
losses are debited to loss of unconsolidated subsidiary and credited to the investment
in subsidiary account ‘Dividends received are debited to cash and credited to
the investment in subsidiary account.