A new employee has been given responsibility for preparing the consolidated fina

Question

A new employee has been given responsibility for preparing the consolidated financial statements of Sample Company. After attempting to work alone for some time, the employee seeks assistance in gaining a better overall understanding of the way in which the consolidation process works. You have been asked to provide assistance in explaining the consolidation process. The employee is asking you to respond to the following question:-

Required:-

identify the eliminating entries be entered in the consolidation worksheet each time consolidated statements are prepared ?

Explanation / Answer

Consolidation of financial statement means, preparing the financial statements by incorporating all the transactions of a group(basically subsidaries).

While preparing this, the accountant need to eliminate all the entries that pertains to the same group.

This can include, The sales or purchases between the group companies, Assets and liabilities of group companies, Investments made in different group companies.

All these entries need to be eliminated and further if the entity has entered into any other transaction which pertains to the the Intra-Group transactions, then they are required to be eliminated.

This is required because the net effect of such transactions is already incorprated in the financials and if they are not eliminated, that will lead to double recording of transactions, which will affect the financials and also, they will not reflect true and fair view of the financials.

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