Consolidated and Non-Consolidated Financial Statement

Consolidated Financial Statements are the aggregated financial statement of a group company with multiple segments or subsidiaries. For a group company, it is referred to as the report which includes parents and its collective business.

The consolidated financial statements consist of the income statement, Statement of Financial Position, Statement of Cash Flow, and Statement of Change in Equity. It provides information about income, expense, asset, liability and equity of the parent and subsidiary in a set single report.

Company accounts for the investments in other entities based on size and nature. if one company has controlling interest in others, it requires to include all information in their financial statement. Not all subsidiaries are included in the parent consolidated financial statement. Only the subsidiary which is owned more than 50% will be consolidated in the parent company. Moreover, the company will also consolidate if the subsidiary is under their control even ownership is less than 50%.

If the parent owns less than 50%, they cannot consolidate the subsidiary. They will require to recognize the investment under the cost or equity method.

Advantage of Consolidated Financial Statement

The entity is required to prepare the consolidated financial statement of all entities under control.

  • Complete Overview of group company: It allows the investors to see group performance and financial condition. Without a consolidated report, it will hard and almost impossible to trace down all the subsidiary under the parent. There will be sale and purchase within the group which does not add up to the group performance.
  • Simplification: The consolidation report will eliminate all the revenues and expenses between parents and subsidiaries. It will show the real performance of a group by excluding sales within the group.
  • To reduce paperwork: consolidate financial statement allows the company to prepare a set of reports which will cover dozens of subsidiaries. Without a consolidated report, all the subsidiaries will need to prepare an individual report which is time-consuming and ineffective.

Feature of Consolidated Financial Statement

  • Goods will: Goodwill is only shown in the consolidated financial statement, it represents the surplus amount which parent paid to acquire the subsidiary.
  • Elimination Entries: in the consolidated financial statement, the parent and subsidiaries are treated as one entity, so all transactions between parrent and subsidiary will be eliminated. There will be no sale between parents and subsidiaries. The accounts receivable and accounts payables between them must be eliminated too.

Non-Consolidate Financial statement

Non-consolidated financial statements are the separated financial statement of each individual company. It is the same to consolidate financial statements, consist of the Income statement, Statement of Financial Position, Statement of Cash Flow ad Statement of Change in Equity. But it only includes one entity’s financial information.

Private company usually prepare non-consoliate financial statement due to its simple structure. The private company has less requirement in preparing the financial statement while the public company needs to comply with many regulations such as IFRS, SEC, and other local guidelines.