I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

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   Summary of consolidation procedures 

Basic consolidation consists of two procedures. 

 

Cancelling out items which appear as an asset in one company and a liability in another 

 

Then adding together all the uncancelled assets and liabilities on a line by line basis 

The asset 'investment in subsidiaries' in the parent company accounts always cancels with the share 

capital of the subsidiary companies. The only share capital in the consolidated accounts is that of the 

parent company.  

 

How are consolidated financial statements prepared? We will consider the basic procedures in the rest of 

this chapter. 

1.1 Basic consolidation procedure 

The accounting requirement for consolidated financial statements are set out in paragraph B86 of  

IFRS 10. The preparation of a consolidated statement of financial position, in a very simple form, 

consists of two procedures. 

 (a) 

Take the individual accounts of the parent company and each subsidiary and cancel out items 

which appear as an asset in one company and a liability in another. 

(b) 

Add together all the uncancelled assets and liabilities throughout the group on a line by line basis. 

Items requiring cancellation may include the following. 

(a) 

The asset 'investment in subsidiary companies' which appears in the parent company's accounts 

will be matched with the liability 'share capital' in the subsidiaries' accounts. 

(b)   There may be intra-group trading within the group. For example, Subsidiary Co may sell goods on 

credit to Parent Co. Parent Co would then be a receivable in the accounts of Subsidiary Co, while 

Subsidiary Co would be a payable in the accounts of Parent Co. 

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CHAPTER 24  

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  THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION