Consolidated Financial Statements - Meaning and Examples (2024)

FAQs

What are consolidated financial statements with an example? ›

Consolidated financial statements are the overall financial statements of any entity with multiple divisions, including the parent company and all subsidiaries that are controlled by the parent company. They include three key financial statements; income, cash flow, and financial position.

Example. Company 1 owns 50% of the controlling interest of Company 2. Therefore, Company 1 records the investment at 50% of the assets, liabilities, revenues, and expenses of Company 2. So, if Company 1 has revenues of $200 million and Company 2 has revenues of $80 million, Company 1 would have $240 million.

A consolidated balance sheet is a financial statement that combines the financial information of a parent company and its subsidiaries into a single report.

A separate financial statement reports on the finances of a single entity. A consolidated financial statement reports on the entirety of a company with detailed information about each subsidiary.

Consolidation definition

In other words, it's when two companies (or more) merge and become one. Many of the world's largest corporations were formed by business consolidation, while more recent examples include Facebook's acquisition of Instagram and Disney's acquisition of Fox.

: to join together into one whole : unite. consolidate several small school districts. 2. : to make firm or secure : strengthen. consolidate their hold on first place.

If a parent company has more than 50% of another entity's voting shares, or if it has significant influence over the entity's operations, that's the tipping point. Consider that an indicator that you must consolidate their financial statements with those of your parent company.

While preparing a consolidated financial statement, the parent company's financial statements and its subsidiaries must be combined line by line by totaling together similar items such as assets, liabilities, income, and expenses.

Who is exempt from preparing consolidated financial statements? ›

Under the Companies Act a parent company is not required to prepare consolidated financial statements for a financial year in which the group headed by that company qualifies as a small group or a medium-sized group.

Whereas a combined financial statement includes each subsidiary separately, a consolidated financial statement takes the financial results of the subsidiaries and includes them in a single financial statement for the parent company, as though the parent and subsidiaries are one entity.

Typically, these include a balance sheet, income statement, and cash flow statement. Consolidated financial statements are accounting documents that reflect data for all the entities within a business. Each unit within a business has its own independent accounting and financial statements.