reflects a large amount of royalties and fees with very few expenses -- because they are recorded on the subsidiary income statements.
An investor looking solely at Company XYZ's holding company financial statements could easily get a misleading view of the entity's performance.
However, if Company XYZ consolidates its financial statements -- "adding" the income statements, balance sheets, and statements of XYZ and the four subsidiaries together -- the results give a more complete picture of the whole Company XYZ enterprise.
Companies commonly break out their consolidated statements by division or subsidiary so investors can see the relative performance of each, but in many cases this is not required, especially if the company owns 100% of the division or subsidiary.
To learn more about how to read consolidated financial statements, click here to check out our tutorial, Financial Statement Analysis for Beginners.
I would appreciate if anyone suggest articles to read about internal capital market.
Also, I would like to understand the relationship between subsidiaries into business groups.
Let’s be more practical today and learn some advanced accounting techniques.
After summaries of standards related to consolidation and group accounts, I’d like to show you how to prepare consolidated financial statements .
I’ll do it on a case study, with explaining what I do and why.
If you don’t like reading, you can skip to the end of this article and watch my video.
If you’d like to revise a theory first, then please read my summary of IFRS 3 Business Combinations and IFRS 10 Consolidated Financial Statements, both of them contain video in the end.
Here’s the question: Mommy Corp has owned 80% shares of Baby Ltd since Baby’s incorporation.
Below there are statements of financial positions of both Mommy and Baby at 31 December 20X4.