Consolidated Financial Statements
After the merger and acquisition of a company, the parent company are required to present its financial statements in a consolidated manner to the stakeholders during the annual general meeting. The consolidated financial statements will display the equity, assets, liabilities, income, expenses and cash flow of the parent and subsidiaries as of a single economic entity.
Even though the parent company can operate differently in terms of business activities from its subsidiaries, the consolidated financial statements will provide a fair overview of the financial health of the entire group of companies. The consolidated information is beneficial for the stakeholders when making certain decisions.
While preparing the consolidated financial statement, there are some basic accounting standards to follow.
- Offset any intercompany transactions. The revenue generated by the parent company that is at the expense of the subsidiary company must be eliminate in the presentation of the financial statements. Generally, this is to avoid overinflating of the group revenue. The rule of thumb in the presentation is to record only the external parties’ revenue and expenses.
- Offset any amount owing to or from group companies. Any account receivables from 1 entity will be offset from the account payable of the other entity whenever there is intercompany transactions. The balance sheet of the consolidated financial statements will only report amount owing to or from the external parties (outside the group companies).
- Using the same accounting methods across the parent and subsidiaries. The most common practice is to use the “generally accepted accounting principles” (GAAP). All subsidiary equity accounts such as shares or retained earnings must be removed. Only the share capital of the parent company will be shown. If the subsidiary is not wholly owned (100%), a non-controlling interest (NCI) account may be use to proportion the net assets owned by the external company.
- Calculation of Goodwill. When the parent company acquired the shares of its subsidiary that is worth $100,000 for the amount of $150,000, then there is a goodwill of $50,000 arising on the consolidation. However, the calculation of the goodwill amount will encompass the following formula:
Fair value of consideration transferred
+ Fair value of non-controlled interest at acquisition
– Ordinary share capital of subsidiary
– Share premium of subsidiary
– retained earnings of subsidiary at acquisition date
– Fair value adjustments at acquisition date
- Identifying which subsidiary are require to be reported in the consolidated financial statements. Only companies that are wholly owned or having more than 50% of shares acquired then they must be included.
Preparation of consolidated financial statements is a bespoke service that require strong accounting knowledge of the Singapore financial reporting standard (SFRS). Our professional team in Ace Success have many years of experience in consolidation reports for 1 or more subsidiary. Do drop your enquiry for a quote today.