Combining and consolidating financial statements
NEP is the parent company and MGC is the subsidiary company.Each of these corporations will continue to operate its respective business and each will issue its own financial statements.Consolidated financial statements combine the financial statements of separate legal entities controlled by a parent company into one set of financial statements for the entire group of companies.For example, let's assume that Northern Electric Power (NEP) is an electric utility with its stock traded on a stock exchange.When one company owns part or all of another company, it must account for this ownership interest in the other company.There are three ways to account for the ownership interest: cost, equity and acquisition methods.NEP acquires all of the stock of Midwest Gas Corporation (MGC).
This transfers the debt owed from multiple creditors, allowing the consumer to have a single point of payment to pay down the total.
The consolidation was friendly in nature and lessened overall competition in the pharmacy marketplace.
A consolidation differs from a merger in that the consolidated companies may also result in a new entity, whereas in a merger, one company absorbs the other and remains in existence while the other is dissolved.
(Amounts owed and receivable between NEP and MGC are eliminated in the consolidated balance sheet.)This is a very brief overview of consolidated financial statements.
It is a major topic within the university course and textbook entitled advanced accounting and Accounting standard 21 clearly explains about this concept.
(Since the sales of electricity from NEP to MGC and the sales of gas from MGC to NEP are not earned outside of the economic entity they are eliminated.) The consolidated income statement will also report all of the expenses that were incurred outside of the economic entity.