Consolidated versus consolidating financial statements
If the subsidiary is ‘wholly owned’ (stake is 100%).Then the results will be fully incorporated into the financial statements.This is done in order to gain access to new opportunities, obtain synergies and enter into otherwise restricted markets.(Some countries do not allow overseas companies to start businesses without a partnership with a domestic company in the home country).This will be calculated using the net income of the subsidiary that belongs to the minority shareholders.E.g.: If the parent company holds 65% of the subsidiary, the minority interest is 35%. This provides the opportunity for investors to view results in a complete and accurate manner.
A combined financial statement simply brings together a group of companies' financial statements into one document.
Share capital automatically adjusts with the amount of the investment of parent company into holding company.
Also referred to as the ‘minority interest’, this is the share of ownership in a subsidiary’s equity that is not owned or controlled by the parent company.
If the results of the holding companies are amalgamated and recorded depending on their share of ownership by the parent company, then such statements are called Consolidated Financial Statements. The parent company owns a stake of more than 50% of the subsidiary; thus it exerts control.
This is the key difference between combined and consolidated financial statements. The parent company’s stake is between 20%-50% of the associate where the parent company exerts significant influence.
The second company can either be a ‘subsidiary’ or an ‘associate’, depending on the percentage owned by the parent company and is referred to as the ‘holding company’. Side by Side Comparison – Combined vs Consolidated Financial Statements 5.