Consolidation of Subsidiary Financial Statements by a Parent Company

To: The Manager
From: Name of Student
Date:
Subject: Consolidation of subsidiary financial statements by a parent company.
Consolidation is the incorporation of all subsidiaries into the financial statement of the parent company. This process is possible by integrating and combining all the financials to form a separate standard-form income statement, cash flow, and a balance sheet as part of the complete consolidated financial statement. The document is essential in keeping precise records and accounting for all the transactions within a company and its subsidiaries.
To consolidate subsidiary financial statements, the parent company has to undertake the following steps.
1 Account for inter-company loans. In the event that a parent company has been consolidating the cash balances of its subsidiaries into its investment account, it should first record intercompany loans from the subsidiaries to the parent and calculate the interests for the two parties.
2 Charge corporate overhead. If the parent assigns its overhead expenditure to its subsidiaries, it should be calculated and charged accordingly.
3 Look into the payables. When the parent company runs consolidated payables operations, verification on all accounts payable is recorded during the supposed period and charges accordingly to the various subsidiaries of the parent company.
4 Payroll Expenses. If the parent company was always paying the employees using one system, it should review the records and ensure that all the payroll expenses have been accurately allocated. This applies to all the subsidiaries of the parent company.
5 Check...