ACC 4100, Chapter Two: Consolidation of Financial Information

Consolidated financial statements

financial statements that represent more than one corporation

Business combinations could potentially improve profitability through:

vertical integration of one firms’ output and another’s distribution.

cost savings through elimination of duplicate facilities and staff.

quick entry for new and existing products in domestic and foreign markets.

economies of scale allowing greater efficiency and negotiating power.

decreased financing rates

diversification of business risk.

business combination

refers to any set of conditions in which two or more organizations are joined together through common control

statutory merger

Any BC where only one of the original companies continues to exist

statutory consolidation

Two or more companies transfer assets or their capital stock to a newly formed corporation and both original companies are dissolved

If dissolution occurs (as in a statutory merger or statutory consolidation)

all account balances are consolidated in the records of the surviving company, the consolidation occurs at the date of the combination, and the dissolved company’s records are closed out

If separate incorporation is maintained

only the financial statement information is consolidated and not the actual records, the consolidation process is carried out whenever financial statements are prepared, and each company continues to keep its own records. The consolidation is carried out using worksheets, without disturbing the individual accounting systems

Do we recognize goodwill with consolidation financial statements?

YES

While BCs can be created in many forms, the issue of “control” is the deciding factor of when to “consolidate” for accounting purposes

This is most commonly achieved through the acquisition of voting shares

Is goodwill debited or credited?

Debit

Is a gain credited or debited?

Credited! You debit a loss.