Consolidated Financial Statements Flashcards

Flashcards on Consolidated Financial Statements based on lecture notes.

Investment in Controlling Interest (COMMON STOCK)

Creates a parent-subsidiary relationship where the purchasing entity (parent) and the entity acquired (subsidiary) function as separate entities.

Consolidated Statements

More meaningful than separate statements and are usually necessary for fair presentation when one of the companies in the group directly or indirectly has a controlling financial interest in the other companies.

Relevant Activities

Activities that significantly affect the investee’s returns.

Substantive Rights

An investor, in assessing whether it has power, considers only these rights.

Protective Rights

Relate to fundamental changes to the activities of an investee or apply in exceptional circumstances and are designed to protect the rights of their holder without giving the party power over the investee.

Removal Rights

Rights to deprive the decision maker of its decision-making authority.

Consolidation Period

Begins from the date the investor obtains control of the investee and ceases when the investor loses control of the investee.

Eliminations

Changes necessary to avoid double-counting and cancel out offsetting balances.

Adjustments

Changes made to alter reported amounts to reflect the economic substance of transactions.

Deconsolidation

The control of the parent over the subsidiary is lost, entirely derecognizing all assets, liabilities, and any non-controlling interest at their carrying amount.