Consolidation of Statements: In today’s world of business acquisition of smaller companies is common and such acquisitions helps in the growth of the parent company. Once a company acquires another company the net assets of the other company is recorded in the books of the parent company. Consolidation of financial statements of both the parent company and subsidiary company is important for the stockholders of the parent company. A parent company may choose any of the two basic methods for consolidation and they are the equity method or cost method. The accounting methods used by a parent company for consolidation is purely based on their convenience. Analyse whether the consolidated net income of the two affiliated companies could exceed the sum of their individual net income.

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Chapter 3, Problem 7UTI

To determine

Consolidation of Statements:

In today’s world of business acquisition of smaller companies is common and such acquisitions helps in the growth of the parent company. Once a company acquires another company the net assets of the other company is recorded in the books of the parent company. Consolidation of financial statements of both the parent company and subsidiary company is important for the stockholders of the parent company. A parent company may choose any of the two basic methods for consolidation and they are the equity method or cost method. The accounting methods used by a parent company for consolidation is purely based on their convenience.

Analyse whether the consolidated net income of the two affiliated companies could exceed the sum of their individual net income.

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