A consolidated balance sheet is representative of the assets as well as liabilities of a parent company together with all of its subsidiaries on one document, with no distinctions of the belongings of one company or the other. A company ought to issue consolidated financial statements when it owns a controlling stake in another company, i.e. if they own more than 50% of that particular business.
However, complications might arise if a particular company does not own 100% of the company as part of the subsidiary belongs to another person, and this is required to be reflected in the balance sheet (Merrit, 2019). The parent company undertakes this via the consolidation of the balance sheet, then creating an account that is separate, called minority interest, as it represents the owner’s equity section. It is usually equal to the value of the part of the subsidiary which is not owned by the parent company.
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At the consolidated level, an elimination adjustment should be added so that the consolidated statement is not overstated by the equity amount that is held by the parent. The primary intent of elimination adjustment is to offset the intercompany transaction, such that the values are not counted twice at the consolidated level (Consolidation Method, 2020).
Among the account balances that are challenging to calculate is the depreciation of assets. Depreciation alludes to the expensing of an asset involved in the production of revenues throughout its useful life. In accounting, it refers to the allocation of costs of assets to the periods in which the assets are utilized. This usually affects the values of entities and businesses as the accumulated depreciation for each asset will decrease its book value on the balance sheet. One of the things that make depreciation challenging is that it is difficult to depreciate low-cost times, and it is also difficult to estimate the exact working life of the asset.
References
Consolidation Method. (2020). Retrieved 26 November 2020, from https://corporatefinanceinstitute.com/resources/knowledge/accounting/consolidation-method/
Merrit. (2019). Examples of Consolidation in Advanced Accounting. Retrieved 26 November 2020, from https://smallbusiness.chron.com/examples-consolidation-advanced-accounting-30748.html
