Q1) When a company owns 50% or more of another company, accounting standards require that the owner (parent) consolidates its financial statements with the subsidiary. Explain the rationale and the reasons behind that requirement.

Q1) When a company owns 50% or more of another company, accounting standards require that the owner (parent) consolidates its financial statements with the subsidiary. Explain the rationale and the reasons behind that requirement.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter6: Audit Evidence

Section: Chapter Questions

Problem 15CYBK

See similar textbooks

Related questions

Q: Where the parent company does not hold 100 percent equity of the subsidiary company, what portion of…

A: Where the parent company does not hold 100 percent equity of the subsidiary company, what portion of…

Q: IFRS 10 Consolidated Financial Statements outlines the requirements for identifying the company that…

A: To identify an acquirer(the entity that obtains 'control' over the acquiree.) in a business…

Q: In which of the following situations should the consolidated financial statements be presented?…

A: Consolidated financial statements: Consolidated statements refers to the statement which shows the…

Q: Assuming the existence of two companies, A and B, which of the following is not a business…

A: Company C is formed to acquire all the assets and liabilities of Company A and Company B. Both…

Q: ush and by issuing its own shares with a fair value of P1,350,000. Parent acquired si hs, Parent…

A: The goodwill or gain on bargain purchase refers to the excess or short amount paid for the…

Q: Choose the correct. A company acquires a subsidiary and will prepare consolidated financial…

A: The correct answer is Option (2).

Q: Where the parent company does not hold 100 percent equity of the subsidiary company, what portion of…

A: a. The parent company can eliminate the consolidated financial statements if it satisfies the…

Q: H plc is a holding company with a 74% interest in its subsidiary S plc. The following is an extract…

A: Note: Since you have asked multiple question, we will solve the first question for you. If you want…

Q: Best Appliances owns 90% of the voting stock of Wratchet, Inc. Which of the following is true? a.…

A: A company is said to be a parent company of another company if it owns more than 50% of voting stock…

Q: In a father-son-grandson business combination, which of the following is true?a. The father company…

A: Answer:

Q: In which of the following situations should the provision of PFRS 3 be applied? a. ABC Insurance…

A: PFRS 3, Business combination, provides for the accounting in case of acquisition of the control of…

Q: Which one of the following statements is correct with regards to a 70%-owned subsidiary? 100% of…

A: Merger & Acquisition refers to the process of gaining ownership in the other organization by…

Q: a) Where the parent company does not hold 100 percent equity of the subsidiary company, what portion…

A: “Hey, since there are multiple sub-parts posted, we will answer first three sub-parts. If you want…

Q: A partially owned subsidiary declared dividend and half remains unpaid by the end of the year, which…

A: The question is related to Consolidation. In case dividend is declared by partially owned…

Q: Q) Where the parent company does not hold 100 percent equity of the subsidiary company, what portion…

A: “Since you have posted a question with multiple sub-parts, we will solve first three subparts for…

Q: What is the total non-controlling interest in net income of subsidiary (NCINI5) on Dec 31, 20x5?

A: As per our protocol, we provide the solution to the one question only but as you have asked two…

Q: A) A Parent Company acquired 60% equity interest in a subsidiary company for £440 million. The…

A: Lets understand the basics. For calculating goodwill through proportionate share in net assets then…

Q: (a) Where the parent company does not hold 100 percent equity of the subsidiary company, what…

A: Parent Company: When a company has controlling interest over the operations of another company the…

Q: On 20 December 20x1, a Parent paid interest of $200,000 to its 80%-owned Subsidiary. The Subsidiary…

A: Here in this question, we are required to pass entry for interest income entry in separate financial…

Q: Company A owns 40 percent of Company B and exercisessignificant influence over the management of…

A: Introduction: Business combination: Business combination refers to the process of aggregating the…

Q: Best Appliances owns 90% of the voting stock of Wratchet, Inc. Which of the following is true? The…

A: Controlling Interest Investments:Controlling interest investments are the equity securities, where…

Q: a. Given the following acquisition-date balance sheets of the parent and subsidiary, at what amounts…

A: a). Amounts will be reported on the consolidated balance sheet 1 Accounts Receivable…

Q: t (in net assets) on December 31, 20x2, assuming that the net income and dividends of subsidiary…

A: NOTE : As per BARTLEBY guidelines, when multiple questions are given then first question is to be…

Q: Seseg Appliances owns 90% of the voting stock of Juan Co. Of the three following statements, which…

A: If a company acquires more than 50% of companies shares. It is considered that the acquiring company…

Q: what is the balance in the new corporation’s Retained earnings account?

A: Under IFRS -3 a business combination transaction is said to be closed when the net assets of the…

Q: In which of the following situations should the provision of PFRS 3 be applied? ABC Insurance…

A: Solution Concept Application of PFRS 3 It applies to the business combination other…

Q: Statement 1: The non-controlling interest of a less-than-wholly owned subsidiary have a claim on the…

A: Non-controlling interest is the interest of those shareholders of the subsidiary entity which is not…

Q: Assuming the existence of two companies, A and B, which of the following is not a business…

A: As per IFRS/PFRS 3 Business combination A business combination is said to be exist only when their…

Q: Pushdown Accounting Assume a parent company acquires its subsidiary by paying $1,200,000 for all of…

A: Disclaimer: “Since you have posted a question with multiple sub-parts, we will solve first three…

Q: 3) ABC Company owns 60% of the stock of XYZ Company and prepares consolidated financial statements.…

A: When one company owns share in another company, and which influence by decision making, and voting…

Q: If the unrealized profit of sales from parent to a subsidiary is GHC2,000 and NCI in the subsidiary…

A: It is an downstream transaction

Q: Parent Company acquires a subsidiary by issuing 100,000 common shares with a market value of $25 per…

A: The consolidated balance sheet refers to the statement that represents the position of the assets,…

Q: Choose the correct. Aceton Corporation owns 80 percent of the outstanding stock of Voctax, Inc.…

A: Given case is: Aceton Corporation owns 80 percent of the outstanding stock of Voctax, Inc. During…

Q: When a company owns 50% or more of another company, accounting standards require that the owner…

A: Consolidated financial statements are prepared by those business entities which have various…

Q: (a) Where the parent company does not hold 100 percent equity of the subsidiary company, what…

A: “Hey, since there are multiple sub-parts posted, we will answer first three sub-parts. If you want…

Q: Which one of the following statements is incorrect with regards to a wholly-owned lsubsidiary? 1.…

A: Parent and subsidiary is a relationship between two companies in which one company has acquired…

Q: Assuming the existence of two companies, A and B, which of the following is not a business…

A: Company C is formed to acquire all the assets and liabilities of Company A and Company B. Both…

Q: Choose the correct. In a father-son-grandson business combination, which of the following is true?a.…

A: Father-son-grandson relationship: The father-son-grandson relationship refers to the business…

Q: Kent Ltd owns all the share capital of Lodh Ltd. That is, Lodh Ltd is a wholly own subsidiary of…

A: GIVEN DATA Kent Ltd owns all the share capital of Lodh Ltd. That is, Lodh Ltd is a wholly own…

Q: TRUE OR FALSE: Indicate whether the statements are true or false. 1. Assuming the parent acquired…

A: The question is related to the Consolidated Financial Statements. In Case of 100% Subsidairy the…

Q: Interest income from bond investment b. Interest expense on bond payable c. Gain (loss) on…

A: a. Interest income from bond investment is intercompany transactions gains or losses are eliminated…

Concept explainers

Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading structure.

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Choose the correct. What is push-down accounting?a. A requirement that a subsidiary must use the same accounting principles as a parent company.b. Inventory transfers made from a parent company to a subsidiary.c. A subsidiary’s recording of the fair-value allocations as well as subsequent amortization.d. The adjustments required for consolidation when a parent has applied the equity method of accounting for internal reporting purposes.
What is push-down accounting?a. A requirement that a subsidiary must use the same accounting principles as a parent company.b. Inventory transfers made from a parent company to a subsidiary.c. A subsidiary’s recording of the fair-value allocations as well as subsequent amortization.d. The adjustments required for consolidation when a parent has applied the equity method of accounting for internal reporting purposes.
4. What method normally is used to account for the ownership of a subsidiary on the parent’s financial records? a Cost model/methodb. Equity methodc. Consolidationd. Either cost model/method or equity method
What is one of the primary objectives of accounting for business amalgamations? A) To recognize the fair value of the acquired assets and liabilities. B) To minimize tax liabilities for the acquiring company. C) To maintain separate accounting records for the acquiring and acquired entities. D) To increase shareholder dividends in the acquiring company.
Subject: Corporate Accounting Q) Where the parent company does not hold 100 percent equity of the subsidiary company, what portion of the intra-group transactions between the parent entity and the subsidiary entity will need to be eliminated on consolidation? (b) What is a non-controlling interest, and how should it be disclosed? (c) How are non-controlling interests affected by intra-group transactions? (d) What are the three steps we use to calculate total non-controlling interest?
How is non-controlling interest in the subsidiary’s net assets presented in the consolidated statement of financial position? a. Within equity but separately from the equity of the owners of the parents. b. Within equity as part of retained earnings. c. Any of these as a matter of accounting policy choice. d. As a mezzanine item between liabilities and equity.
When a parent company uses the equity method to account for an investment in a subsidiary, why do both the parent’s Net Income and Retained Earnings account balances agree with the consolidated totals?
Which of the following statements about pushdown accountling is correct? Select one: a. Pushdown accounting occurs when a subsidiary incurs the parent company's transaction costs related to the acquisition of the subsidiary. O b. On the date a parent company obtains control of a subsidiary, pushdown accounting will result in a subsidiary's pre-consolidation individual net assets being reported at fair value, consistent with FASB ASC 805. C. When a subsidiary applies pushdown accounting, the parent company's Equity Investment account is pushed down and reported on the subsidiary's balance sheet. d. When a subsidiary applies pushdown accounting, the parent company is no longer required to issue consolidated financial statements.
i. Compare and contrast forfeiture of shares and surrender ofshares. Explain in each case five circumstances under whichshares may be forfeited or surrendered. ii. Differentiate between the following kinds of companies: Statutory and Registered companies
What is the correct method for treating a vesting differential linked to the acquisition of shares? privileged rights of the subsidiary by the parent company? Select an answer: a. It must be allocated to identifiable net assets or goodwill. b. It must be distributed in proportion to the identifiable assets and liabilities of the subsidiary. c. It must be charged to consolidated retained earnings or credited to contributed surplus. d. It must be taken care of in the current year.
A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the company have made this decision? It is a relatively easy method to apply. Operating results appearing on the parent’s financial records reflect consolidated totals. GAAP now requires the use of this particular method for internal reporting purposes. Consolidation is not required when the parent uses the equity method.
8.what amount will be reported for Shareholders’ Equity in the combined company’s statement of financial position immediately following the business combination?