COMMERCE 4AC3 Chapter Notes - Chapter 5: Consolidated Financial Statement, Equity Method, Net Income
24 Feb 2018
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Methods of accounting for an investment in a subsidiary. When a company buys the shares of another company, the cost of these shares are recorded in an investment account in the parents general ledger. Parent and subsidiary remain separate legal entities each with their own accounting records and separate entity financial statement for income tax filing and other purposes. Since parent controls the subsidiary, consolidated financial statements are required in addition to the separate entity financial statements. For 100% owned subsidiary, consolidated incomes consists of: Plus: 100% parents share of net income from subsidiary. Less: 100% parents share of acquisition differential amortization. Amortization of acquisition differential is reflected on the consolidated statements not the subsidiary"s financial statements. Acquisition differential is amortized or written off on consolidation as if the parent had purchased the related net assets directly. The investment account in the parent"s books may be maintained by equity method or cost method.
