RSM321H1 Chapter Notes - Chapter 4: Extension Method, Financial Statement, Equity Method
Document Summary
Consolidated financial statements present the financial position and operating results of a group of companies under common control as if they constitute a single entity. When one company gains control over another company, it becomes a parent company and gaap requires it to present consolidated statements for external reporting purposes. Either the entity method or the parent company extension method must be used when consolidating non wholly owned subsidiaries. When the purchase price is less than the fair value of identifiable net assets, the negative goodwill is used to eliminate any goodwill reported on the subsidiaries" separate-entity financial statements. Any remaining negative goodwill is reported as a gain on purchase by the acquirer on the consolidated income statement. A working paper can be used to prepare the consolidated statements, and is necessary if there are a large number of subsidiaries to consolidate. A computerized spreadsheet is particularly useful in this situation.
