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Consolidated financial statements are presented on the basis that the companies within the group are treated as if they are a single economic entity
Consolidated financial statements are presented on the basis that the companies within the group are treated as if they are a single economic entity.
Which of the following are the requirements of preparing consolidated financial statements?
1) All subsidiaries must adopt the accounting policies of the parent in their individual financial statements
2) Subsidiaries with activities which are different to the activities of the other members of the group should not be consolidated
3) All entity financial statements within a group should normally be prepared to the same accounting year end prior to consolidation
4) Unrealised profits within the group must be eliminated from the consolidated financial statements
Group of answer choices
3) and 4)
2) and 4)
1) and 3)
1) and 2)
Expert Solution
As per International Financial reporting Standard (IFRS) or Generally Accepted Accounting Principles (GAAP) :
1) The Accounting policies are and the valuation criteria applies in preparing consolidated Financial Statements may differ from those used by some other entities within the group.
So option 1 is not correct.
2) Requirement for consolidation is that the entity should fulfill the condition of Controlled Subsidiaries. If these condition is satisfied then it will be included in consolidate Financial statement. There is no such condition like the parent and subsidiary should have same business.
So option 2 is also Not correct.
3) The period for which the Financial statement is prepared should normally be same for all entity for consolidation purpose , unless impracticable.
So option 3 is correct.
4) Also Unrealised Profit within the group must be eliminated as they are unrealized when we see Profit of group as a whole.
So option 4 is also correct.
So our answer is (3) and (4).
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