Consolidations in Accounting


 

Consolidation

In a literal sense, consolidation is a particular term which is being meant as a combination. There are various things which can be consolidated at a particular point in time. The consolidation can also be taken place in the course of financial statements of the organization. The consolidation will include activities of consolidating balance sheet and profit and loss account of the organization. This is also being termed as merger and acquisition of an organization. Consolidation refers to the preparation of financial statements of two organizations and then combining the financial statements. Considering the financial statements would include preparation of financial statements of holding and subsidiary companies. Reporting is being made in the course of one or more subsidiaries along with financial statements of the holding company.

Consolidated Balance Sheet and Accounting



In the course of consolidated financial statements, the details of assets and liabilities of the organization are being made in a single format and there is no distinction between the balance sheet items. The stakeholders and analysts are being worked towards making use of consolidated financial statements which make a presentation of parent and subsidiary company as one company. The parent company is holding the majority of stakes in the subsidiary company. In the course of assets and liabilities of the organization are being stated at fair market values. Any excess amount being paid by the holding company is being considered as Goodwill. This is being amortized by the organization over a particular period of time. In case of a bank, if it has 5 branches then, in case of consolidated financial statements, it is going to be essential for the bank to include the details of financial statements of all the branches for generation of best results in the area of doing the tasks being assigned.

                                                                Purpose of consolidated financial statements

Supply of relevant information to stakeholders: The stakeholders have an interest not only in the parent company but also in the subsidiary companies. Therefore, it is essential for the stakeholders to have information being available to them in the course of doing the tasks at a particular point in time.

Providing comparable information: Consolidated financial statements help in ensuring that the organization makes a comparison of its areas of activities and accordingly doing the tasks in the best way so that, no inappropriate results are arising. The comparison between the entities is possible by way of consolidated financial statements.

Ensuring accountability: Discharging accountability is being considered as very important for the organizations in the area of doing its activities. The management of the organization is being accountable to the parent as well as a subsidiary company. Therefore, the consolidated financial statements are going to help the organization to make sure that, proper results are being generated in the area of doing the tasks.

Reporting of risks and returns: In an organization, there is always a case that risks and returns would occur consolidated financial statements will help in ensuring that, risks and returns are being identified well and there are no issues arising in the area of doing the activities at a particular point of time



                                                                                                                    Debt Consolidation Loans

Debt consolidation is an activity wherein, there is combination being made of various kinds of loans. The large debt of the organization is being considered as the total debt. There are two categories of loan consolidation. One of the categories of loan consolidation is secured loan and another loan is an unsecured loan.


The advantages of debt consolidation include the following:

·         It helps the collection agencies to stop calling for the small loans

·         The organization also obtains the benefit of the tax break. Internal revenue service does not make allowance for deduction of interest on unsecured loans of the organization

·         Debt consolidation can also help the organization in the course of ensuring that the organization carries out planning toward faster repayment of principal. The organization makes payment of balance for boosting the credit score.

Types of loan consolidation

·         Home Equity loans: It is a loan which is being taken by the parties for the purpose of purchasing homes. Here, home is being kept as a mortgage. The interest rates are going to be lower in comparison to other kinds of loans.

·         Credit card balance transfer: here, an individual can transfer the balance of various credit cards into a single credit card. To ensure that, credit card balance transfer is carried out one has to make sure that the balance is at a higher level.

·         Personal loans: A Personal loan is an unsecured loan which has fixed payments to be paid over a fixed period of time

Consolidation regarding stock market is related to the technical analysis being carried out for doing analysis about the price of the security. It is related to indecision and this ends at the time when the price moves above or below the pattern of trading. Interval periods of consolidation are being found and these periods of consolidation do help in making sure that, proper prices are being identified. This particular process includes a wide variety of reporting work also which could be troublesome for the organization in the area of doing the activities. Elimination in the course of consolidation is being referred as the elimination of inter-company transactions. This process involves reporting and paperwork which could be hard to handle.

Elimination of inter-company stock ownership: It is related to the elimination of assets and equity of stakeholders

Elimination of intercompany debt: When a loan is taken by the subsidiary from holding company then, the loan is only a book entry, therefore; it should be eliminated from the books of accounts.

Elimination of inter-company revenue: Expenses and revenues are being eliminated as there is the only transfer of assets between two associated companies.

Consolidation Process



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