Consolidating financial statements worksheet
There are, basically, three types of intercompany eliminations as follows: This type of elimination entry is performed when the parent company makes a loan to the subsidiary and the parent company and the subsidiary possess a note receivable and a note payable respectively.In the event of consolidation or amalgamation of two companies, the loan is merely a transfer of cash, and thus the note receivable as well as the note payable is eliminated.The cash outflow from dividends paid by a subsidiary only leaves the consolidated entity when paid to the non-controlling interest.Thus dividends paid by a subsidiary to its parent do not appear as financing outflows. 95 requires that any adjustments from changes in operating balance sheet accounts (Accounts Receivable, Inventory, Accounts Payable, etc.) reflect the amounts acquired in the combination. 95, “Statement of Cash Flows,” mandates that companies include a statement of cash flows among their financial statements.The consolidated statement of cash flows is not prepared from the individual cash flow statements of the separate companies.However, subsidiary dividends paid to the non-controlling interest are a component of cash outflows from financing activities. Therefore, any changes in operating assets and liabilities are reported net of effects of acquired businesses in computing the adjustments to convert consolidated net income to operating cash flows.
Based on the consolidated totals from the comparative balance sheets and the consolidated income statement, the following consolidated statement of cash flows is then prepared.Its preparation involves properly handling of any excess amortizations, intercompany transactions, subsidiary dividends, and several other acquisition-year cash flows.A worksheet adjustment (Entry E) includes in the consolidation process the amortizations of acquisition-date excess fair-value allocations.The process of intercompany elimination is helpful in managing eliminations of operations among companies within a single group.Besides, intercompany eliminations encourage and establish controls in multifaceted corporate environments.