Workshop Question Solution set for Topic 91. Briefly describe the consolidation process in the case of wholly owned entities.The consolidation process in the process through which consolidated...

Workshop Question Solution set for Topic 9 1. Briefly describe the consolidation process in the case of wholly owned entities. The consolidation process in the process through which consolidated financial statements are prepared by adding together, line by line, the financial statements of the parent and its subsidiary to some very important consolidation adjustments. First, the financial statements that are added together must be comparable. Therefore, before undertaking the consolidation process it may be necessary to make adjustments in relation to the content of the financial statements of the subsidiary. Second, as part of the consolidation process, a number of other adjustments are made to the parent’s and the subsidiary’s statements, these being expressed in the form of journal entries. A worksheet or computer spreadsheet is often used to facilitate the addition process and to make the adjustments. 2. Explain the initial adjustments that may be required before undertaking the consolidation process. Before undertaking the consolidation process it may be necessary to make adjustments in relation to the content of the financial statements of the subsidiary. • If the end of a subsidiary’s reporting period does not coincide with the end of the parent’s reporting period, adjustments must be made for the effects of significant transactions and events that occur between those dates, with additional financial statements being prepared where it is practicable to do so (AASB 10/IFRS 10 paragraphs B92–B93). In most such cases, the subsidiary will prepare adjusted financial statements as at the end of the parent’s reporting period, so that adjustments are not necessary on consolidation. Where the preparation of adjusted financial statements is unduly costly, the financial statements of the subsidiary prepared at a different date from the parent may be used, subject to adjustments for significant transactions. However, as paragraph B93 states, for this to be a viable option, the difference between the ends of the reporting periods can be no longer than 3 months. Further, the length of the reporting periods, as well as any difference between the ends of the reporting periods, must be the same from period to period. • The consolidated financial statements are to be prepared using uniform accounting policies for like transactions and other events in similar circumstances (AASB 10/IFRS 10 paragraph 19). Where the parent and the subsidiary used different policies, adjustments are made so that like transactions are accounted for under a uniform policy in the consolidated financial statements (normally the policy used by the parent). L