A consolidated balance sheet presents the financial situation of the parent company and its subsidiaries on a single sheet without differentiating the companies. Its structure is quite similar to a regular balance sheet. But here, the assets and liabilities of both companies are merged with no differentiation between them.
A consolidated balance sheet, always presented with a set of consolidated financial statements (including the consolidated income statement and cash flow statement) is to give a complete and accurate picture of a company's financial health. Investors and analysts typically use it to evaluate a company's financial strength and stability.
Generally, a consolidated balance sheet is prepared at the end of a company's fiscal year or at any other time when the company's financial position needs to be assessed. For example, a consolidated balance sheet may be prepared for a company's annual report to shareholders or to support a borrowing or financing request.
Here are some major differences between a balance sheet and a consolidated balance sheet.
Follow the below-mentioned steps to prepare a consolidated balance sheet.
Accuracy matters a lot before creating a consolidated balance sheet, or else it won't give a clear picture. So have a check on the information regarding the parent company and subsidiaries. Observe that proper rules and methods are followed while gathering financial information. On top of this, the generally accepted accounting principles (GAAP) should also be properly followed. This is because if the authenticity is not maintained, then you can't expect accurate results.
The revenue generated by the parent company that is an expense for a subsidiary or vice versa should be identified while creating a consolidated balance sheet. That's why it should not be included, as the net result of this entry will come to zero.
After assessing the genuineness of the financial information, it's time to create a worksheet. To do so, you need to list down all the assets and liabilities of both parent companies as well as subsidiary companies with the exact value. Further, add all the assets and liabilities of the parent company as well as the subsidiaries.
While preparing the consolidated balance sheet, you should avoid duplicate entries. This is because some assets and liabilities might be common between both the parent company and the subsidiary company. So, there is no use in recording them twice as it affects the accuracy of the statement.
In addition to this, avoid showing common transactions between the holding company and subsidiary company in the consolidated balance sheet.
You can add all assets of subsidiary companies with the assets of the parent company. That said, the investment of the parent company in a subsidiary company should be eliminated. This is because this investment automatically gets adjusted with the share capital of a subsidiary company in a holding company.
You can add all liabilities of the subsidiary companies with the liabilities of the parent company. But you should avoid adding the share capital of a subsidiary company in the holding company. This is because the share capital gets adjusted with the amount of investment of the holding company into a subsidiary company.
The purchase of shares of the subsidiary company by the holding company at a premium is considered to be goodwill and is recorded as goodwill on the assets side of the consolidated balance sheet.
On the other hand, the purchase of shares of the subsidiary company by the holding company at a discount is considered a capital reserve and shall be recorded on the liability side of the consolidated balance sheet.
A consolidated trial balance will have the sum of all debits and credits. The total of the same shall come to zero if all calculations are correct. This represents that all assets and liabilities of the parent company and subsidiaries are represented correctly.
After you have collected all the necessary information, it's time to prepare the actual consolidated balance sheet. For this, you need to add the date and name of the companies involved at the top. After this, you can add sections of assets, liabilities, and share capital by taking numbers from the trial balance.
A consolidated balance sheet is a financial statement that presents the combined financial position of a parent company and its subsidiaries. It is used to give an overview of the financial health of the entire group and its subsidiaries as a whole.
The consolidated balance sheet includes the assets, liabilities, and equity of the parent company and its subsidiaries. It is important to note that the consolidated balance sheet only includes the assets and liabilities of the subsidiaries that the parent company controls.
