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A new employee has been given responsibility for preparing the consolidated financial
statements of Sample Company. After attempting to work alone for some time, the employee
seeks assistance in gaining a better overall understanding of the way in which the consolidation
process works. You have been asked to provide assistance in explaining the consolidation
process. The employee is asking you to respond to the following questions. Please provide full
explanations and use examples to support your work.
a- Identify the eliminating entries be entered in the consolidation worksheet each time
consolidated statements are prepared ?
b- Explain the process How is the beginning-of-period and end-of-period noncontrolling
interest balance determined?
c- discuss critically the reasons stating which of the subsidiary’s account balances must
always be eliminated?
d- justify why the parent company’s account balances must always be eliminated ?
The answer:-
a) The purpose of elimination is to delete one partnership into another, whether this is a
parent to subsidiary or vice-versa. (Baker, 2012, p. 67) With each consolidation there are
more assets or liabilities to move from one to the other. Consolidation creates a report of
the amounts that would appear on the business as if it were a single entity. (Baker, 2012,
p. 67) The eliminating entries are recorded only in the consolidation workpaper and
therefore do not change the balances recorded on the company’s books. Each time
consolidated statements are prepared the balances reported on the company’s books serve
as the starting point. Thus, all the necessary eliminating entries must be entered in the
consolidation workpaper each time consolidated statements are prepared.
b) In the case of The beginning-of-period non-controlling interest balance :• For the acquisitions before the application of financial accounting standards board, the
balance is allocated to the non-controlling shareholders in the starting of the period which
is based on the book-value of the net assets of the subsidiary company at a particular date
and is documented in the work paper in the entry to remove the equity balance of the
subsidiary in the and the balance of the investment account of the parent company in the
• For the acquisitions after the effective date, the non-controlling interest at a particular
point of time equals the fair value on the date of combination and it is adjusted to a
particular date for obtaining the proportionate share of the undistributed earnings of the
subsidiary company and the non-controlling interest share of any write-off of differential.
However, the non controlling interest balance at the end-of-the-period is determined by
crediting the non-controlling interest for the beginning balance and then adding back the
income which is allocated to the non–controlling interest in the consolidated income
statement and subtracting the pro-rata part of the dividends declared of the subsidiary
company during the period.
c) Equity here is the main concern. All the stockholders’ equity account balances of the
subsidiary must be eliminated each time consolidation takes place. The reason behind this
is the simple fact that because the subsidiary is being terminated and a stock holder have
no roll left to play in that business. In essence, neither the subsidiary nor the stockholder
has anything to offer each other once the subsidiary is removed. Intercompany
receivables and payables, if any, must also be eliminated.
d) As the subsidiary has to eliminate equity, the parent must eliminate the “investment in
subsidiary” and “income from subsidiary” accounts each time consolidated financial
statements are prepared Because of consolidation, the parent will no longer be having an
income coming from the dissolution of the subsidiary, therefore must eliminate all
intakes that were there, when the parent was in partnership with the subsidiary. From a
single entity point of view, a company cannot hold investment in itself Intercompany
receivables and payables, if any, must also be eliminated.

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