As per the 2013 mandate, publishing consolidated financial statements is compulsory for all companies. Section 129 states that the management of the parent company must prepare the consolidated statement of finance. 

Resultantly, companies should be aware of the norms related to the structuring of these financial statements. It will help to represent the financial data of the parent and subsidiary companies accurately. 

What are Consolidated Financial Statements?

Consolidated financial statements can be described as financial statements of an entire group. These are financial statements of a business entity that has multiple subsidiaries or divisions. 

A Consolidated financial statement includes – 

You must note that a parent company and its subsidiaries are separate legal entities. They record their finances separately, which is why they also prepare a consolidated statement of finances. Typically, they help investors gain a better insight into the company’s performance and financial standing. 

Why Should Companies Prepare Consolidated Financial Statements?

Companies should prepare a consolidated financial statement for the following reasons –

  • It is required when a firm owns the majority share of another company’s common stocks. 
  • For legal and tax-related reasons.
  • To help potential investors ascertain the performance of the entire business group. 

Importance of Consolidated Financial Statement

A consolidated financial statement manifests the financial position and operational outcome of both parent and subsidiaries as if they are a single business entity. The consolidated financial statement’s objective is to achieve a truthful and fair view of reporting a firm’s standing in a given fiscal year. 

Typically, from an economic entity’s point of view, these statements serve as the primary financial statement. On the other hand, stand-alone companies’ financial statement indicates individual performances. 

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The consolidated financial statements are considered valuable for managers, the directors of the parent body, and even stockholders. It helps shareholders gain a better picture of the company’s overall performance with its subsidiaries. However, one must note that minority stockholders and creditors may find these statements of limited use. 

Consolidated Financial Statements Example

Take a look at this consolidated financial statement example below –


  • A balance sheet of Maxwell Electronics 


Liabilities  Amount in Cr(Rs.) Assets  Amount in (Rs.)
Capital Account  5 Fixed Assets  6
Capital  Office Furniture 
Loans  1.2
Current Liabilities  1.8 Current Assets 4
Taxes and duties Closing stock 
Sundry creditors  Cash in hand 
Sundry debtors
Profit and Loss A/C 2 Bank accounts
Opening balance 
Current balance 
Total  10 Total 10


  • Balance Sheet of Maxwell Furniture Store 


Liabilities  Amount in Cr (Rs.) Assets  Amount in Cr (Rs.)
Capital Account  6 Fixed Assets  7
Capital  Office Furniture 
Loans  1
Current Liabilities  2.8 Current Assets 5
Taxes and duties Closing stock 
Sundry creditors  Cash in hand 
Sundry debtors
Profit and Loss A/C 2.2 Bank accounts
Opening balance 
Current balance 
Total  12 Total 12


  • Balance Sheet of Maxwell Group


Liabilities  Amount in Cr. (Rs.) Assets  Amount in Cr. (Rs.)
Capital Account  11 Fixed Assets  13
Capital  Office Furniture 
Loans  2.2
Current Liabilities  4.6 Current Assets 9
Taxes and duties Closing stock 
Sundry creditors  Cash in hand 
Sundry debtors
Profit and Loss A/C 4.2 Bank accounts
Opening balance 
Current balance 
Total  22 Total 22

The balance sheet of the Maxwell Group presents the financial picture and performance of the entire group more accurately. 

Limitations of Consolidated Financial Statements

These are among the most noteworthy limitations –

  • All companies do not necessarily publish consolidated financial statements. As a result, investors miss out on a concrete decisive factor.
  • These statements are different from stand-alone financial statements. Some vital information about subsidiaries can be lost when time data sets are accumulated.
  • These statements do not prove to be of much help to those who wish to avail information about any subsidiary company’s capital, income, or assets.

Financial analysts and investors should keep these pointers in mind if they intend to use just the consolidated statements to ascertain a group of companies’ potential.

Difference between Consolidated and Combined Financial Statements

This table below highlights the differences between a consolidated and a combined financial statement – 

Parameters  Combining financial statements Consolidating Financial Statements 
Formation  The parent company’s outcomes and the holding companies’ outcomes are reported separately in the combined financial statements. The result of holding companies is combined with the parent company’s results in the consolidated financial statements. 
Structure  Ideally, holding companies are considered to be stand-alone entities.  The holding companies and their parent companies are treated as one entity.
Purpose  They provide an effective presentation of financial results.  They help to portray a holistic and useful presentation of financial data.
Benefits  They help investors to analyse their financial status and business outcomes as a whole. Investors can use combining financing statements to gauge a company’s performance or a subsidiary separately from its parent body. Consolidating financial statements offer an overview of a firm’s overall financial standing.

Notably, the consolidated financial statement format is often the same as that used by the parent company to prepare its separate statement. So, if financial analysts and individuals wish to determine a group of companies’ financial standing, they should start with their consolidated financial statements. Subsequently, they should check the subsidiaries’ financial statements to avail a fair idea about the most profit-generating wing of the group.