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.
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.
Companies should prepare a consolidated financial statement for the following reasons –
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.
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.
Take a look at this consolidated financial statement example below –
| 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 |
| 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 |
| 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.
These are among the most noteworthy limitations –
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.
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.