CONSOLIDATED FINANCIAL STATEMENT.docx

8/19/2019 CONSOLIDATED FINANCIAL STATEMENT.docx

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CONSOLIDATED FINANCIAL STATEMENT

MEANING

Consolidated financial statements are the " Financial statements of a

group in which the assets , liabilities , equity, income , expenses and cash

flows of the parent (company) and its subsidiaries are presented as those

of a single economic entity ", according to International Accounting

Standard ! " onsolidated and separate financial statements", and

International Financial #eporting Standard $% " onsolidated financial

statements

Definition

&ata such as credit card numbers, credit ratings , account balances , and

other monetary facts about a person or organi'ation that are used in

billing , credit assessment , loan transactions , and other financial acti ities

Financial information must be processed in order for business to be

conducted, but it must also be carefully handled by businesses in order to

ensure security for customers and to a oid th litigation and bad publicity

that can stem from negligent or improper usepurpose of consolidated financial statements

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https://en.wikipedia.org/wiki/Financial_statementshttps://en.wikipedia.org/wiki/Assetshttps://en.wikipedia.org/wiki/Liability_(financial_accounting)https://en.wikipedia.org/wiki/Incomehttps://en.wikipedia.org/wiki/Incomehttps://en.wikipedia.org/wiki/Expenseshttps://en.wikipedia.org/wiki/Expenseshttps://en.wikipedia.org/wiki/Cash_flowshttps://en.wikipedia.org/wiki/Cash_flowshttps://en.wikipedia.org/wiki/Subsidiarieshttps://en.wikipedia.org/wiki/Economic_entityhttps://en.wikipedia.org/wiki/International_Accounting_Standardhttps://en.wikipedia.org/wiki/International_Accounting_Standardhttps://en.wikipedia.org/wiki/Financialhttps://en.wikipedia.org/wiki/Financialhttps://en.wikipedia.org/wiki/International_Financial_Reporting_Standardhttps://en.wikipedia.org/wiki/International_Financial_Reporting_Standardhttp://www.businessdictionary.com/definition/data.htmlhttp://www.businessdictionary.com/definition/credit-card.htmlhttp://www.businessdictionary.com/definition/credit-rating.htmlhttp://www.businessdictionary.com/definition/account-balance.htmlhttp://www.businessdictionary.com/definition/monetary.htmlhttp://www.businessdictionary.com/definition/fact.htmlhttp://www.businessdictionary.com/definition/person.htmlhttp://www.businessdictionary.com/definition/organization.htmlhttp://www.businessdictionary.com/definition/billing.htmlhttp://www.businessdictionary.com/definition/credit.htmlhttp://www.businessdictionary.com/definition/assessment.htmlhttp://www.businessdictionary.com/definition/loan.htmlhttp://www.businessdictionary.com/definition/transaction.htmlhttp://www.businessdictionary.com/definition/financial-activities.htmlhttp://www.businessdictionary.com/definition/order.htmlhttp://www.businessdictionary.com/definition/business.htmlhttp://www.businessdictionary.com/definition/security.htmlhttp://www.businessdictionary.com/definition/customer.htmlhttp://www.businessdictionary.com/definition/litigation.htmlhttp://www.businessdictionary.com/definition/publicity.htmlhttp://www.businessdictionary.com/definition/negligent.htmlhttps://en.wikipedia.org/wiki/Assetshttps://en.wikipedia.org/wiki/Liability_(financial_accounting)https://en.wikipedia.org/wiki/Incomehttps://en.wikipedia.org/wiki/Expenseshttps://en.wikipedia.org/wiki/Cash_flowshttps://en.wikipedia.org/wiki/Cash_flowshttps://en.wikipedia.org/wiki/Subsidiarieshttps://en.wikipedia.org/wiki/Economic_entityhttps://en.wikipedia.org/wiki/International_Accounting_Standardhttps://en.wikipedia.org/wiki/International_Accounting_Standardhttps://en.wikipedia.org/wiki/Financialhttps://en.wikipedia.org/wiki/International_Financial_Reporting_Standardhttp://www.businessdictionary.com/definition/data.htmlhttp://www.businessdictionary.com/definition/credit-card.htmlhttp://www.businessdictionary.com/definition/credit-rating.htmlhttp://www.businessdictionary.com/definition/account-balance.htmlhttp://www.businessdictionary.com/definition/monetary.htmlhttp://www.businessdictionary.com/definition/fact.htmlhttp://www.businessdictionary.com/definition/person.htmlhttp://www.businessdictionary.com/definition/organization.htmlhttp://www.businessdictionary.com/definition/billing.htmlhttp://www.businessdictionary.com/definition/credit.htmlhttp://www.businessdictionary.com/definition/assessment.htmlhttp://www.businessdictionary.com/definition/loan.htmlhttp://www.businessdictionary.com/definition/transaction.htmlhttp://www.businessdictionary.com/definition/financial-activities.htmlhttp://www.businessdictionary.com/definition/order.htmlhttp://www.businessdictionary.com/definition/business.htmlhttp://www.businessdictionary.com/definition/security.htmlhttp://www.businessdictionary.com/definition/customer.htmlhttp://www.businessdictionary.com/definition/litigation.htmlhttp://www.businessdictionary.com/definition/publicity.htmlhttp://www.businessdictionary.com/definition/negligent.htmlhttps://en.wikipedia.org/wiki/Financial_statements


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*he purpose of consolidated financial statements is to present, primarily

for the benefit of the owners and creditors of the parent, the results of

operations and the financial position of a parent and all its subsidiaries as if

the consolidated group were a single economic entity

FINANCIAL REPORTING

*he Financial Accountin Standards !oard" in its Statements of

Financial Accounting Concepts, asserted that financial reporting includes

not only financial statements but also other means of communicating

information that relates, directly or indirectly, to the information pro ided by the accounting system Financial reporting is the process of

communicating financial accounting information about an enterprise to its

external users Financial statements pro ide information useful in

in estment and credit decisions and in assessing cash flow prospects

*hey pro ide information about an enterprise+s resources, claims to those

resources, and changes in the resources

Financial reporting is a broad concept encompassing financial statements,

notes to financial statements and parenthetical +disclosures, supplementary

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information (such as changing prices), and other means of financialreporting (such as management discussions and analysis, and letters to

stoc holders) Financial reporting is but one source of information needed

by those who ma e economic decisions about business enterprises

Financial reporting focuses primarily on pro iding information about

assets, lia#ilities" sales, and earnings Information about earnings based on

accrual accounting usually pro ides a better indication of an enterprise+s

present and continuing ability to generate positi e cash flows than that

pro ided by cash receipts and payments Accrual accounting is an

accounting method that reports sales and expenses when they occur,

instead of when the actual cash transactions to ta e place

MA$OR OF CONSOLIDATED FINANCIALSTATEMENTS

*he basic financial statements of businesses include the ($) #alance s%eet

(or statement of financial position ), ( ) income statement" &'( cas% flo)

statement" (-) the retained earnings statement, and (.) statement of

changes in owner+s equity *he balance sheet lists all the assets, liabilities,

and owner+s or stoc holders+ equity (the difference between assets and

liabilities), of a company as of a specific date /ence, the balance sheet is

essentially a still picture of a company+s financial position (see Figure $)

*he income statement, on the other hand, is similar to a mo ing picture of

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a company+s operations during a gi en period *he income statement presents a summary of the re enues, gains, expenses, losses, and net

income or net loss of an entity for a specific period (see Figure )

*he cash flow statement summari'es a business+s cash receipts and cash

payments relating to its operating, in esting, and financing acti ities

during a particular period (see Figure 0) 1hereas the income statement

reports a company+s financial acti ities on an accrual basis, the cash flow

statement reports this information on a cash basis

2ecause retained earnings represent a company+s earnings since it was

founded minus any money deducted or distributed to the owners of the

company, the statement of retained earnings reports a company+s o erall

earnings A statement of retained earnings presents the changes in retained

earnings for a designated accounting period Filed by corporations, this

financial statement reconciles the balance of the retained earnings account

as follows3

#etained earnings, 4anuary $, $55! 6$%%,%%%

7et Income for $55! 68.,%%%

9inus3 &i idends for $55! 6:.,%%%

7et Increase in #etained ;arnings %,%%%

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;nding retained earnings, &ecember 0$, $55! 6$ %,%%%

A statement of changes in owner+s equity is the equi alent financial

statement for sole proprietorships when a company is owned by a single

person *his financial statement reports a company+s growth or loss in

equity during a designated period *he statement follows the same format

as the statement of retained earnings, except for items pertaining only to

corporations

For an item to be recogni'ed in the financial statements, it should meet

four fundamental recognition criteria, sub


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1hen accountants are unsure of whether to include certain items infinancial reports they follow two constraints to these criteria3 a benefit>costconstraint and the materiality constraint *he benefit>cost constraint assertsthat the cost of collecting, processing, auditin " and communicating theinformation will not exceed the benefits to be deri ed from its use *hemateriality constraint pro ides a quantitati e threshold that defines themagnitude of an omission or misstatement of accounting information byits ability to mislead the


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Financial statements are usually audited by independent accountants for the purpose of e aluating the data presented, determining if the financial

statements conform to the rules of accounting, and impro ing the le el of

confidence in the reliability of the statements

ELEMENTS OF CONSOLIDATEDFINANCIAL STATEMENTS

*he Financial Accounting Standards 2oard (FAS2) has defined the

following elements of financial statements of business enterprises3 assets,

liabilities, equity, re enues, expenses, gains, losses, in estment by owners,

distribution to owners, and comprehensi e income According to the

FAS2, the elements of financial statements are the building bloc s with

which financial statements are constructed?the broad classes of items

that financial statements comprise In its ";lements of Financial

Statements of 2usiness ;nterprises," the FAS2 defined the interrelated

elements that are directly related to measuring performance and the

financial position of a business enterprise as follows3

• Assets include any items of monetary alue owned by a company

with current or probable future economic benefits

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• omprehensi e income is the change in equity (net assets) of anentity, from transactions and other e ents and circumstances from

nonowner sources, during a particular period It includes all

changes in equity during a period except those resulting from

in estments by owners and distributions to owners

• &istributions to owners are decreases in net assets of a particular

enterprise resulting from transferring assets, rendering ser ices, or

incurring liabilities to owners &istributions to owners decrease

ownership interest or equity in an enterprise

• ;quity refers to the alue of a company after deducting a

company+s liabilities from its assets

• ;xpenses are outflows or payments of assets, or obligations to pay

liabilities, during a period, from deli ering or producing goods or

rendering ser ices as well as from carrying out other acti ities that

constitute part of a business+s ongoing or central operation

• @ains are increases in equity (net assets) from peripheral or

incidental transactions of an entity and from all other transactions

and other e ents and circumstances affecting the entity during a

period, except those that result from re enues or in estments by

owner

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• In estments by owners are increases in net assets of a particular enterprise resulting from transfers to it from other parties of

something of alue to obtain or increase ownership interest (or

equity) in it

• iabilities are current or probable future debts arising from present

obligations of a company to transfer assets or pro ide ser ices to

other entities in the future as a result of past transactions or e ents

• osses are decreases in equity (net assets) from peripheral or

incidental transactions of an entity and from all other transactions

and other e ents and circumstances affecting the entity during a

period, except those that result from expenses or distributions to

owners

• #e enues are sales or other enhancements of assets of a company

or settlement of its liabilities (or a combination of both) during a

period from deli ering or producing goods, rendering ser ices, or

other acti ities that constitute the entity+s ongoing ma


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onsolidating a financial statement is a significant decision,whether you are an indi idual or a business loo ing to bolster your

financial profile *here can be some significant ad antages to

consolidating, such as a greater access to credit and interest rates

2ut the potential ad antages can be easily erased by some of the

pitfalls of consolidation For this reason, it+s important to

understand the potential impact of consolidating before following

through

Credit Implications

4ust as much as consolidation can impro e your credit, you can

also lower your credit profile by consolidating with a person or

business with worse credit than your own Bnless both parties ha e

similar credit profiles, it is li ely that one party is ta ing a hit to

their credit to some degree *his can be minimal depending on the

ad antages of other factors, but it could be a significant

impairment to your ability to get lines of credit at good rates If this

person is a spouse, you may find yourself getting better credit and

interest rates by not consolidating your financial statements and

remaining financially independent

Shared In ormation

It is important to trust the indi iduals in ol ed in your

consolidation If the financial change is between spouses and

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indi iduals, it is li ely you already trust that person with ha ingaccess to your personal financial history and credit information In

a business situation, though, this can be dangerous == allowing

untrustworthy indi iduals access to your business+ financial

statements, credit history and other information which can be

mishandled or used to attac your company

Chan!ed "e#t$to$Income %atio

&ifferent indi iduals and businesses ha e different amounts of

debt and income A healthy debt=to=income is desired, with debts

comprising only a fraction of total earned income *he smaller this

ratio is, the better for both your credit and financial stability

2ecause of the multiple ways in which this can affect your

personal finances or a company+s financial profile, it is importantthat the debt=to=income ratios of all parties be examined If you are

ta ing on much more debt at the gain of minimal income ==

particularly income that does not co er the debt or does not seem

promising == your party may be at a distinct disad antage

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ANN1AL REPORT OF COMPAN2 -3*45-3*6

AND CONSOLIDATED FINANCIAL

STATEMENT

A PROJECT

SUBMITTED AS A PARTIAL REQUIREMENT FOR M.COM.- I

DEGREE

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BY

ARCHANA BALU TAPASE

109

UNDER THE GUIDANCE OF

DR UDAY SHETTY

Associ !" #$o%"sso$ &' H" ' o% !(" Eco&o)ics

D"# $!)"&!

RAMANAND ARYA D.A.*. COLLEGE

BHANDUP +E,

MUMBAI 00 0 /

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Ti!3" o% !(" P$o4"c!

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ANN1AL REPORT OF

COMPAN2 -3*45-3*6

N )" o% !(" C &'i' !"

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ARCHANA BALU

TAPASE

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CONSOLIDATED FINANCIAL STATEMENT.docx

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