written by | May 23, 2022

Consolidated Balance Sheet and Steps to Prepare it

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A consolidated balance sheet is a document that depicts a parent company's full financial status and all of its subsidiaries' financial situations on a single sheet, without dividing the firms. It has a similar structure to a traditional balance sheet. Still, all of the firms included have their assets and liabilities pooled together with no differentiation between them. Consolidated balance sheets, normally created after the financial year, are a quick and straightforward approach to analysing the financial status of a group of firms. 

A consolidated balance sheet is a financial statement that reflects a parent company's and its subsidiary firms' financial positions. A CBS is the sum of the financial statements of all subsidiaries, including the parent business, and is presented as a single balance sheet for the whole group. A CBS depicts the combined information of assets and liabilities and is often prepared by a firm functioning as a group of companies with more than one subsidiary.

Did you know?

A consolidated balance sheet allows any interested party to glance over the entire organisation's financial situation quickly.

Format and Example of a Consolidated Balance Sheet

How Do Businesses Prepare a Consolidated Balance Sheet?

In the case of group enterprises, the consolidated balance sheet is a crucial financial statement. The financial statements of several firms within the same group are combined to portray the financial condition as a whole.

The parent company's and subsidiaries' CBS must be produced using the same regulations and accounting processes. At all times, Generally Accepted Accounting Rules, also known as GAAR, must be followed. All data must be accurate o ensure accuracy.

It's critical to update the data relating to the subsidiary's assets, representing their market value when producing the CBS. Likewise, since the net result is zero, the parent business's income, also a subsidiary's cost, should be excluded.

Not starting from a blank slate and using a worksheet instead might be beneficial when you make a consolidated balance sheet. To build the worksheet, you'll need the parent company's and subsidiary's financials to be originally separated. List all asset and liability accounts, as well as their respective values. Then combine all of the company's assets and liabilities. Follow the same steps for the subsidiary company. 

Following that, make two columns: One for liabilities and another for assets; they can be combined to reduce redundancy. The credits and debits erased must amount to zero.

The business and all subsidiaries have these values removed from their assets and liabilities. The CBS would be bloated if both were included. For example, if a machine is used for manufacturing by your company and your subsidiary, do not list it twice. To avoid redundant numbers and to throw you off, this amount needs to be eliminated from one spot. 

List the combined balance for each sector you've mentioned in the right column. Sum up the row in this column, taking care of credits and debits from the duplication column.

You're ready to go on to your CBS once you've found the sum of the consolidated balance per category. Only the numbers mentioned in the right column of your spreadsheet should be transferred across. These represent your parent company's and subsidiary's total liabilities, assets and owner's equity. 

To make a CBS, start by writing the company's name, a subsidiary's name and the top date. A section for liabilities, assets and equity should be in the left-hand column. The figures you provide should match the consolidated trial balances in your spreadsheet.

Check your CBS once you've done inserting the figures from your worksheet. Your total liabilities, assets and equity should be identical to your parent firm plus your subsidiary, minus any duplicate items you removed.

It is not easy to make a consolidated balance sheet manually, as it entails multiple processes, starting with determining share capital and earnings, and it is a time-consuming process. As a result, firms have used accounting software to automate the work of combining financial data. 

Also Read: What are Consolidated Financial Statements?

The Advantages of a Consolidated Balance Sheet

A CBS has many advantages, the primary one being ease of use, and this method makes it simple for banks, stockholders and directors to see a well laid-out account of the company's financial health.

A CBS offers several benefits, one of which is its simplicity of use. The Board of Directors, investors and lending institutions may easily examine a properly laid-out account of the company's financial health when using this kind of financial reporting. 

For a variety of reasons, this is preferable to have separate sheets for the parent and subsidiary. For starters, the parent firm's subsidiary purchase is likely classified among liabilities, which might be misleading if it's featured on a balance sheet that only shows the parent business. Second, different assets and obligations, such as leases, marketing and salaries, may be shared between the parent and subsidiary. For example, if certain workers don't work full-time for the parent firm and part-time for the subsidiary, the parent company will benefit.

For example, if some employees work part-time for the parent firm and part-time for a linked subsidiary, a consolidated balance sheet must include the payroll liabilities. Overall, this method of displaying the company's financials aids in providing the most accurate image of its health and longevity.

Difference Between a Consolidated Balance Sheet and a Traditional Sheet

You might be asking what the main distinctions are between conventional and CBS. Both are financial statements that demonstrate the connection between the corporation's liabilities, assets and equity. A CBS can be viewed as an extension of a regular balance sheet, and the subsidiary's assets and liabilities are mentioned in this case. A standalone balance statement specifies which assets and liabilities belong to the parent firm, whereas a CBS shows both- the parent and subsidiary- company's assets and liabilities. 

As far as financial statements go, a balance sheet is rather easy. On the other hand, A CBS is one of the most complicated financial statements due to the volume of data necessary for entry and the number of parties and accounts involved. A balance sheet takes data from income statements, cash flow statements and a trial balance, summarised in two columns, one for assets and the other for liabilities. 

Whereas CBS demands a significant amount of time and works to prepare a financial account because the parent company's balance sheet is required in addition to the subsidiary's. The nature of the CBS may also alter based on the subsidiary's ownership arrangement. Careful, precise accounting is required at both the subsidiary and the parent business throughout the year to guarantee that the CBS is prepared correctly. 

In most cases, balance sheets are a need for doing company. They're usually created periodically and are crucial for planning and audit protection. While difficult to prepare, CBS is necessary when running a firm and a subsidiary. The information included inside the two companies may overlap and need to be removed (to avoid doubling of assets or liabilities); CBSs are essential. 

Both a conventional and consolidated balance sheet are necessary to have on hand and to be able to present to investors since they can demonstrate the company's overall health and persuade investors of the value of their investment. However, to minimise misunderstanding, it is necessary to present the information clearly and concisely.

Also Read: What are Accounting Standards - List of Accounting Standards in Detail

When and How to Make a Consolidated Balance Sheet?

When a corporation possesses a controlling share in another company, that is, when it controls more than 50% of that company, it must submit a consolidated balance sheet. This is simple if the parent firm controls 100% of the subsidiary. However, complications occur if the parent business contains less than 100% of the startup. Someone else owns a portion of the subsidiary, which must be represented on the balance sheet. 

The parent business does this by combining the balance sheet as normal and then creating a separate account in the owners' equity section. This account, also known as "Minority interest" or "Non-controlling interest," is equivalent to the value of the subsidiary's share that the parent firm does not own. In other words, the parent firm claims all of the subsidiary's assets and liabilities on the format of the consolidated balance sheet and then "gives some of the value back" in the equity section.

Conclusion

Various digital payment methods are available to help make consolidated balance sheets. The Khatabook app is a one-stop app for all your financial needs, and it is the best app for all businesses. It helps save time and costs by making financial utilities easier to understand and less cumbersome.
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FAQs

Q: How to represent a non-controlling investment in a consolidated balance sheet format?

Ans:

The financial sheet is not consolidated when one firm holds a less-than-controlling position in another – say, less than 50%. Assume your firm owns 45% of another. Only your firm's liabilities, assets, and equity would be included on your balance sheet. On your balance sheet, your investment in the other firm would be a single asset equal to the value of your 45% interest.

Q: What is a subsidiary?

Ans:

To be regarded as the subsidiary of another company, 51% of its total shares or influence of the Board of Directors must be owned by the other company.

Q: What is a parent company?

Ans:

To be regarded as the parent company of another, an organisation must own or control at least 51% of the latter's total shares or influence the makeup of the latter's board of directors.

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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.