لخّصلي

Objectives 1: Recognize the benefits and limitations of consolidated financial statements.
Business combination consummated through stock acquisition
• Business combination includes combination in which one or more companies subsidiaries of parent corporation
• Business combinations occur
• Acquire controlling interest in voting stock
• More than 50%
• May have control through indirect
Objective 2: Understand the requirements for inclusion of a subsidiary in consolidated financial statements.
The reporting entity
• Business combination brings two previously separated corporation under the control of one management.
• Although the corporation bring control of the entity under the parent, separate legal entity are maintained with separate records.
• Separate parent and subsidiary financial statement are converted into consolidated financial statement that reflect the financial position and results of operation of the combined entity.
• Consolidated financial statements are :
 Primarily benefit the owners and creditors of the parent
 Not primarily intended for the non-controlling owners nor the subsidiary’s creditors
 Subsidiaries issue separate statements for the benefit of their owners and creditors
• why maintain separate legal entity
 To maintain customer loyalties
 Legal reason, major lawsuit against a subsidiary results in a significant loss the parent cannot held accountable for more than the loss of the investment.
2
Parent – subsidiary relationship
 A corporation becomes a subsidiary when another corporation acquires controlling interest in its outstanding voting stock.
 In a 100 percent acquisition, the investee continues to operate as a separate legal entity.
 Subsidiaries, or affiliates, continue as separate legal entities and prepare their own financial reports.
 Consolidated financial statements are :
 Primarily benefit the owners and creditors of the parent
 Not primarily intended for the non-controlling owners nor the subsidiary’s creditors
 Subsidiaries issue separate statements for the benefit of their owners and creditors
Consolidation policy
• Consolidation of financial statement is required for companies which have more than 50% voting shares
• Consolidation has more information that if parent view his financial separately.
• Cases where a subsidiary may be excluded from consolidation:
 Control doesn’t rest with majority owner
 Joint ventures
 Acquisitions of groups of assets that do not constitute a business
 Combination between entities under common control
 Combination of not-for-profit entities or acquisition of a for-profit company by a not-for-profit entity