Consolidated versus consolidating financials
This account is also known as a minority interest account.This account keeps track of an interest in the subsidiary that the parent does not control.When a company has ownership in one or more companies, an accountant may have to either consolidate their financial statements or combine them.Consolidation occurs when a parent company owns more than 50 percent of a subsidiary.This increases the group's income, as a whole, compared to if the companies reported individually.Carter Mc Bride started writing in 2007 with CMBA's IP section.When combining financial statements, the accountant should simply add the stockholders' equity section across the accounts.This does not eliminate any company's stockholders' equity in the account but increases the overall stockholders' equity for the entire group of companies.
This is the key difference between combined and consolidated financial statements. The parent company’s stake is between 20%-50% of the associate where the parent company exerts significant influence.
When consolidating financial statements, the stockholders' equity section of the subsidiary is eliminated from the books.
Therefore, there are no increases in accounts, such as stock and retained earnings.
Accountants must eliminate these accounts because, if they remain on the books, they may be accounted for twice, one time on the parent's book and again on the subsidiary's books.
In both a consolidated financial statement and a combined financial statement, the accountant must create a non-controlling interest account.