Consolidating joint ventures under gaap newburgh christian dating
* Consolidated net income is the income earned on all assets controlled by the management of the parent company.
Parent Company Concept The parent company concept emphasizes the interests of the parent's shareholders.
* Consolidation procedures should result in a financial statement presentation as if two or more legal entities were a single company.
Some people read into that principle such consolidation procedures as eliminating 100% of the profit on intercompany transactions rather than only the parent's percentage and accounting for purchases and sales of the subsidiary's stock after the parent has acquired control as treasury stock transactions with no gain or loss. Need to Reconsider ARB 51 The FASB undertook its project on consolidation policy and procedures primarily because of perceived shortcomings of the existing standards. ARB 51 is more descriptive of consolidation practices in the 1950s than prescriptive of what practice ought to be in the 1990s. Because existing standards were written 30 years ago, they did not contemplate the complex securities and techniques used today in mergers and takeovers. Over the years, the AICPA has published a number of "issues papers" calling to the FASB'S attention practice problems in the area of consolidations.
The DM examines the need for unifying the separate financial statements of affiliated legal entities into just one set of consolidated statements, and how this may be done.
Three consolidation concepts are considered in the DM: economic unit, parent company andd proportionate consolidation.
* The consolidated entity's ownership equity is divided into: - Controlling interest (stockholders of the parent); and - One or more non-controlling (minority) interests in those subsidiaries less than wholly owned. Ownership is an indicator of control, but not a separate criterion.
Under this concept, the consolidated financial statements reflect those stockholders' interests in the parent itself, plus their undivided interests in the net assets of the parent's subsidiaries.
Observations: * The consolidated balance sheet is essentially a modification of the parent's balance sheet with the assets and liabilities of subsidiaries substituted for a single-line presentation of the parent's investment in subsidiaries.
However, paragraph 2 suggests that a controlling financial interest is usually conferred by owning a majority voting interest.
Consequently, control versus ownership as the basis for consolidation remains unsettled today.