FRF for SMEs--Consolidation

Larry Perry
CPA Firm Support Services, LLC
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At the date of acquisition of a subsidiary, the carrying amount of any previous investment should be replaced by identifiable assets and liabilities of the subsidiary, any non-controlling interests and any goodwill resulting from the acquisition.  Appropriate carrying amounts are fair market values at the acquisition date.  Business combinations will be discussed in a future blog with more details on determining carrying amounts of acquired assets and liabilities, including goodwill.

Principles of consolidation:

  • Intercompany balances should be eliminated upon consolidation.
  • Retained earnings or deficit of a subsidiary should be excluded from consolidated net earnings.
  • Gains and losses from previous transactions between the parent and subsidiary should not be eliminated unless the transactions were made expecting the acquisition.
  • Intercompany transactions subsequent to acquisition will require adjustment and elimination in the consolidated financial statements.
  • Assets and liabilities of the subsidiary acquired by the parent are treated as purchased on the date of acquisition.  These bases will be used for subsequent accounting, such as depreciation and amortization calculations.
  • Changes in ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
  • When loss of control occurs, assets and liabilities of the subsidiary and any non-controlling interests should be derecognized.
  • Any retained interest in the subsidiary should be recognized at its carrying amount at the date of loss of control along with any applicable adjustment for gains or losses.
  • Only post-acquisition and pre-disposal income of subsidiaries should be presented in consolidated financial statements.
  • Non-controlling interests in a subsidiary should be presented separately in the equity section of the statement of financial position.
  • Net income should be attributed to both the parent and non-controlling interests.
  • The parent’s consolidation policy should be disclosed.

Free downloads of concepts and principles in the FRF for SMEs, and illustrative financial statements and footnotes, are currently available at


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