Introduction to Accounting

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There are a lot of separate entities that provide goods and services which produce accounting and financial statements which are subsidiaries of group companies. Unless a consolidated group accounts are prepared and presented the accounts will not presenting a fair view of the…

Introduction

rldwide is another reason for ensuring the consolidation so that comparison of international group concerns’ financial statements becomes possible and easier.
FRS 2 ‘Accounting for Subsidiary Undertakings’ details the conditions under which a parent company of subsidiaries should prepare and present consolidated financial statements. The FRS also spells out the manner in which the consolidated accounts need to be prepared. As per the FRS the purpose of the consolidated financial statements is to provide detailed information about the activities of the whole group of undertakings including the subsidiaries (ASB). The FRS adopts the definition of a group as provided by the Companies Act 1985 as amended by the Companies Act 1989.
In the preparation of group accounts the primary consideration should be the effect on the users of the financial statements with respect to their ability to see the complete economic activities of the group and to ascertain the exposure of the parent company to risk through its interests in the subsidiaries and participation in their activities. Hence it becomes necessary that the qualitative aspects of materiality are given full consideration in respect of preparation of the group accounts.
The accounts of the subsidiaries are to be consolidated in accordance with the procedure laid down in FRS 2. This requires consolidation on a line-by-line basis and also the removal of the all transactions within the group companies. Goodwill on acquisition is to be calculated on the basis of FRS 2 and FRS 7.
In order to ensure that the parent company group accounts comply with the UK Generally Accepted Accounting Principles (GAAP) adjustments to the data from the subsidiary companies’ accounts need to be made as the first step in the consolidation process. These adjustments managements may related to the profits or losses on disposal of assets and the notional interest and any directly controlled assets and liabilities that have been ...
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