Company Consolidation – An overview

Introduction

A hierarchical organization structure is represented by a Holding company with one or more subsidiary company under the same. Accounting standards requires a Parent company (also known as holding enterprise) to present consolidated financial statements about the economic activities of its group. These statements are intended to present financial information about a parent and its subsidiary (ies) as a single economic entity. Consolidation is the process that provides financial information necessary to prepare and present the financial statements.

A Group company can have one or more child companies under its purview. Company consolidation, is the process for consolidation of all the child companies with the parent company, to draw consolidated financial statements. This process consolidates the financial figures of the child company finance books at the Consolidation finance book of the Parent company. A company that has a “Consolidation” finance book must necessarily have a consolidation chart of account. This will be used for the purpose of consolidation and simulation.

Consolidation process assumes the child company to be a 100% subsidiary of the parent company and the financial periods of the both the companies being the same.

Feature Highlights

Simulation of Consolidation

Simulation of consolidation is an aggregation of financial figures and does not pass any vouchers. The details of simulation are stored against a simulation run number and can be viewed as a report. Simulation can be done at any point of time and can be done multiple times.

Types of simulation are

• Company simulation

• Business/Alternate segment simulation

• Business/Alternate segments are defined as part of the enterprise model.

• Simulation using external enterprise, along with company or segments.

Consolidation Chart of Accounts

A company can have a different chart of account from that of its parent company based on its business requirements. For the purpose of consolidation, the account codes of a child company must be attached to the account codes of the parent company. Similarly a mapping can be done from a consolidation account code to its Group company consolidation account code if required in case of Hierarchical Company structure.

Currency for Company consolidation

Company consolidation process aggregates the balances of the child company with the parent company:

• If the base currency of the child company if the base currency is same as the base currency of the parent company

• If the parallel base currency of the child company if the base currency of the child company is different from the base currency of the parent company

• If the parallel base currency of the child company is the same as the base currency of the parent company.

• If the base currency and the parallel base currency of the child company is different from the parent company, by converting the balances.

Adjustment Entry

In case of Company consolidation, the financial information of the child companies is consolidated at the Consolidation finance book. It is imperative to eliminate the Inter Company transactions within the Group, which are in the nature of Internal sale, Internal Purchase, elimination of unrealized profit and so on. This elimination if supported through adjustment entry. Entries are posted directly in the consolidation finance book to represent true and fair view of the Group Company.

List of Activities