Final answer:
If a parent sells a portion of its investment in a subsidiary for an amount more than the cost of the investment, the gain on sale is indeed eliminated in the consolidated financial statements.
Step-by-step explanation:
When a parent sells a portion of its investment in a subsidiary for an amount more than the cost of the investment, the gain on sale of investment is indeed eliminated on consolidation and does not appear in the consolidated income statement. This is because the consolidated financial statements aim to represent the financial position and performance of the parent and its subsidiaries as a single economic entity.
The gain on sale is treated as an intercompany transaction and is eliminated to avoid double counting of the gain. Instead, the gain is reflected in the equity section of the consolidated balance sheet as an adjustment to the investment in the subsidiary. This adjustment increases the parent's ownership interest in the subsidiary.
Eliminating the gain on sale in the consolidated income statement ensures that the consolidated financial statements accurately reflect the economic performance of the consolidated entity, rather than the performance of individual entities within the group.