Question

In the consolidated statement of financial position, the subsidiary's individual assets are accounted for by which of

the following methods?

a.Shown separately
b. Netted against its liabilities and shown net
C. Not included
d. Added to the parent company's individual assets and liabilities

Answer 1

In the consolidated statement of financial position, the subsidiary's assets are added to the parent company's individual assets and liabilities, resulting in a single statement that represents the combined financial situation of the entire group.

Step-by-step explanation:

In the consolidated statement of financial position, the subsidiary's individual assets are added to the parent company's individual assets and liabilities. This process creates a single statement that reflects the total economic environment of the parent company and its subsidiaries. The consolidated financial statements provide a comprehensive overview of the financial position of the entire group of companies as a single economic entity. When dealing with such statements, it's crucial to understand that they represent the aggregation of all the subsidiaries' assets, liabilities, and equity, alongside those of the parent company, without any internal balances between the companies in the group.

The use of T-accounts and balance sheets is fundamental in understanding how these figures are compiled. The "T" in a T-account separates the assets on the left from the liabilities and net worth on the right, with the latter including the equity of the bank or business. Within a bank's balance sheet, assets encompass reserves, loans made to customers, and government securities, while liabilities include customer deposits and any other debts. The net worth or equity is basically the total assets minus total liabilities, which must be positive for a business to be considered solvent.

Answer 2

In the consolidated statement of financial position, the subsidiary's individual assets are typically shown separately.

What happens in the method

This method involves listing the subsidiary's assets distinctly from those of the parent company, allowing stakeholders to discern the subsidiary's financial standing within the consolidated report.

This means that the assets of the subsidiary are listed distinctly from those of the parent company. By presenting the subsidiary's assets separately, stakeholders can clearly identify and assess the financial standing and performance of the subsidiary within the overall consolidated financial statement.