Expert Q&A for How to Account for Subsidiaries

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Why we do not add the amount of capital share and retained earnings of the subsidiary company in the amount of parent company's share capital and retained earnings while preparing a consolidation statement?

Darron Kendrick, CPA, MA
Financial Advisor
Darron Kendrick is an Adjunct Professor of Accounting and Law at the University of North Georgia. He received his Masters degree in tax law from the Thomas Jefferson School of Law in 2012, and his CPA from the Alabama State Board of Public Accountancy in 1984.

Darron Kendrick, CPA, MA

Financial Advisor

Expert Answer

The shares are already recorded in the investment account and the earnings of the subsidiary are already recorded in the equity of the parent. The adjustments remove the double counting of these items.

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Question

What if the subsidiary is cancelled?

Darron Kendrick, CPA, MA
Financial Advisor
Darron Kendrick is an Adjunct Professor of Accounting and Law at the University of North Georgia. He received his Masters degree in tax law from the Thomas Jefferson School of Law in 2012, and his CPA from the Alabama State Board of Public Accountancy in 1984.

Darron Kendrick, CPA, MA

Financial Advisor

Expert Answer

This would not matter as long as it is likely that the money for the payment of the investment is reasonably expected to take place.

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Question

How does one treat the sale of a subsidiary in consolidated financial statements?

Darron Kendrick, CPA, MA
Financial Advisor
Darron Kendrick is an Adjunct Professor of Accounting and Law at the University of North Georgia. He received his Masters degree in tax law from the Thomas Jefferson School of Law in 2012, and his CPA from the Alabama State Board of Public Accountancy in 1984.

Darron Kendrick, CPA, MA

Financial Advisor

Expert Answer

The entity sold would no longer be recorded and the gain or loss would be reported in the period sold.

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What if the investment in subsidiary or inter-company is not paid yet?

Darron Kendrick, CPA, MA
Financial Advisor
Darron Kendrick is an Adjunct Professor of Accounting and Law at the University of North Georgia. He received his Masters degree in tax law from the Thomas Jefferson School of Law in 2012, and his CPA from the Alabama State Board of Public Accountancy in 1984.

Darron Kendrick, CPA, MA

Financial Advisor

Expert Answer

If both parties are under contract, it should not matter, as they are obligated.

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