Help needed: consolidation of financial statements

hi, I need some urgent help to consolidate subsidiaries financial statements to parent financial statements. Currently, I am going by below approach: 1. Income statement: Simple addition of the Parent and Sub for each line items. Income Statement Revenue Minus: Operating Costs ( excl. DD&A) Minus: SG&A Minus: Other Expenses EBITDA Minus: DD&A Minus: Interest Minus: Tax Net Income Minus: Minority Interests Net Earnings to Common Shareholders 2. Cash Flow: simple addition of the parent and sub in operating cash flow calculation, then expect to consolidate the investment cash flow and financing cash flow; Cash Flow Net Earnings Add: non-cash expenses such as DD&A, etc. Changes in Working Capital (A) OPERATING CASH FLOW CAPEX Asset Sales Other Investing Activities (B) INVESTING CASH FLOW Net Equity Fianncing Net Debt Financing Capital Contribution by Minority Interest Common/Preferred Dividends Dividends paid to Minority Interest Other Financing Activitids © FINANCING CASH FLOW Net Change in Cash = A + B + C Add: Beginning Cash Balance Ending Cash Balance 3. Balance Sheet: Simple addition of the parent and sub of all line items expect the common shareholder’s equity account Balance Sheet Cash and ST Investment Other ST Investment Total Current Assets PP&E (A) TOTAL ASSETS Short-term Borrowing Total Current Liabilities Long-term Debt (B) TOTAL LIABILITIES © MINORITY INTEREST (D) COMMON SHAREHOLDER’S EQUITY Total Liabilities & Equity = B + C + D Check: A = B + C + D 4. Shareholder’s equity: Calculates the retained earnings by adding the combined net income and distracting re-calculated dividend to common shareholders Shareholder’s Equity (A) Share Capital Beginning Retained Earnings Add: Net Earnings to Common Minus: Dividend Paid to Common (B) Ending Retained Earnings Common Shareholder’s Equity = A + B Adjustment needed: 5. Initial capital contribution from parent to sub: 1) Treatment in sub’s financial statements: (Asset increases, Shareholder’s Equity (through share capital) increase) 2) Treatment in parent’s financial statements: (Cash decreases, Asset decreases) 3) How should I adjust this capital investment from parent to sub when I do the consolidation? Espeically, when I have done no adjustment in parent level as mentioned in 2) ? 6. Dividend payment from Sub to parent: 4) Treatment in sub’s financial statements: (Cash decreases, Shareholder’s equity (through retained earnings) decreases) 5) Treatment in parent’s financial statements: (Cash increases, Asset decreases) 6) How should I adjust this dividend payment from sub to parent when we do the consolidation? IEspeically, when I have done no adjustment in parent level as mentioned in 5)? Anyone who is good at consolidating financial statements, please jump in and shed lights. I highly appreciate your help. Big thanks for reading this long post.

I dont understand 2). Cash decreases, asset decreases? If you make a capital contribution to a sub isn’t it Debit ~ investment sub Credit ~ cash I can explain the elimination process from that context. Also when the sub makes a dividend payment to the parent are they doing the following: Parent: Debit cash credit investment sub

It’s really hard for me to visualize without seeing actual numbers laid out. A couple of questions and things to consider: What % does the parent own? Is there any goodwill or FMV adjustment that needs to be taken in consolidation? Purelife’s comments are correct. When doing a consolidation, it all depends on how the parent’s books are maintained, ie if parent-only financials are presented, then each year you make adjustments on the parent’s books to bring the investment in sub account to its current value based on initlial value +/- the effects of proportionate shares of income and dividends recieved, and the effect of any additional depreciation from revaluing sub assets. If parent only financilas are never needed, then the consolidation adjustments catch up for the cumulative effect of these. Not sure if I helped or not, hopefully this will make sure you consider all issues and get it right.