Business Combination - Cancelling the Investment

[Acid]

Hi

Why do we cancel the investment in the subsidary when we consolidate the financial statements?

Thanks

Acid

[siddharth]

Hi Acid,

The basic principle of consolidation financial statements is to show assets and liabilities of group companies together as an single entity. So investments of parent company in subsidiary company/s is replaced with assets and liabilities (net assets) of subsidiary company.

hope this clears your doubt.

regards

[Asif]

it is bcoz it is with investment we have aquired the asset and liabilities of the subsidiary. When we cancel them, we break the investment into smaller parts nd show them as non-current asset say machineries and current asset say cash balance.

[amro2003]

Also note that what you do is consolidating , the individual financial statements of the parent still shows the investment.