Rules for consolidating subsidiaries
Marquis Codjia is a New York-based freelance writer, investor and banker.
He has authored articles since 2000, covering topics such as politics, technology and business.
In short, the new standard requires that these types of entities be consolidated into the financial statements of the entity that benefits the most from their operating income and who holds the risk to absorb any operating losses and liabilities (i.e. It sounds easy enough, but as practitioners can attest, the standards are extensive and a bit confusing, which continues to result in ‘diversity in practice'.
In these situations, accounting standards are clear that a combined financial statement presentation is likely more meaningful and therefore preferred over a consolidated presentation (ASC 810-55-1b).
These amounts represent the total equity of the real estate entity and the equipment entity as well as any third-party rentals (i.e.
inter-company rentals are eliminated in either presentation method.
A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.
Back in 2001, we witnessed the Enron accounting scandal, which led to one of America’s largest corporate bankruptcies and the demise of the prestigious accounting firm Arthur Andersen.