Accounting and consolidating entry

10-Jan-2020 22:15

(APB 18 specifies conditions where ownership is less than 20% but there is significant influence).The purchasing company uses the cost method to account for this type of investment.

The taxation term of consolidation refers to the treatment of a group of companies and other entities as one entity for tax purposes.Under the cost method, the investment is recorded at cost at the time of purchase.The company does not need any entries to adjust this account balance unless the investment is considered impaired or there are liquidating dividends, both of which reduce the investment account.Consolidation is the practice, in business, of legally combining two or more organizations into a single new one.

Upon consolidation, the original organizations cease to exist and are supplanted by a new entity.A parent company can acquire another company by purchasing its net assets or by purchasing a majority share of its common stock.