Question

Why is it necessary to debit the equity accounts, and credit the investment account (asset) as...

Why is it necessary to debit the equity accounts, and credit the investment account (asset) as part of a consolidation?

Homework Answers

Answer #1

As we know, Consolidation refers to the process when one company acquires the other company. The company which owns the other company is called as holding company and on the other hand, other Company is called subsidiary company.

As a part of consolidation, it is necessary to debit all equity accounts as consolidated balance sheet shows both company equity accounts and assets also. So, all the equity accounts like liabilities, minority interest and capital are debited as it is a kind of liability for the company and it is also necessary to credit the investment account as it is a kind of profit for the company and whenever company needs money, this investment can be converted into cash by selling it. So, it is credited .

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