Question

I will definitely down vote, if essay is inappropriate
19) Why consolidation is important ?( type your essay)

Answer 1

Explanation:

Consolidation: it may be defined as bringing together the assets liabilities incomes and expenses and all other financial items of an organisation and its subsidiaries together.

Consolidation may be of two types
1.financial statement consolidation.
2.Business consolidation.

Explanation:

1. Financial statement consolidation.

It includes several accounts of different entities business combined together to produce a consolidated financial statement of all the related entities rather than providing stand alone financial statements of each organisation to its stakeholder.

The minimum qualification for an organisation to include accounts of and subsidiary is 20%. If the organisation has less than 20% of holding than equity method is used.

Importance of consolidated financial statements

• It helps in providing complete business overview to its parent companies and also to stakeholders to analyse the health of the group.
• It also plays an important role in reducing the paperwork while preparation of financial statement, as preparation of standalone financial statements would have consumed lot of time and effort for management and stakeholders to understand and evaluate.
• It also simplifies the business activities conducted throughout the year between subsidiary and its parent company.

2. Business Consolidation

Business Consolidation may be termed as combination of two or more business to form a single organisation under whose control all the business are conducted together.

Such combination occurs for various purposes such as
1.It increases profit of an organisation as a whole
2.Increases efficiency of employees and of processes.
3. It helps in reduction of cost of production, marketing, logistics etc.
4. Reduces competition among themselves.
5. Utilises the industry expertise, talent and technology in optimum manner.
6. Increases sales revenue.
7. Increases economies of scale.

Business consolidation may take place in various forms such as

• merger
• acquisition etc.