Note and Exercise on Accounting for Intercorporate Investment: Consolidation & Equity Methods

While the performance of subsidiary companies is reported through separate accounting records, the combined operating results of the subsidiaries can provide additional insights into an individual company's financial position. The note examines two accounting approaches: the equity method (which measures income, but does not present a complete account of the parent-subsidiary relationship) and the consolidation method, which provides a more accurate picture (by combining the individual revenues, expenses, assets and liabilities of each company into a single consolidated statement). Exercises (with solutions) using the consolidation method are included.