1.10 Which option(s) applies when consolidating statements of financial position? (2)
i. All inter-company balances should be cancelled
ii. The group share of the whole of subsidiary’s profit is included within group profit
iii. Inter-company profit should be eliminated unless it is realized by sale to an outsider
iv. Subsidiary’s asset values need to be updated at the end of each accounting period
A. ii & iii
B. i & iv
C. i & iii
D. i & ii
To determine which option(s) apply when consolidating statements of financial position, let's go through each option and see if it aligns with the process of consolidation:
i. All inter-company balances should be cancelled: This option suggests that any balances between subsidiaries and their parent company should be eliminated. This is a common practice in consolidation to avoid double-counting assets or liabilities.
ii. The group share of the whole of subsidiary's profit is included within group profit: This option states that the profit earned by the subsidiary is included in the group's overall profit. This is also a typical practice when consolidating financial statements.
iii. Inter-company profit should be eliminated unless it is realized by sale to an outsider: This option indicates that any profit generated from transactions between subsidiaries and the parent company should be eliminated unless the transaction involves an outside party (a third party not related to the group).
iv. Subsidiary's asset values need to be updated at the end of each accounting period: This option suggests that the asset values of the subsidiary should be updated at the end of each accounting period. While it is generally good practice to keep asset values up to date, it is not a specific requirement for consolidation purposes.
Based on the options presented:
A. ii & iii - Both options ii and iii align with the typical practices of consolidation.
B. i & iv - Option i aligns with consolidation practices, but option iv is not specifically required for consolidation.
C. i & iii - Option i aligns with consolidation practices, and option iii also aligns with the treatment of inter-company profit.
D. i & ii - Option i aligns with consolidation practices, and option ii is also consistent with the inclusion of subsidiary profit in the group's financial statements.
Therefore, the correct answer is D. i & ii