Consolidation

Prof : François ARNAUD

Notes :
 P&L :
 Balance Sheet: view at what time.
 Cash Flow Statement:
 Income Statement: view on a period.

Consolidation is mandatory when:

1. Entity is listed (IFRS).
2. Two items are validated (GAAP):
- Total Balance Sheet: +24M€
- Revenue: +48M€
- Nb of employees: +250 ppl.

Why is it useful:
1. To reflect the economic reality of the group
2. To estimate the value of the group
3. To be able to compare companies
4. To measure performance
5. To bring transparency

Process of Consolidation:
1. Determine the scope (list of entities where control is
+20%) of consolidation.
2. Prepare individual financial statement of group
entities for consolidation.
3. Consolidation: combine financial statement of the group
entities and eliminate all internal relations by applying the
appropriate method.
4. Present consolidated information (BS, IS, etc…).

Percentage of control: determines the type of relationship

between two companies and the consolidation method.
*Check the majority.
Percentage of interest: Indicates the percentage with which a
group entity has to be consolidated.
*Integrate all %.
Case 1*

Case 2*

Case 3*

Case 4*

Case 5*
What is Control:
- Legal control: voting rights.
- Control in fact:
1. If other capital ownership is highly fragmented.
2. if past decisions or board appointments show the
control.
3.Ability to appoint the majority of the board
members
- Contractual control: control which could establish the
control of subsidiary by the parent company.