Question

As a member of the accounting department, you have been asked to prepare a memo to the treasurer explaining how consolidated net income is computed and the procedures used to allocate income to the parent company and to the subsidiary non controlling shareholders.

Answer 1

Answer:

Consolidated net income of a company is the sum total of net income of the parent company reported on the consolidated income statement and relationship with income from subsidiaries

Explanation:

Consolidated net income of a company is the sum total of net income of the parent company reported on the consolidated income statement without any income from subsidiaries that is wholly owned by the parent company. However, if the subsidiary is not wholly owned the consolidated net income is classified as consolidated net income attributable to non-controlling interest. Below is the formula used to calculate the consolidated net income

100% of parent’s income                       =P

 

income from investment in subsidiary =I

unrealized income from downstream sales =DS

Parent’s relevant income =PI

100% of subsidiary’s income =S

amortization of fair value differential      =FVD

unrealized income from upstream sales   = US

Subsidiary’s relevant income                    =      SI

Consolidated net income CNI = PI + SI