Before undertaking the consolidation process, it may be necessary to make the following adjustments in relation to the individual statements if the parent and the subsidiary do not use the same accounting policies for like transactions in similar circumstances:

A) the parent will prepare its own financial statements using the same accounting policies as the subsidiary.
B) the subsidiary will prepare its own financial statements using accounting policies that are negotiated with the parent.
C) the subsidiary will prepare its own financial statements using the same accounting policies as the parent.
D) all of the options are incorrect.

Question

Prestin Leinbach · Accepted Answer

Final Answer : C, Explanation :  In order to ensure that the financial statements of the parent and subsidiary are comparable, it is important to use the same accounting policies for like transactions in similar circumstances. Therefore, it is best for the subsidiary to prepare its own financial statements using the same accounting policies as the parent. Option A is not appropriate because it would require the parent to change its accounting policies to match those of the subsidiary. Option B may be feasible, but it could result in different accounting policies being used for the same transactions, which could make consolidation more difficult. Option D is incorrect because there is a best choice in this scenario.

Definitions

Learning Objectives

Learning Objectives

Related questions