Practical examples of how to prepare consolidated financial statements

Let’s ground this in numbers. The best examples of how to prepare consolidated financial statements always start with a clean, simple control acquisition.

Assume:

• ParentCo acquires 80% of SubsidiaryCo on January 1, 20X4.
• ParentCo pays $800,000 in cash.
• The fair value of the remaining 20% non‑controlling interest (NCI) is $180,000.
• SubsidiaryCo’s identifiable net assets at fair value are $900,000.

Step 1: Calculate goodwill in this example of consolidation

Total implied value of SubsidiaryCo is:

• Parent consideration: $800,000
• Fair value of NCI: $180,000
• Total: $980,000

Compare that with net assets at fair value ($900,000):

• Goodwill = \(980,000 − \)900,000 = $80,000

In most examples of how to prepare consolidated financial statements, this goodwill number is the first checkpoint. If you can’t reconcile the implied value with the fair value of net assets, your consolidation is already off.

Step 2: Eliminate investment and equity in the consolidation worksheet

On acquisition date, ParentCo’s separate books show an Investment in SubsidiaryCo of \(800,000. SubsidiaryCo’s equity (share capital plus retained earnings) totals \)900,000.

In the consolidation worksheet (not in the individual ledgers), you:

• Eliminate the $800,000 investment against 80% of SubsidiaryCo’s equity.
• Recognize goodwill of $80,000.
• Recognize NCI at $180,000.

The consolidated balance sheet now shows:

• Net assets of SubsidiaryCo at $900,000 (line‑by‑line)
• Goodwill of $80,000
• NCI in equity of $180,000

This is the backbone of many examples of examples of how to prepare consolidated financial statements: remove the investment account, bring in the subsidiary’s assets and liabilities, and plug the difference into goodwill and NCI.

Examples include intra‑group sales and unrealized profit elimination

Real groups don’t just sit quietly; they trade with each other. The best examples include intra‑group transactions because that’s where most consolidation errors hide.

Assume the same ParentCo and SubsidiaryCo, now in year 2 after acquisition.

• ParentCo sells inventory to SubsidiaryCo for $100,000.
• ParentCo’s cost was \(70,000, so ParentCo books a \)30,000 profit.
• At year‑end, SubsidiaryCo still holds 40% of that inventory.

Step 1: Identify unrealized profit

Inventory still in the group: 40% of \(100,000 = \)40,000.

Embedded profit in that closing inventory:

• Profit margin = \(30,000 ÷ \)100,000 = 30%
• Unrealized profit = 30% × \(40,000 = \)12,000

Step 2: Eliminate the unrealized profit on consolidation

In the consolidation worksheet, you:

• Reduce consolidated inventory by $12,000.
• Reduce consolidated cost of goods sold (or ParentCo’s sales profit) by $12,000.

This example of consolidation shows how you prevent overstatement of group profit and assets. Until that inventory is sold to an external customer, the group has not actually earned the $12,000.

Real examples of step acquisition and gaining control

Modern M&A often happens in stages. A classic example of how to prepare consolidated financial statements in 2024–2025 is the step acquisition.

Assume:

• ParentCo owns 30% of AssociateCo, accounted for using the equity method.
• On July 1, 20X5, ParentCo buys another 40%, bringing its stake to 70% and obtaining control.
• Before the new purchase, the carrying amount of the 30% investment is $300,000.
• The fair value of that 30% interest on July 1 is $350,000.
• ParentCo pays $500,000 for the additional 40%.
• Fair value of NCI (remaining 30%) is $260,000.
• Fair value of AssociateCo’s identifiable net assets is $900,000.

Step 1: Remeasure the previously held interest

Under IFRS 3 and ASC 805, you remeasure the old 30% interest to fair value and recognize a gain:

• Gain = fair value (\(350,000) − carrying amount (\)300,000) = $50,000

This gain hits profit or loss on the acquisition date.

Step 2: Compute goodwill in a step acquisition

Total implied value of AssociateCo:

• Fair value of old 30% interest: $350,000
• Consideration for new 40%: $500,000
• Fair value of NCI (30%): $260,000
• Total: $1,110,000

Goodwill:

• \(1,110,000 − \)900,000 = $210,000

In the consolidated financial statements, you:

• Eliminate the investment balance (now at fair value) against the subsidiary’s equity.
• Recognize goodwill of $210,000.
• Recognize NCI at $260,000.

These are the kind of step‑by‑step numbers that turn abstract guidance into real examples of how to prepare consolidated financial statements.

For background on business combination principles, the FASB offers technical materials at fasb.org, and the IFRS Foundation publishes standards and summaries at ifrs.org.

Best examples of partial disposals without loss of control

Another frequent scenario: the parent sells part of its stake but still controls the subsidiary. Many examples of how to prepare consolidated financial statements skip this, but it’s a common exam and real‑life trap.

Assume:

• ParentCo owns 80% of SubsidiaryCo.
• The carrying amount of NCI is $250,000.
• ParentCo sells 10% of SubsidiaryCo’s shares (out of its 80%), reducing its interest to 70%.
• Sale proceeds are $150,000.

Key point: ParentCo still controls SubsidiaryCo. Under IFRS 10 and ASC 810, this is treated as an equity transaction, not a gain or loss in profit or loss.

How the partial disposal hits equity

• The carrying amount of the 10% interest sold is part of the NCI and parent equity.
• You adjust NCI and parent equity to reflect the new ownership percentages.
• Any difference between consideration received and the adjustment to NCI goes directly to parent equity (often retained earnings), not to income.

This example of a partial disposal shows why you can’t just default to recognizing disposal gains in the income statement whenever shares are sold. The group is unchanged; only the split between parent and NCI moved.

Multi‑tier group structures: examples include sub‑subsidiaries

In 2024–2025, large groups frequently use holding structures with multiple layers. Many examples of how to prepare consolidated financial statements now feature multi‑tier setups.

Assume:

• ParentCo owns 70% of MidCo.
• MidCo owns 60% of SubCo.
• No other group interests in SubCo.

ParentCo’s effective interest in SubCo is:

• 70% × 60% = 42%

But because ParentCo controls MidCo, and MidCo controls SubCo, ParentCo indirectly controls SubCo.

On consolidation:

• You consolidate MidCo and SubCo line‑by‑line.
• NCI is calculated at each level, but presented as a single NCI line in equity.

SubCo’s NCI in the consolidated statements reflects the portion not attributable to ParentCo:

• NCI in SubCo = 58% (because ParentCo’s effective interest is 42%).

This kind of layered structure is one of the best examples for understanding how control, not simple percentage of direct ownership, drives consolidation.

Foreign subsidiaries: currency translation in action

With cross‑border groups still expanding in 2024–2025, any serious set of examples of how to prepare consolidated financial statements needs at least one foreign currency case.

Assume:

• ParentCo’s functional currency is USD.
• EuroSub’s functional currency is EUR.
• At year‑end, you need to consolidate EuroSub’s financials into ParentCo’s consolidated financial statements.

Typical approach under IFRS and U.S. GAAP:

• Assets and liabilities: translated at the closing rate.
• Income and expenses: translated at average rates for the period (if reasonable).
• Equity: translated at historical rates.
• Exchange differences: recorded in other comprehensive income (OCI) as a cumulative translation adjustment (CTA).

Example:

• EuroSub’s net assets at historical rates: €500,000.
• Closing rate: 1 EUR = 1.15 USD.
• Translated net assets at closing: $575,000.
• Historical translated amount in group records: $550,000.
• Difference ($25,000) goes to CTA in OCI.

This example of currency translation highlights that foreign exchange gains and losses on net investments in foreign operations typically bypass profit or loss and land in OCI until disposal.

For more detail on foreign currency accounting, you can review guidance from the IFRS Foundation and educational materials from universities such as Harvard Business School that discuss global financial reporting.

Fair value adjustments and depreciation: real examples from the workpaper

Most real examples of consolidation involve fair value bumps on acquisition.

Assume:

• On acquisition, SubsidiaryCo’s plant had a carrying amount of $400,000.
• Fair value was $460,000, with a remaining useful life of 10 years.
• Annual extra depreciation from the fair value uplift is \(6,000 ((\)460,000 − $400,000) ÷ 10).

In the consolidation worksheet each year, you:

• Increase plant by the remaining uplift (if not already embedded in local books).
• Increase accumulated depreciation by the cumulative extra depreciation.
• Reduce group profit by the current‑year extra depreciation ($6,000).
• Split the impact between parent and NCI based on ownership.

These real examples of how to prepare consolidated financial statements are where many practitioners trip up: they forget that fair value adjustments have ongoing profit impacts, not just a one‑time hit on day one.

Current trends (2024–2025): what’s changing in consolidation practice

A few 2024–2025 trends are shaping how accountants approach examples of how to prepare consolidated financial statements:

• More complex structures: Private equity and venture‑backed groups increasingly use special purpose entities and layered holding companies. That means more step acquisitions, partial disposals, and structured entities in your examples.
• Data‑driven consolidation tools: Cloud‑based consolidation systems are now standard in mid‑size and large groups, automating intercompany eliminations and currency translation but still requiring strong judgment on control and classification.
• Increased regulatory focus: Securities regulators in the U.S. and globally are paying closer attention to consolidation judgments, especially around variable interest entities and off‑balance‑sheet risks. The SEC’s materials at sec.gov provide useful context on disclosure expectations.
• ESG and segment reporting overlays: While not changing the mechanics of consolidation, environmental, social, and governance (ESG) reporting and more granular segment disclosures are forcing finance teams to align consolidation data with non‑financial metrics.

These developments don’t change the core mechanics reflected in the best examples of how to prepare consolidated financial statements, but they do raise the bar on documentation, consistency, and transparency.

FAQ: short, practical answers with examples

What are some practical examples of how to prepare consolidated financial statements?

Practical examples include: an 80% acquisition with goodwill; eliminating intra‑group inventory profits; a step acquisition moving from equity method to full consolidation; a partial disposal where the parent retains control; consolidating a foreign subsidiary with currency translation; and handling fair value adjustments on acquisition that drive ongoing extra depreciation.

Can you give an example of eliminating intercompany loans?

Yes. Suppose ParentCo has a loan receivable from SubsidiaryCo of $1,000,000, and SubsidiaryCo shows a matching loan payable. In the consolidation worksheet, you eliminate both the receivable and the payable. If there is intercompany interest income and expense, those are also eliminated so that the group’s financial statements show only external financing and interest flows.

How do real examples handle non‑controlling interests?

Real examples calculate NCI both at acquisition (using fair value or proportionate share of net assets) and at each reporting date by:

• Starting with opening NCI.
• Adding NCI’s share of subsidiary profit or loss.
• Subtracting NCI’s share of dividends.
• Adjusting for any changes in ownership that do not result in loss of control.

The consolidated balance sheet then presents NCI as a separate component of equity.

Is there an example of when not to consolidate?

Yes. If ParentCo holds 25% of another company but does not have control—no dominant voting rights, no power over key decisions—then it typically accounts for the investment using the equity method (if it has significant influence) or at fair value. In that case, the other company’s assets and liabilities are not consolidated line‑by‑line. This contrast helps clarify when the examples of how to prepare consolidated financial statements actually apply.

Where can I find more technical guidance beyond examples?

For deeper technical detail beyond these examples of consolidation, consider:

• The IFRS standards and educational materials at ifrs.org.
• U.S. GAAP guidance and resources at fasb.org.
• Academic explanations and case studies from institutions like Harvard Business School.

These sources provide the underlying rules, while the examples of how to prepare consolidated financial statements in this article show how those rules play out in practice.