[Char143]

Can someone tell me what this sentence from wileyCPAexcel is actually saying.. I can’t seem to wrap my head around it and I’ve read it like 10x:

“Consolidation of subsidiaries compounds the difficulties with interpretation of account balances when the parent and subsidiaries use different accounting methods”

Like maybe using 5th grade words? :/

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Gary]

If the parents use GAAP and the sub uses cash-basis accounting it becomes challenging to consolidate them because the sub would have to be first converted to accrual based accounting and then put through the consolidation process. If the sub has 50 in cash sales and 50 in uncollected AR for the subs books it would show only 50 in sales, but for the parents consolidated sheet it would need to show the cash sales + the uncollected AR for the year. Does that help?

AUD 8/18/16
FAR 11/16
BEC 1/17
REG 2/17

[garnerr2]

To me it sounds like it is difficult interpreting account balances on F/S when subsidiaries use one method (FIFO, straight line depreciation, etc.) while the parent uses different (LIFO, accelerated depreciation).

The readers of the consolidated F/S would have to keep this in mind when interpreting what balances in each accounts actually mean.

AUD - 76
REG - 78
FAR - Aug 2016
BEC - 79

[aaronmo]

It's really not too hard…

If one entity uses FIFO for inventory…and another uses LIFO…and the parent uses weighted average…how do you value the inventory on the whole when you're using numbers that represent different valuation techniques.

The difference gets even more involved when you have to translate different currencies…or when you value things differently under different legal approaches.

[Author]

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