Preparing Consolidated Financial Statements and Intra Group Transactions

MEMORANDUM
DATE: 4 September 2018
TO: Jane Penfold
FROM: Accountant
SUBJECT: Presentation to Executive on purchase of majority shares of Soletta Ltd
The memorandum is with respect to the proposal to purchase the majority shares of Soletta Ltd
and the various technicalities to be discussed with the executive team.
a) What is the purpose of preparing consolidated financial statements?
The main reason of preparing consolidated financial statement is to show to the owners and other
stakeholders of an entity, the outcome of the operations and the entity position of the parents and
all its subsidiaries as if the parents and all its subsidiaries were a single entity. (Investopedia,
LLC., 2018)
b) What is a group, a parent and a subsidiary?
A group is a basket of multiple parent and subsidiaries companies that functions as a single
economic entity having common control.
A subsidiary company is a company which has its ownership and controlling power with another
entity, which is referred to as parent company. (Murray, 2017)
c) How many parents can a group have? Justify your answer.
A group can comprises of multiple parent companies, for example, there can be a parent
company which have the controlling power controls the first tier of subsidiary company and
then an ultimate parent company which through its tier first subsidiary manage other subsidiaries
like second and lower subsidiaries.. (Investopedia, LLC, 2018)