There are some situations where income from transactions is recognized on the co

Question

There are some situations where income from transactions is recognized on the consolidated financial statements at a different point in time than the affiliates recognize the income on their separate financial statements. In the case of asset sales, consolidation entries are recorded to delay the recognition of income. However, in the case of inter-company bonds, consolidation entries accelerate the recognition of the income effects. Are the consolidation procedures inconsistent in the two areas? Explain why or why not.

Explanation / Answer

Answer: The consolidation procedures are consistent because The amount of intercompany profit or loss to be eliminated in accordance with paragraph 6 is not affected by the existence of a minority interest. The complete elimination of the intercompany profit or loss is consistent with the underlying assumption that consolidated statements represent the financial position and operating results of a single business enterprise. The elimination of the intercompany profit or loss may be allocated proportionately between the majority and minority interests.

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