A consolidated income statement presents the financial performance of a parent company and its subsidiaries as a single entity. It combines the revenue, expenses, gains, and losses of all entities within the consolidated group. The preparation of a consolidated income statement requires the elimination of intercompany transactions and balances to avoid double counting. The consolidated income statement provides a comprehensive view of the overall profitability and financial health of the consolidated group.
Structure of a Consolidated Income Statement
A consolidated income statement is a financial statement that presents the combined financial results of a parent company and its subsidiaries. This statement is required for companies that have control over one or more other entities. The structure of a consolidated income statement is similar to that of a standard income statement, but there are some key differences. Here is an explanation of the best structure for a consolidated income statement:
Income from Operating Activities
From sales
Interest, dividends, and other non-operating income
Expenses related to operating activities, such as:
- Cost of sales
- Depreciation and amortization
- Selling, general, and administrative (SG&A) expenses
Income from Non-Operating Activities
Gains or losses from investments
Interest income or expense
Foreign exchange gains or losses
Other non-operating income or expenses
Income Before Taxes
Is calculated by subtracting income from non-operating activities from income from operating activities.
Taxes
Provision for income taxes
Net Income
Also known as net earnings or profit. Is calculated by subtracting taxes from income before taxes.
Other Comprehensive Income
Additional comprehensive income or loss that doesn’t go through the traditional income statement.
Total Comprehensive Income
Net income plus other comprehensive income or minus other comprehensive loss.
The following table provides a simplified example of a consolidated income statement:
| Account | Amount (in millions) |
|---|---|
| Revenue | $100.0 |
| Cost of goods sold | $60.0 |
| Selling, general, and administrative expenses | $20.0 |
| Depreciation and amortization | $10.0 |
| Income from operations | $10.0 |
| Interest income | $5.0 |
| Interest expense | $2.0 |
| Income before taxes | $13.0 |
| Income taxes | $4.0 |
| Net income | $9.0 |
This is just a basic example, and the actual structure of a consolidated income statement may vary depending on the specific company and industry. However, the general principles outlined above will apply to most consolidated income statements.
Question 1:
What is the purpose of a consolidated income statement?
Answer:
The subject is “consolidated income statement.” The predicate is “the purpose of.” The object is “to present the financial results of a group of related companies as if they were a single entity.”
Question 2:
How is a consolidated income statement prepared?
Answer:
The subject is “consolidated income statement.” The predicate is “prepared.” The object is “by combining the individual income statements of the subsidiaries and the parent company after eliminating intercompany transactions and balances.”
Question 3:
What are the benefits of using a consolidated income statement?
Answer:
The subject is “consolidated income statement.” The predicate is “benefits.” The object is “to provide a more accurate view of the financial performance of a group of related companies, to improve comparability with other companies, and to facilitate financial analysis.”
Thanks for sticking with me through this deep dive into consolidated income statements. I know it can be a bit of a brain-bender, but hopefully, it’s also been helpful. If you still have questions or want to go a little deeper, be sure to check out some of the resources I linked throughout the article. And remember, I’m always here if you need a friendly finance guide. Keep an eye out for more financial wisdom in the future. Until then, take care!