Consolidating entries worksheet
In other words, not making the elimination adjustment would result in a false creation of value.
When an investor does not exercise effective control of the company it invests in, the investor may possess minority ownership of the company.
The elimination adjustment is made with the intent of offsetting the intercompany transaction, such that the values are not double counted at the consolidated level.
The consolidation method is a type of investment accounting used for consolidating the financial statements of majority ownership investments.The equity method records the investment as an asset, more specifically as an investment in associates or affiliates, and the investor accrues a proportionate share of the investee’s income. This has been a guide to the consolidation method of accounting for investments.CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA) designation.Depending on the influence this minority interest holds, the investor may either account for the investment using the cost method or the equity method.The cost method records the investment as an asset and records dividends as income to the investor.