Consolidation and Parent Holds
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When is consolidation considered inappropriate even though the parent holds a majority of the voting common shares of another company? How has reliance on legal control as a consolidation criterion led to off-balance sheet financing? Explain.
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Solution Summary
This solution explains when consolidation would be inappropriate, and also discusses how reliance on legal control in regards to consolidation has led to an increase in off-balance sheet financing.
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Consolidation is considered inappropriate even though the parent holds a majority of the voting shares of another company when circumstances are planned where the parent cannot exercise control. The parent may be planning on selling the subsidiary/their interest in the subsidiary within the current reporting period, and it may have not been announced as of this point. ...
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