CONSOLIDATION

WHAT IS CONSOLIDATION?

Consolidation refers to an asset that oscillates between a defined pattern of trading levels in technical analysis. It is interpreted as indecisiveness of the market, that ends when the price of an asset moves up or below the trading pattern. A consolidation pattern can be broken for various reasons like the triggering of limit orders or the release of important news. Consolidation refers to a set of statements in financial accounting, as it presents a subsidiary company and a parent company as one.

Basics of Consolidation

Consolidation periods are found in price charts for a time interval, and these last for weeks, days, or months. Traders look for resistance and support levels in the price charts and use them to make buying and selling decisions.

POINTS TO REMEMBER

•       Consolidation is a term used in technical analysis to describe a price movement of stocks within a given resistance and support range for some time. It is caused due to the indecisiveness of the trader.                      

•       The financial statements are consolidated and used by analysts to evaluate the parent and subsidiary companies as one company.                                  

How Do Consolidations Work in Accounting?

The consolidated financial statements are used for presenting a parent and subsidiary company as a combined company in financial accounting. The assets and liabilities are adjusted of the subsidiary to a fair market value to create consolidated financial statements, and the values are used in the combined financial statements. A consolidation eliminates the transactions that are between the subsidiary and parent, or between the NCI and subsidiary. The consolidated statements include the transactions with the third parties, and the companies continue to produce the financial statements.

Example of Consolidation

ABC Corporation buys 100% net assets of XYZ Manufacturing for $1 million, and the market value of XYZ’s net assets are $700,000. When an accounting firm puts the consolidated financial statements together, XYZ's net assets are a value of $700,000, and the $300,000 amount that is paid above the fair market value is posted to the goodwill asset account.

 WHAT IS FINANCIAL CONSOLIDATION?

Financial consolidation refers to the process of combining the financial information and data from various business entities or subsidiaries within an organization and rolling it to a parent company to report.

Steps in the financial consolidation process:

•       Collecting assets, liabilities, revenue, equity, and expense accounts (trial balance data) from various general ledgers,

•       Mapping the same to a centralized chart of accounts,

•       Consolidating the information and data following a set of specific accounting guidelines and rules,

•       Reporting the results to external and internal stakeholders.

CONCLUSION

Financial Consolidation refers to the oscillating assets between a well-defined pattern of trading levels in technical analysis. It is interpreted as indecisiveness of the market, that ends when the price of an asset moves up or below the trading pattern.