When one company invests in another, the investment appears as an asset in the investor’s balance sheet, and dividends received are credited to the income statement. To reflect the ture nature of the relationship between the parent company and the subsidiary, the two companies can be recognised as a single entity because the subsidiary is controlled by the parent.
Consolidated accounts is the name given to the accounting techniques which seek to reflect the ture position, as regards both profits and assets, when one company controls another. The parent company prepares consolidated accounts incorporating the results of the whole group.
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