Single Entity Concept

Single Entity Concept

Every company is required to maintain separate books of account and required to prepare the financial statement separately. This is called separate entity concept.  However the parent company (which holds the shares of other company) is also required preparing the consolidated / Group account.

In individual financial statement the investment in subsidiary are shown at cost. In group accounts the results of all companies controlled by the parent are combined.

Reasons for consolidation

However, the parent company is also required to prepare the financial statement as group for the followings reasons.

1.      Reflect the performance of subsidiary: The Shareholder of parent company wants to analyze the overall performance of the group i.e. parent company and subsidiary hold by the parent.

2.      Overall view of activities: The group accounts give overall view of the nature of activities of the group.

3.      Actual results: Group accounts give the actual performance and result cannot be manipulated by the inter company transaction.