It will also report all of the liabilities of the economic entity.(Amounts owed and receivable between NEP and MGC are eliminated in the consolidated balance sheet.) This is a very brief overview of consolidated financial statements.The consolidation method records “investment in A subsidiary (sub) is a business entity or corporation that is fully owned or partially controlled by another company, termed as the parent, or holding, company.Ownership is determined by the percentage of shares held by the parent company, and that ownership stake must at least 51%.” as an asset on the parent company’s balance sheet, while recording an equal transaction on the equity side of the subsidiary’s balance sheet.Profit and loss from the investee increase the investment account by an amount proportionate to the investor’s shares in the investee. At the end of the year, Zombie Corp reports a Net Income is a key line item, not only in the income statement, but in all three core financial statements.This is known as the “equity pick-up.” Dividends paid out by the investee are deducted from this account. While it is arrived at through the income statement, the net profit is also used in both the balance sheet and the cash flow statement.In this case, the terminology of “parent” and “subsidiary” are not used, unlike in the consolidation method where the investor exerts full control over its investee.
Alternatively, when an investor does not exercise full control over the investee, and has no influence over the investee, the investor possesses a passive Enterprise Value has to be adjusted by adding minority interest to account for consolidated reporting on the income statement. When a company owns more than 50% (but less than 100%) of a subsidiary, they record all 100% of that company's revenue, costs, and other income statement items, even in the investee.Each of these corporations will continue to operate its respective business and each will issue its own financial statements.However, the investors and potential investors in NEP will find it helpful to see the financial results and the financial position of the earned from outside customers.This method can only be used when the investor possesses effective control of a subsidiary which often assumes the investor owns at least 50.1%, in using the equity method there is no consolidation and elimination process.Instead, the investor will report its proportionate share of the investee’s equity as an investment (at cost).