Difference Between Balance Sheet and Consolidated Balance Sheet

Balance sheet is one of the principal year-end financial statements prepared by companies. A consolidated balance sheet is similar to a balance sheet, but there is a difference between them in terms of preparation. The key difference between balance sheet and consolidated balance sheet is that balance sheet is prepared by all companies whereas consolidated balance sheet is only prepared by companies holding shares in another entity in order to reflect their share of ownership.

CONTENTS

  1. Overview and Key Difference
  2. What is a Balance Sheet
  3. What is a Consolidated Balance Sheet
  4. Side by Side Comparison – Balance Sheet vs Consolidated Balance Sheet

What is a Balance Sheet?

Balance Sheet, also known as the Statement of Financial Position, is one of the key year-end financial statements prepared by companies to show assets, liabilities, and capital of the business as at a particular point in time and is used by various stakeholders to arrive at decisions regarding the company. The balance sheet of listed companies should be prepared according to accounting principles and a specific format.

Uses of Balance Sheet

  • Serves as a useful document in obtaining a quick outlook of the company’s financial position at a single point in time
  • For the purpose of ratio analysis

Ratio analysis is an important part of management decision making, and a number of ratios are calculated using the balance sheet such as,

  • Current ratio (Current assets /Current liabilities)
  • Quick/acid test ratio (Current assets – Inventory/ Current liabilities)
  • Gearing ratio (Debt/Equity)

Investors and potential investors refer to the balance sheet when making investing decisions. It should also be presented when obtaining credit from banks and other financial institutions.

The format of the balance sheet is prepared in accordance with the main accounting formula, which is

Non-current assets + Current assets = Equity + Non- current liabilities + Current liabilities

Non-current assets

Long-term investments whose full value will not be realised within the accounting year

Current assets

Assets whose full value can reasonably expect to be converted into cash within the accounting year

Equity

Securities that represents the owners’ interest in the company

Non-current liabilities

Long-term financial obligations that do not mature within the accounting period

Current liabilities

Short-term financial obligations whose settlement is due within the accounting period

Format of a Balance Sheet

Balance sheet of AAA Ltd as at 31.12.2016 $ $
Assets
Current Assets
Cash and Cash Equivalents XXX
Accounts recievables XX
Inventory XXX
       Prepaid expenses XX
       Short-term Investments XXX
Total Current Assets XXXX
Long Term Assets
   Property, plant and equipment XXX
   (Less accumulated depreciation) (XX)
   Long term investments XXX
Total Long-term assets XXXX
Total Assets XXXXXX
Liabilities and Equity
Liabilities
   Current liabilities XXX
   Accounts payable XXXX
   Short-term loans XXX
   Tax payable XX
 Unearned revenue XX
 Total Current Liabilities  XXXX
 Long term Liabilities
   Long-term debt XXX
   Deferred income tax XX
    Other liabilities XX
Total long-term liabilities XXXX
Total liabilities XXXX
Equity
   Share capital XXXX
   Share premium XXX
   Retained earnings  XXX
 Total Equity  XXXXX
Total liabilities and equity XXXXXX

What is a Consolidated Balance Sheet?

The underlying principles of the preparation of a consolidated balance sheet are the same as the balance sheet; however, there are changes between the two. Consolidated Balance Sheet should be prepared by a parent company holding other entities such as,

Subsidiaries

The parent company owns a stake of more than 50% of the subsidiary, thus exerts control.

Associates

The parent company’s stake is between 20%-50% of the associate where the parent company exerts significant influence.

Preparation of Consolidated Balance Sheet

  • Assets and liabilities in the subsidiary or associate should be recorded in addition to the parent company

e.g.: If ABC Ltd owns 55% of XYZ Ltd, 55% of assets and liabilities of XYZ Ltd will be shown in the Balance Sheet of ABC Ltd. XYZ has property, plant and equipment value of $25,000.

ABC XYZ Total
Assets $ $ $
Long-term assets
Property, plant and equipment 50,500 13, 750 (25000*55%) 64,250

 The share capital of the subsidiary or associate will not be reflected in the consolidated balance sheet in the records of the parent company. Share capital automatically adjusts with the amount of the investment of parent company into subsidiary company.

Minority Interest

Also referred to as non-controlling interest, this arises when holding a subsidiary. This is the share of ownership in a subsidiary’s equity that is not owned or controlled by the parent company. This will be calculated using the net income of the subsidiary that belongs to the minority shareholders.

Eg; if the parent company holds 60% of the subsidiary, the minority interest is 40%. Supposing the subsidiary made a net income of $ 42,000 for the year, the minority interest will be $ 16,800 (42000* 40%)

What is the difference between Balance Sheet and Consolidated Balance Sheet?

Balance Sheet vs Consolidated Balance Sheet

Balance sheets are prepared by all companies. Consolidated balance sheets are only prepared by companies holding shares in another entity.
Ease of Preparation 
Preparing a balance sheet is less complicated and less time-consuming. Preparing a consolidated balance sheet is more complicated and time-consuming.

Reference List:

“IAS 28 — Investments in Associates and Joint Ventures.” Deloitte. N.p., 2011. Web. 1 Feb. 2017.
“Associate Company.” Investopedia. N.p., 07 June 2012. Web. 01 Feb. 2017.
Galstyan, Marianna. “How To Calculate Minority Interest.” Investopedia. N.p., 11 Jan. 2016. Web. 01 Feb. 2017.
“Balance Sheet | Example | Template | Format.” My Accounting Course. N.p., n.d. Web. 01 Feb. 2017.

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