Learn Accounting Entries For Consolidation On Your Own:

In business, the term "Consolidation" refers to the merger and acquisition or combining of assets, liabilities and other financial items of two or more entities into one as a single economic entity.

However, it should be noted that in case of consolidation, the consolidated firm could exist as a new entity but in case of merger one firm absorbs the other and remains in existence while the absorbed firm gets dissolved. In the context of financial accounting, consolidation refers to the process of aggregating the financial statements of smaller group under one parent company. The projected statements are termed as consolidated financial statements.

Taxation In Consolidation:

For the purpose of taxation, consolidation treats group of companies and other entities as one. This means that the parent entity of the group is responsible for all or most of the group's tax obligations.

Tax consolidation reduces the administrative costs of government revenue departments and also decreases the tax compliance costs for corporate taxpayers. For consolidated companies, profits earned can be under caste in the sense that losses suffered in one group reduce the profits earned by another group. The assets can also be transferred between grouped companies without increasing the tax liability for the company receiving assets and similarly dividends can be paid between grouped companies without incurring tax liabilities, and tax liability of one company can be used or neutralized by other companies in the group.