When one company owns a significant stake in another business -- generally defined as at least 20 percent -- it must account for that stake in its books using either consolidation or the equity method of accounting.
Which method to use depends on how much it actually owns.
In consolidated accounting, the parent company essentially treats the subsidiary company as if it doesn't exist.
All of the subsidiary company's assets and liabilities appear on the parent company's balance sheet, and all of the subsidiary company's revenue, expenses, gains and losses appear on the parent company's income statement.
Generally accepted accounting principles requires a company to use consolidated accounting when it owns a controlling stake in another business.
In general, a controlling stake is one that involves ownership of more than 50 percent of a business.
and its wholly owned subsidiaries (hereinafter referred to as "Facebook", "we," "our," "us" and similar terms unless the context indicates otherwise) and Whats App Inc.
The actual results reported by the combined company in periods following the acquisition may differ significantly from those reflected in these unaudited pro forma condensed combined financial information for a number of reasons, including cost saving synergies from operating efficiencies and the effect of the incremental costs incurred to integrate the two companies.
The unaudited pro forma condensed combined financial information should be read in conjunction with our historical consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2013, our Quarterly Report on Form 10-Q for the quarterly period ended and for the year ended December 31, 2013 combine our historical condensed consolidated statements of income with Whats App's historical statements of operations and have been prepared as if the acquisition had occurred on January 1, 2013.
If an entity owns 100% of another entity it will usually have control.
When preparing consolidated financial statements: Pre-acquisition and post-acquisition reserves When preparing consolidated financial statements it is important to distinguish between pre-acquisition reserves and post-acquisition reserves.