When a parent-subsidiary relation exists, consolidated financial statements are prepared in recognition of the accounting concept of:
A) Reliability
B) Materiality
C) Legal entity
D) Economic entity

Question

Quizplus · Accepted Answer

The preparation of consolidated financial statements is based on the accounting concept of economic entity, which requires a company to be viewed as a single economic unit, regardless of its legal structure. Under this concept, the parent and subsidiary are considered as a single entity, and the financial statements are consolidated to reflect the financial position and performance of the entire economic entity.

When a Parent-Subsidiary Relation Exists, Consolidated Financial Statements Are Prepared