A combined financial statement shows financial results of each company within a group of companies. It is necessary if the investors, lenders, or owners want to analyze the results and gauge the performance of the individual subsidiary companies separately alongside with the performance of the entire group.
Intercompany transactions/balances
Intercompany transactions/balances are eliminated when preparing combined financial statements. These are transactions/balances between subsidiary companies or between the parent and subsidiaries. These transactions/balances must be eliminated to avoid double-counting that distort actual results of subsidiary companies as a whole.
Income statement
Income and expenses of all companies, after eliminating intercompany transactions, are added together to create a total income and expenses for the entire group of companies.
Balance sheet
Each item in the balance sheets of group companies, after eliminating intercompany balances, are added together to form the balance sheet of the entire group.
Noncontrolling interest
In case the parent or owner of the group owns less than 100% (but greater than 50%) ownership of a subsidiary company, there will be an account called minority interest or noncontrolling interest, which keep tract of the part of subsidiary not owned by the parent or owner.
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