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Wholly Owned Subsidiary
When the parent company entirely owns a subsidiary, a consolidated financial statement is all that is needed. This is because the subsidiary could simply be considered a different division or department of the parent company. There is no need to differentiate income between the two because all of the shareholders are the same people and they only need to know the company's overall financial health

Avoiding Double Counting
Financial information from a subsidiary company can't simply be added onto the parent company's financial statement. Certain transactions between the parent company and subsidiary company have to be eliminated. If they aren't, it can lead to double counting of income and revenues from transactions between the two companies. This could lead investors to believe that the parent company has greater revenues or owes more than it actually does.

Eliminated Transactions
If the parent company invests in the subsidiary, either the parent company's asset account or the subsidiary's shareholder equity from the investment needs to be written off. Any interest revenue and expense generated from the parent company to the subsidiary company needs to be eliminated. In transactions like advances to the subsidiary company, management fees paid to the parent company or dividend revenue and expenses, one side of the transaction needs to be eliminated to avoid double counting. Finally, any sales and purchases between the companies need to be eliminated since it really is just the parent company using its own inventory.

Minority Shareholders in Subsidiary Companies
One problem with a consolidated financial statement is that you can't look at it to decide on whether you want to buy or sell shares in a subsidiary company. Because of this, if a subsidiary company has minority shareholders, then the subsidiary company must prepare its own financial statements as well as having its information rolled into the parent company's consolidated financial statement.

Read more: What Is a Consolidated Financial Statement? | eHow.com http://www.ehow.com/info_8128518_consolidated-financial-statement.html#ixzz2ErjiWANC