Groups are affiliated companies, each of which prepares its own financial statements in the form of balance sheets. For investors, credit institutions and other economic operators, however, only the overall situation of the group is interesting, which is why it is treated as “one company”. This Group balance sheet is drawn up with the involvement of all affiliated companies, the so-called group consolidation.
Every group has its own structure, but it always follows a certain pattern. At the top is the parent company (MG), which holds shares in several subsidiaries (TG). These are sometimes involved in other companies, the grandchildren (EG). For reasons of simplification, we always assume a participation of more than 50 percent of the respective parent companies in the subsidiaries (= control according to § 290 paragraph 2 HBG).
In addition, we assume that there are uniform currencies (= all companies calculate in euros; no currency differences according to § 308a HGB). This would put us at the starting point, in a sense the framework conditions, of our Group consolidation.
Mother, daughters and, if applicable, grandchildren now draw up their own balance sheets in accordance with the principles of the Commercial Code (HGB) applicable for this purpose. The special feature of the Group, however, is that there are transactions with third parties (e.g. private customers) as well as with other companies within the Group. Consolidation is exclusively about revenues within the scope of consolidation, which includes the affiliated companies.
If you simply added the balance sheets of all affiliated companies without corrections by adding assets and liabilities, you would get an erroneous result. The following example illustrates the situation:
MG has granted a loan of EUR 500,000 to TG. The corresponding claim is on the asset side for MG and on the liability side for TG. At Group level, however, neither receivables nor liabilities arise, as the amount awarded remains within the Group group. It cannot increase or decrease the value of the Group. If you now simply form the respective sum of assets and liabilities, you falsify the result.
The aim of Group consolidation (“Summary” in English) is to prevent the recording of transactions that increase in value or decrease in value if they are actually neutral in terms of performance. The consolidation thus includes not only the pure balance sheet items, but also the profit and loss account (GP).
Example: TG paid EUR 50,000 in interest to MG in the 2021 financial year. For MG, there is a yield, for TG an expense. Both have an impact within the individual P&L, but at Group level they are neutral. Within the framework of group consolidation, this neutralization takes place.
As a private individual, consider yourself a parent company and imagine that the pockets of your pants are the subsidiaries. A five-euro bill that you move from the left to the right pocket does not make you poorer or richer. It must therefore not affect your total assets or income. The entire Group consolidation is based on this basic idea.
The same applies to the sale of assets with profit within the affiliated companies. For example, if the mother buys a vehicle for EUR 100,000 and sells it to the daughter for EUR 120,000, MG generates a profit of EUR 20,000. Within the Group, however, the sale remains neutral – if it had an impact on the balance sheet, the profit would have arisen from “nothing”. These so-called intermediate results must also be neutralised.
Within Group consolidation, you therefore distinguish between four forms:
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.