When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of

 When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of

Multiple Choice

Reliability.


Legal entity.


Economic entity. Correct

Materiality.

Explanation
1.

Consolidated financial statements are intended to provide a meaningful representation of the overall position and activities of a single economic entity comprising a number of separate legal entities (subsidiaries).

(Reliability.) Incorrect. While consolidation can help improve the reliability of the financial information, it does not fully describe the accounting concept of reliability.
(Materiality.) Incorrect. While consolidated financial statements should be materially stated, this is not the focus of consolidation.
(Legal entity.) Incorrect. In consolidation, each subsidiary exists as a separate legal entity while the consolidated entity represents the economic activity of the parent and all subsidiaries.