When a company's ownership percentage is greater than 50%, what accounting approach is used for financial statements?

When a company's ownership percentage exceeds 50%, it generally implies that the company has a controlling interest in another entity. In this scenario, the most appropriate accounting approach used for financial statements is the preparation of consolidated financial statements.

Consolidated financial statements combine the financial results of the parent company and its subsidiaries, reflecting them as a single economic entity. This method provides a comprehensive view of the operational and financial status of the whole group under the control of the parent company. By consolidating, the parent reports not only its own assets and liabilities but also those of the subsidiaries, eliminating intercompany transactions to avoid double counting and providing stakeholders with a clearer picture of the organization's financial health and performance.

In contrast, the cost method would involve recording investment at cost without adjusting for the subsidiary's performance, which would not capture the overall economic reality of a controlling relationship. The equity method applies when ownership is significant (typically between 20% and 50%) but does not afford control, involving reporting the investment at cost plus the investor's share of the investee's earnings or losses. Proportional consolidation is often used in joint ventures where control is shared, rather than in wholly owned subsidiaries. Thus, for an ownership stake over 50%, consolidated financial statements are