Non-consolidated subsidiaries are owned by the parent company, but their individual financial statements are not included in the parent company’s consolidated financial statements.
Non-consolidated subsidiaries, rather than their separate financial statements, are shown as investments in the parent company’s consolidated financial statements.
Companies are considered unconsolidated subsidiaries if the parent company does not control the subsidiary, has only temporary control, or if the parent company’s business is different from that of the subsidiary.
Depending on the parent’s interest in the subsidiary, the investment must be accounted for either using the equity method or the cost method.
Parent companies most often own less than 50% of the shares of an unconsolidated subsidiary. The accounting method used depends on whether the ownership is greater than or less than 20%.