Business combinations represent one of the potential ways to expand the company. There are various forms of business combinations depending if companies participating in the process of merger lose their legal personality or not. Financial accounting for business mergers is regulated with International Financial Reporting Standards for large companies and companies that are listed on capital markets. Financial reporting in small and medium enterprises is regulated by Croatian Financial Reporting Standards. As soon as the parent company gains control over another enterprise, or more enterprises, the parent company must prepare consolidated financial statements in which will merge their financial statements and the financial statements of its subsidiaries. In the process of consolidation it is important to eliminate transactions that occurred between the parent and its subsidiaries in order to achieve view of the group’s business as one. In the process of consolidation it is first necessary to sum up identical items and then eliminate receivables and liabilities, revenues and expenses, gains and losses between consolidating entities. The aim of this paper is to theoretically handle issues of business combinations and their accounting treatment. Then explain the methods and procedures of consolidation, and on the example present the consolidation process.