In order for companies to stand in today`s turbulent market, they are grouped together. The group consists of the parent company with all its subsidiaries. The parent company is required to prepare separate (unconsolidated) and consolidated financial statements. Separate financial statements are the financial statements of the parent company without its subsidiaries, while the consolidated financial statements are the statements of the group which are presented as if they were a single business entity. In order to make right business decisions, unconsolidated and consolidated financial statements must present assets, liabilities, equity, income and expenses truthfully and fairly, which means they must be prepared on the basis of International or Croatian Financial Reporting Standards. In order for the consolidated financial statements to show the financial position, financial performance and cash flows of the group, the consolidated financial statements eliminate the effects of transactions between group members and show only transactions that members have with non-group entities. The subject of elimination postings are intragroup investments, intragroup receivables and liabilities and intragroup gains and losses. Due to the underdevelopment of the Croatian capital market, this topic is not yet sufficiently researched and explained. Also, a large number of people do not understand it. The aim of this graduate thesis is to explain the accounting concept of business combinations, the procedure and process of compiling consolidated financial statements and to explain the legal framework which is used in business combinations, in preparing and publishing financial statements.Therefore, consolidated financial statements are an indispensable source of information when people making business decisions, but, regardless of their importance, the topic of business combinations and consolidated financial statements in Croatia is not yet sufficiently explained and because of that many people does not understand it.