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Consolidation Notes

1) When a holding company acquires a subsidiary, even if they have separate businesses, the subsidiary's financials must be consolidated with the holding company's financials. 2) If a holding company is itself a subsidiary of another holding company, it does not need to produce separate consolidated financial statements. 3) To consolidate a subsidiary, the subsidiary's equity share capital and retained earnings are cancelled against the parent's investment in the subsidiary on the asset side of the parent's balance sheet. Inter-company transactions are also cancelled.

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82 views2 pages

Consolidation Notes

1) When a holding company acquires a subsidiary, even if they have separate businesses, the subsidiary's financials must be consolidated with the holding company's financials. 2) If a holding company is itself a subsidiary of another holding company, it does not need to produce separate consolidated financial statements. 3) To consolidate a subsidiary, the subsidiary's equity share capital and retained earnings are cancelled against the parent's investment in the subsidiary on the asset side of the parent's balance sheet. Inter-company transactions are also cancelled.

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manali bhalerao
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Consolidation

Read Ch 17 - Theory
1) Even if subsidiary has separate business from the holding still it should be consolidated
2) When the holding co is a subsidiary of any other hodling the such holding co is not req to make separate consi statements

Rules for Consolidation


1) EqSh Cap (incl retained earnings) of sub must be cancelled with invt in sub which is there in parents asset side
2) Inter Co transactions should be cancelled

Step 1 Date of Acquisition


% Holding

Step 2 Net Aseets of Sub


Total in parents
Rq for GW Cal books
Dt of Acq Reporting Dt (given) Post Acq
1 2 3=2-1
Sh Cap 80% Holding
Show in ret earnings
Ret Ear 18000 25000 7000 Parents Sh in Sub - 80% 5600 of parent
Sh Premium NCI-Non Controlling Int 20% 1400 Info to cal NCI
Reval Surplus

Step 3 Calculation of Goodwill


TYU 1 (Pg 461)
Cost of invt in Parents Books xx 80%
FV of NCI xx 20%
xx
Less: Net Assets of Subsidiary (xx) Amt Cal in Step 2
Goodwill xx
Less: Impairment (xx) Parents share + NCI share
Net Goodwill xx Taken to Con BS
Step 4 Calculation of NCI

FV of NCI xx
NCI Share in impairment xx
NCI Share in post acq profits xx
xx Taken to Con BS after equity

Step 5 Retained Earnings of Parents

Bal of RE in Parents Books xx


Parents share in impairment xx
Parents share in post acq profits xx
xx Taken to Con BS under equity

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