as 21

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gopal agarwal (Querist)
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03 January 2011 company a controls the composition of board of co b to arrive economic benefit....as per as 21
now net worth of company b is 2 crores .a is is paying 1 crores to the shareholders(100%) of b.

how it will be accounted in the books of a.
a has decided to consolidate company b in its books of account

if a is [paying 1 crores to 70 % shareholders of b then what will be the accounting entry.
please reply fast.
it is most urgent

Vivek Raju P

Vivek Raju P (Expert)
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03 January 2011 do you mean payment to acquire the remaining 70% and make b as a fully owned subsidiary of A ?

gopal agarwal

gopal agarwal (Querist)
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04 January 2011 if a will pay 70 % then 70% stake will be acquired but 100% control through directors will be taken.
i think the scenario is possible.

sima

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gopal agarwal

gopal agarwal (Querist)
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05 January 2011 can anybody reply this query

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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14 July 2024 Based on the scenario provided and the requirements under Accounting Standard (AS) 21 - Consolidated Financial Statements, here’s how the transactions and consolidation would be accounted for in the books of Company A:

### Scenario 1: A pays 100% shareholders of B Rs. 1 crore

1. **Control and Economic Benefit:**
- Company A controls the composition of the board of Company B, which indicates significant influence or control over Company B, potentially leading to consolidation under AS 21.

2. **Payment to Shareholders of B:**
- Company A decides to pay Rs. 1 crore to the shareholders of Company B.

3. **Consolidation Decision:**
- Company A decides to consolidate Company B in its consolidated financial statements.

### Accounting Entries:

- **Payment to Shareholders of B:**
- When Company A pays Rs. 1 crore to the shareholders of Company B, the entry in Company A's books would typically be a debit to "Investment in Company B" (or a similar account representing the investment) and a credit to "Bank" or "Cash" account.

```
Investment in Company B Dr.
Bank / Cash Cr.
```

- **Consolidation Adjustment:**
- In the consolidated financial statements of Company A, the assets, liabilities, income, and expenses of Company B would be combined with those of Company A.
- The investment in Company B would be eliminated against Company B's net assets.

```
Investment in Company B Dr.
Share of (Loss) / Profit of Company B Cr.
(To eliminate the investment against equity of B)
```

- **Control Premium or Goodwill:**
- If the payment made by Company A exceeds the fair value of Company B's identifiable net assets, the excess is recorded as goodwill or a control premium.

### Scenario 2: A pays 70% shareholders of B Rs. 1 crore

1. **70% Stake Acquisition:**
- If Company A pays Rs. 1 crore to acquire 70% of the shareholders of Company B, it acquires a controlling interest (more than 50%) in Company B.

2. **Accounting for Acquisition:**
- The acquisition of 70% of Company B's shares would be accounted for using the acquisition method as per AS 21.

3. **Consolidation Decision:**
- Company A would consolidate Company B in its consolidated financial statements due to acquiring a controlling interest.

### Accounting Entries:

- **Acquisition of 70% Stake:**
- Assuming the acquisition is at Rs. 1 crore for 70%:

```
Investment in Company B (70%) Dr.
Bank / Cash Cr.
```

- **Consolidation Adjustment:**
- Similar to Scenario 1, in the consolidated financial statements, the investment in Company B would be adjusted against Company B's net assets, with any excess recorded as goodwill or control premium.

### Conclusion:

In both scenarios, Company A would account for the payment to the shareholders of Company B as an investment in Company B in its own books. The consolidation in Company A's consolidated financial statements would reflect Company B's assets, liabilities, income, and expenses, adjusted for any excess of the acquisition cost over the fair value of Company B's identifiable net assets. The specific accounting treatment should adhere to the principles of AS 21, ensuring accurate presentation of the consolidated financial position and performance of Company A and its subsidiary (or controlled entity), Company B.