cross investment in associates
This query is : Resolved
28 December 2016
What Procedures or accounting treatment to do in case of cross investment in associates in respect of consolidation of financial statements under AS 23 ? (i.e. A Ltd. is associates co. of B Ltd. & B Ltd. is associates co. of A Ltd.)
28 December 2016
Example Cross holding - ASSOCIATES
COMPANY A COMPANY B Cross holding
Ownership interest 29% 24% 6.9600% (29% X 24%)
Other shareholders 71% 76% 93.0400%
Effective ownership 31% 26%
( A ) (29%/93.04%) (24%/93.04%)
Assume PL for the
period before equity 10,000 10,000
pick up
Profit share using 2,900 2,400
normal share (10,000X29%) (10,000X24%)
Assume PL for the
period After equity 12,900 12,400
pick up
Equity pick up based on 3,865.00 3,327.60
effective ownership (12,400X31%) (12,900X26%)
(refer A above)
Total profit after including
equity pick up based
on effective ownership 13,865.00 13,327.60
(3,865+10,000) (3,327.60+ 10,000)
Remarks
1) Total profit of company A will be 13,865 out of which 71% i.e. 9,844.15 will be for
shareholders other than Company B
2) Total profit of company B will be 13,327.60 out of which 76% i.e. 10,128.98 will be for
shareholders other than Company A
3) Total allocation of profit towards outsiders will be approx the total of profit earned by
company A and Company B
Total allocation to external shareholders will be
9,844.15
10,128.98
Total 19,973.13 (Round off diff)
Total 20,000.00
Profit before equity pickup
Example Cross holding - ASSOCIATES
COMPANY A COMPANY B Cross holding
Ownership interest 29% 24% 6.9600% (29% X 24%)
Other shareholders 71% 76% 93.0400%
Effective ownership 31% 26%
( A ) (29%/93.04%) (24%/93.04%)
Assume PL for the
period before equity 10,000 10,000
pick up
Profit share using 2,900 2,400
normal share (10,000X29%) (10,000X24%)
Assume PL for the
period After equity 12,900 12,400
pick up
Equity pick up based on 3,865.00 3,327.60
effective ownership (12,400X31%) (12,900X26%)
(refer A above)
Total profit after including
equity pick up based
on effective ownership 13,865.00 13,327.60
(3,865+10,000) (3,327.60+ 10,000)
Remarks
1) Total profit of company A will be 13,865 out of which 71% i.e. 9,844.15 will be for
shareholders other than Company B
2) Total profit of company B will be 13,327.60 out of which 76% i.e. 10,128.98 will be for
shareholders other than Company A
3) Total allocation of profit towards outsiders will be approx the total of profit earned by
company A and Company B
Total allocation to external shareholders will be
9,844.15
10,128.98
Total 19,973.13 (Round off diff)
Total 20,000.00
Profit before equity pickup
Message likes :
1 times
30 December 2016
Sir, thank you first of all.
1 more query is same effective % take for calculating goodwill/capital reserve on the date of Investments if a) both the company made invest on the same date, b) investment date is different.
30 December 2016
Let’s understand first how the goodwill arises in case of equity accounted investment. On the date of Equity accounted investee, fair values are attributed to the investee’s identifiable assets and liabilities Which mean “”””ATTRIBUTED TO”” means we need to you effective holding as you rightly mentioned.
Coming to you second part, if the date of acquisition is different, now suppose company A was only having investment in Company B and Company was accounted as equity invested investment in the books of Company A. Then after the investment made by Company B into A in later date will create increased portion of holding (as effective holding will be higher than actual in case of cross holdings between associates, refer example earlier), then the increased portion will be used as increase in shareholding in equity accounted investment keeping the equity accounting. In such case entity should use partial step up approach where goodwill is calculated on the incremental portion acquired comparing to the net assets value of that date to arrive additional goodwill/ capital reserve if any.
Hope this clears your doubts..Cheers!
Coming to you second part, if the date of acquisition is different, now suppose company A was only having investment in Company B and Company was accounted as equity invested investment in the books of Company A. Then after the investment made by Company B into A in later date will create increased portion of holding (as effective holding will be higher than actual in case of cross holdings between associates, refer example earlier), then the increased portion will be used as increase in shareholding in equity accounted investment keeping the equity accounting. In such case entity should use partial step up approach where goodwill is calculated on the incremental portion acquired comparing to the net assets value of that date to arrive additional goodwill/ capital reserve if any.
Hope this clears your doubts..Cheers!
Message likes :
1 times
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- SEC 54 OF IT ACT
- Is Aadhar PAN linking required for opening bank account?
- Where to show the RCM on Rent paid to unregistered landlord
- Form 26QB for TDS on property
- CPC Processing IT Return for AY 2023-24 without recognizing the Taxation Option under New Regime
- Whether still royalty
- Payable outstanding for years disallowance
- BLOCKED-INELIGIBLE GST CREDIT
- Amendment of September 2021 Invoice
- Residential status for filling income tax returns in India
- Deemed to be University shall pay gst on Bus fee collection from students
- Section 194LBB
- Issue of gst e invoice
- Interchangeable words in accounts
- Adjusted profit/Loss in the case of LLP and Pvt. Ltd.company
- How to adjusted advances given or receipt
- Foreign vendor without PAN unable to to register due to non receipt of OTP on foreign number ?
- 133(6) DIN INVALID format error - ->WHERE TO REPLY 133(6) notice?
- Query for dubts
- Regarding Resignation by Auditor from Pvt. Ltd.
Trending Online Classes
-
Excel Mastery Program
CA Rishabh Pugalia
CAclubindia
