04 February 2010
Dear Sir, Consider the following example: H Ltd is holding company of A,B,C & D Ltd. A & B Ltd having a Goodwill of Rs. 10,000 each in their balance sheet (before holding - Subsidiary Relationship exist) While preparing a CFS for H Ltd. a capital Reserve Arising out of above four subsidiaries say Rs. 135000/- Query: 1. Whether Capital Reserve arising on CFS can be netted off against Goodwill in A & B Ltd and Shown as a capital Reserve in CFS of H Ltd as Rs. 115000 (135000-20000)? 2. If yes, whether it amounts to Impairement of Goodwill, since the Goodwill was not arising on Consolidation? Assume it as purchased Goodwill.
05 February 2010
Hi ysil, if we read AS 21-cost of control, it mentions that "in consolidating the financials, where there are two or more subsidiaries, goodwill may arise in one case while capital reserve may arise in another case. these can be set off". If we read the above para properly, we can understand that it talks about goddwill arising on the date of acquisition of control and not the goodwill that is already appearing in the books of subsidiary cos.(for which impairment loss is already considered while preparing individual financial statement). In other words, in my opinion, u can not adjust that goodwill against capital reserve arising on acquisition. Had that goodwill arised as a result of acquisition of subsidiary, then we would have adjusted the same. Regards, CA Shakuntala Chhangani
CAclubindia
