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)
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!
CAclubindia
