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Consolidated Financial statement

Dhruba (CA Final Student) (240 Points)

20 April 2008

Please guide me i get confusion in the following problem.

Suppose a parent company acquires 75% equity share on 1-10-2000 in a subsidiary company. Later on 31-03-2001 assets of the subsidiary company are revalued upward by Rs 200000 then, will the revaluation profit (reserve) of the subsidiary treated as Post acquisition profit or pre-acquisition profit. Or there is any other treatment, please suggest.

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4 Replies

Ksubi (63 Points)
Replied 21 April 2008

Hi,

I understand that profit or loss on revaluation of fixed assets of subsidiary should also be treated ascapital profit or loss. But if the fall in the value of the asset occurs after the date of acquisition, the loss should be treated as revenue loss. As such in the given situation the profit arising out of revaluation has to be treated as capital reserve.

Please inform me if you find any other way of treating this revaluation gain.

Regards

K.Subi

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swarna lalitha (completed articleship) (24 Points)
Replied 21 April 2008

hi,

i think the revaluation profit of subsidiary co. taken as pre-acquisition profit,

and the depreciation on the revalued assets charged to post-acquition p&L a/c

let me know if am correct or tell me the correct treatment

thank u

(Guest)

THOSE GAINS OR LOSS ARISING OUT OF REVALUATION OF ASSETS MADE ON THE DATE OF ACQUISITION OF THE SHARES OF THE SUBSIDIARY COMPANY BY THE HOLDING CO ARE TAKEN INTO ACCOUNT FOR THE CALCULATION OF POST OR PRE ACQUISITION PROFITS. SINCE THE PURCHASE HAS TAKEN PLACE AFTER ACQUISITION IT WILL BE TAKEN INTO POST ACQUISTION PROFIT & LOSS A/C.

Harish Arora (Chartered Accountant) (52 Points)
Replied 24 April 2008

The revaluation profit should be divided on 6 months basis, i.e for first 6 months it is preacquisition and for the next 6 month it is post acq. profit.