Acquisition during the financial period-group accounts, Financial Accounting

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Acquisition during the financial period

The holding company may acquire the subsidiary company partway through the financial period such that as at the balance sheet date, the subsidiary company has been held for a period of less than 12 months.

The consolidation procedure does not change because we are dealing with the assets and the liabilities of the two companies as at a certain date..

However, the following two points need to be considered;

a) Computation of retained profits acquisition
As the holding company has acquired the subsidiary company while trading is taking place, then it may be difficult to determine retained profits as acquisition, unless financial amounts of subsidiary company are prepared.

Therefore, to simplify the computations of retained profits on acquisition, we normally assume that the retained profits for the year of the subsidiary company accrue evenly and they can be split between the pre-acquisition and post acquisition based on the months.

Thereafter, the retained profits on acquisition are given as follows;

Retained profits on acquisition = Retained profits b/d + Re-acquisition retained profits for the year.

b) Pre-acquisition dividends

Pre-acquisition dividend is dividend paid by the subsidiary company out of pre-acquisition profit or it is the dividend that is received or receivable by the holding company from the subsidiary company that relates the period before acquisition.
   
Thus if the holding company has owned the subsidiary company for a period of less than 12 months and the holding company receives some share of dividends paid from the subsidiary company then the holding company will receive some pre-acquisition dividends.


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