Acquisition of a subsidiary company during the year, Financial Accounting


When the holding company acquires a subsidiary company portray during the financial period, and then the approach to preparing the consolidated income statement will change slightly.  This is because IAS 27 requires that the subsidiary company should be consolidated from the date of acquisition.

This means that the results of the subsidiary company should be assumed to accrue evenly over the year and thus they can be split between pre-acquisition and post-acquisition period.

Thereafter the post-acquisition results are consolidated the normal way, paying attention to the following items.

1) The sales, cost of sales, expenses and tax of the subsidiary company that relate to the post-acquisition period will be added to those of the holding company while making adjustments for inter-company items that have arisen or that relate to the post-acquisition period. e.g.; Inter-company sales should relate to the post acquisition period, goodwill impaired should be pro-rated and same case applies for additional depreciation on fair value adjustments.

2) The computation of the minority interest will remain as before only that this time we will take the post acquisition profits after tax of the subsidiary company.

Note: In the adjustments, there will be no unrealised profit on opening inventory on opening inventory.

3) The group retained profits b/f will only be for the holding company. This is simply because the retained profits b/f of subsidiary company is all pre-acquisition.

Note: In computing goodwill, do not forget pre-acquisition dividend.

Posted Date: 12/12/2012 5:02:14 AM | Location : United States

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