1 Holding company Accounts and Preparation of consolidated balance sheet
Jan 13, 2016
1
Holding company Accounts and Preparation of
consolidated balance sheet
2
Dedicated to
ALL CA STUDENTS………….
3
HOLDING COMPANIES –IMPORTANT ISSUES TO SOLVE PROBLEMS
1.ANALYS OF CAPTAL PROFIT-2.ANALYSYS OF REVENUE PROFIT3.CALCULATION OF CAPITAL
RESERVE/COST OF CONTROL(GOODWILL)
4.CALCULATION OF MINORITY INTEREST
5.Consolidated Balance sheet
4
1.ANALYSYS OF CAPTAL PROFIT
MEANING:
PROFIT/RESERVE OF ANY TYPE IN THE SUBSIDIARY COMPANY BEFORE THE DATE OF ACQUISITION
5
CAPTAL PROFITEXAMPLE -I
BALANCE SHEET OF SUBSIDIARY LIMITED AS ON 31-03-2007
LIABILITIES
GENERAL RESERVE
(1-4-2006) 5,00,000
PROFIT AND LOSS 2,00,000
THE BUSINESS WAS ACQUIRED ON
O1-O1-2007
6
ANSWER EX.1
RESERVE BEFORE ACQUISITION-5,00,000
PROFIT UP TO O1-O1-2007 (2,OO,OOO*9/12) 1,50,000TOTAL CAPITAL PROFIT 6,50,000
HOW MUCH IS THE REVENUE PROFIT?
7
REVENUE PROFIT?
2,OO,OOO-1,5O,OOO= 50,000
Exercise-2:SUPPOSING THE BUSINESS WAS
ACQUIRED ON 30-09-2006 HOW MUCH IS CAPITAL PROFIT? /REVENUE PROFIT?
8
ANSWER-2
CAPITAL PROFIT: RESERVE(PRE-ACQISITION) 5,OO,OOOSHARE OF P/L A/C(2,OO,OOO*6/12)
1,OO,OOOTOTAL 6,OO,OOOREVENUE PROFIT:(2,OO,OOO *6/12) 1,OO,OOOENTIRE RESERVE PROFIT EARNED BY THE
SUBSIDIARY WAS PRE-ACQUISITION PROFIT
9
CALCULATION OF CAPITAL RESERVE AMOUNT INVESTED BY THE HOLDING COMPANY IN
SUBSIDIARY COMPANY(REFLECTED AS INVESTMENT IN THE ASSET SIDE)
LESS:1.AMOUNT RECEIVED OUT OF CAPITAL PROFIT IN THE FORM OF DIVIDEND
2.PAID UP VALUE OF THE SHARE(NOMINAL VALUE)
3. SHARE OF REMAINING CAPITAL PROFIT OF HOLDING COMPANY
10
Cost of control/goodwill
The holding company purchased shares of subsidiary
more than the real worth of the subsidiary
If all assets are sold and third party liabilities are paid
what remain to share holders is known as real worth
What is the meaning of real worth?
Real worth= Assets(realisable value) –third party liabilities
Or
Equity shares + reserves and surplus(both capital profit
and revenue reserve)
11
The excess amount paid over real worth to acquire
subsidiary company’s share is known as goodwill.
Example-3 4000 shares are purchased for Rs. 50,000.
The nominal value is Rs.10. The excess amount of Rs.10,000
is goodwill. Goodwill is shown in the consolidated balance sheet.
How do you calculate goodwill on the shares acquired by
Holding company?
Assumed no profits in the balance sheet
12
If goodwill appears already in the holding and subsidiary company?
H Ltd S ltd H Ltd S Ltd
Equity shares(Rs.100 each)
12% preference shares(Rs.100 each)
General reserve
Profit and loss a/c
(1-4-2007)
Profits during the year
5,00,000
Nil
1,30,000
60,000
80,000
2,00,000
1,00,000
60,000(CP)
20,000(CP)
70,000(CP)
Goodwill
Shares in S Ltd
(2000 equity shares and 500 preference shares)
Preliminary expenses
20,000
3,50,000
---------
10,000
10,000(CL)
Date of acquisition was 31-3-2008
Balance sheet as on 31st March 2008
13
1.Total Capital profitsGeneral reserve 60,000Profit on 1-4-2007 20,000Profit during the year 2007-08 70,000Total 150,000Less:-Preliminary expenses (10,000)Less: Preference share holders (12,000)
(cumulative preference shares)
Profit to equity share holders 1,28,000
14
Have You observed that all profits are capital profits. Why?
It is not due to real capital profits. But because profits are earned by subsidiary before the date of acquisition.
Note:1. General reserve before the date of acquisition, Revenue profit before the date of acquisition and all capital profits after the date of acquisition less all wasteful preliminary expenses(Capital loss) are capital profit.
Note:2: Any benefits(money,dividend, bonus shares) derived by holding company out of capital profits reduce their cost of control(Investments)
15
Capital reserve
If the subsidiary company shares are purchased less than
the subsidiary’s worth,(Purchased at cheaper rate)
the benefits earned at the time
of acquisition is known as capital reserve. The capital reserve
is a capital profit
Example 4:
If nominal value of shares of subsidiary is Rs.10 and
4000 shares are acquired for Rs. 35,000, then there is
a gain of 5000 to holding company is known as capital reserve
16
What is capital profit? What is the reason of differentiating
between Capital profits and revenue profits?
Capital profits:
1. Profits of subsidiary company earned by operation or
non-operation prior to holding company’s acquisition.
2. Capital profits earned after acquisition
Capital profits are not available for declaration of dividend.
After the acquisition date, profits earned by subsidiary company
by a normal business operations is a revenue profit.
Such profits are available for declaration of dividend.
17
Balance sheet of subsidiary as on 31st March 2008
Equity shares 4,00,000
(Rs.100 per share)
General reserve 50,000
Profit and loss a/c 30,000
(on 31-3-2007)
Profit and loss a/c 80,000
(For the year 2007-2008)
3,000 shares were acquired by holding company in subsidiary company on 1st January 2008 for Rs.4,50,000.
Exercise-5
18
Reserves and Profits
Capital Profit Revenue Profit
General reserve
(Before )50,000 Nil
P/L on 31-3-2007
(Before)30,000 Nil
P/L for 2007-08
(9 months before
And 3 months after)
9 months profit
9/12 x 80,000
=60,000
3 months profit
3/12 x 80,000
=20,000
TotalRs.1,40,000 Rs.20,000
Before or
After acquisition
Date of acquisition is 1st January 2008
19
Minority/Majority
Minority
Capital profits
Rs.1,40,000
Majority
¼ x 1,40,000
=Rs.35,000¾ x1,40,000
=Rs.1,05,000
Revenue profits
Rs.20,000
¼ x 20,000
=Rs.5000
¾ x 20,000
=Rs.15000(P/L)
Rs.1,40,000Total
Rs.5,60,000
Rs.4,05,000-goodwill purpose
Rs.15,000-profit and loss a/c
In the consolidated B/S
Shares Capital
4,00,000
1000x 100
1,00,0003,000x 100
3,00,000
Valu
e on th
e
Date of acq
uisitionRs.4,05,000
20
Good will/Capital reserve
It is calculated from the point of view of Holding company
What is the value of total investment made by Holding company?
It is Rs.4,50,000What was it worth on the date of acquisition?It is Rs.4,05,000.Have they invested more than the real worth?Yes. It means they had paid extra for the
goodwill of the subsidiary company.
21
Suppose subsidiary company declares dividend after the acquisition out of revenue profits which were earned before the date acquisition?
Holding company had invested in subsidiary.If dividend is declared out of pre-acquisition profits of subsidiary, the holding company gets parts of its investments back.Therefore such dividend received to be reduced from investment of the holding company in subsidiary.
Does it affect goodwill/capital reserve of the company?
22
Yes.It affects goodwill.It decrease the goodwill.
Suppose subsidiary declares dividend out of general reserve
(Capital profit because it was earned before acquisition)
Rs.40,000 to all share holders, the holding
company’s share of general reserve is ¾ of 40,000=30,000.
Since 30,000 is received by holding out of their investments
The investment value decreased to Rs.4,20,000(4,50,000-30,000).
Therefore goodwill is Rs.15,000.
Exercise-6
23
If dividend declared by subsidiary out of post acquisition profit?
Post acquisition profit is a revenue profit.Such dividend received by holding from subsidiary does not reduce the value of investment of the holding company. It is included with the profits of holding company.The journal entry in the books of holding company is:
Cash a/c debitProfit and loss a/c credit
24
Elimination of common transactions
1.Bills drawn by holding company on subsidiary company or vice-versa:
Holding company Subsidiary company
Bills receivable a/c debit
To subsidiary company a/c
Holding company a/c debit
To Bills payable a/c
Balance sheet Asset side
Bills receivable
Balance sheet Liability side
Bills payable
25
When we prepare a consolidated Balance sheet?
Treat the holding and the subsidiary company as one unit.Therefore eliminate both bills receivables and payable to the extent of holding company’s share of Bills receivable from consolidated balance sheet.
The same treatment is applicable for debtors and creditors on goods sold by holding to subsidiary or vice versa.
Suppose a girl friend given loan to her Boy friend before marriage and they get married; who has to pay to whom?
No one has to pay to no one( after their marriage) provided???????????!!!!!!!!!!!
26
Provided??????!!!!!
They get married each other.
27
How do you deal in the consolidated Balance sheet?
1. Loan given by holding company to subsidiary?
2. Debentures issued by holding to subsidiary?
3. Loan given by subsidiary to holding?Only one answer: In one company balance sheet
they are shown as asset
and an another company they are shown as liability.
If combined(Consolidated) both asset and liability
are eliminated.Only outsiders’ liabilities are shown in
the consolidated balance sheet
See the exercise in the next page
Exercise-8
28
H ltd
Rs.
’00,000
S Ltd
Rs.
’00,000
H Ltd
Rs
’00,000
S Ltd
Rs.
’00,000
Share Capital Rs.10 each
9% debentures
Creditors
Bills payable
20.00
Nil
4.0
0.2
10.00
2.0
2.0
0.1
Shares in S ltd(80,000 shares)
9% debentures in S ltd
Debtors
Bills receivables
8.8
0.8
1.8
0.1
Nil
Nil
2.7
0.15
Balance Sheet
Bills receivable of S ltd. include bills for Rs.8000 accepted
by H Ltd and creditors of S Ltd include Rs.20,000 due to H Ltd.
How do they appear in the combined(consolidated) balance Sheet?
Exercise-9
29
H ltd
Rs.
’00,000
S Ltd
Rs.
’00,000
H Ltd
Rs
’00,000
S Ltd
Rs.
’00,000
9% debentures
Creditors
Bills payable
Nil
4.0
0.2
2.0
2.0
0.1
9% debentures in S ltd
Debtors
Bills receivables
0.8
1.8
0.1
Nil
2.7
0.15
Balance Sheet(observe other than share capital)
Bills receivable of S ltd. include bills for Rs.8000 accepted
by H Ltd and creditors of S Ltd include Rs.20,000 due to H Ltd.
How do they appear in the combined(consolidated) balance Sheet?
30
1. Bills accepted by H Ltd is B/P in H ltd Balance sheet.
Remove Rs.8000 from B/P and B/R
2. Creditors of S Ltd. of Rs. 20,000 is equal to Rs.Debtors of
H Ltd. Both to be eliminated to the extent of Rs. 20,000
3. Debentures of Rs.80,000 of S ltd is an investment for H Ltd.
Both to be eliminated in the consolidated Balance sheet.The
Remaining debentures belong to outsiders to be shown in the
Consolidated Balance sheet.
See the consolidated Balance sheet in the next slide
31
’00,000 ’00,000
Debentures
Creditors
Bills Payable
1.2
5.8
0.22
9% Debentures
Debtors
Bills receivables
Nil
4.3
0.17
Consolidated Balance sheet
How do you show share capital of both the companies in
The consolidated Balance sheet?
See in the next slide
32
Consolidated Balance sheet
Holding company
Rs.20,00,000Subsidiary company
Rs.10,00,000
20,000 shares
Minority
80,000 shares
Majority
(Holding company)
Paid up value-8,80,000
Real value- 8,00,000
Good will- 80,000
(consolidated B/S)
Nominal value
2,00,000(Appear in the
consolidated
Balance sheet)
Consolidated
Balance sheet
33
Explanations
1. Share capital of holding company appears in the
consolidated Balance sheet
2. Minority interest appears as liability in the consolidated B/S
3. Investments of Holding company in subsidiary disappears
in the consolidated Balance Sheet
4.Goodwill estimated appears along with other existing goodwill
34
How do you deal interest outstanding
and accrued interest
from holding to subsidiary or vice-versa?
Both should be eliminated on either side
of the consolidated Balance sheet as they
Belong to the same home
Home is the place for loving and living.
No creditor and debtor relationship
35
How do you deal contingent liability?
Accepted and discounted
with in the Group
(H to S or vice-versa)
Accepted by outsiders
Will become actual liability
Therefore eliminated either
Side of consolidated B/S
Appear as contingent liability
In the consolidated B/S
36
If goods are sold to subsidiary to holding or vice-versa?
1. If goods supplied are completely sold out, profit would
Have been realised
therefore, no problem arises at the time of consolidation
except if such goods sold are on credit. If the goods were sold
on credit, (If, not yet paid on the B/S date)
might have been included with creditors and debtors
in subsidiary and holding company respectively.If so,
eliminate both such debtors and creditors in the consolidated
Balance sheet.
Concept:- Profits can be realised only when goods are sold
outside the boundary of subsidiary and holding company.
37
Exercise-10
On February 2008 H. Ltd sold goods to S Ltd. goods costing
Rs.8000 for Rs.10,000.25% of such goods not yet sold
by subsidiary (S.Ltd.).Creditors of S.ltd include Rs.4,000
Due to H Ltd on account of these goods.
Solution: 75% of the goods are sold out side the boundary.
So, profits are
realised on those goods.But on 25% of the goods not yet sold
are not yet realised. The unrealised profit is
Rs.500(2000 x25%).
1.We remove from stock Rs. 500
2.We remove profit Rs.500
3. Eliminate from debtors and creditors Rs.4000.
38
If goods supplied by subsidiary to holding or vice versa
Are not fully sold on the date of balance sheet?
1.Unrealised profit on supplied goods with in the group to be
eliminated from closing stock.
2.Eliminate the profit on such unsold stock from the supplier
company(either H or S) to the extent of
holding company’s share.
39
Treatment of dividend
Dividend already paid out
of Subsidiary Ltd. to Holding
Dividend out of
Revenue Profits
Credited to
P/L A/c And appears
In the consolidated
Balance sheet
REDUCE FROM
INVESTMENT
IN
SUBSIDIARY
Capital Profit
Dividend Proposed(not paid)
By subsidiary Ltd.
Holding
companySubsidiary
company
Added to
Minority
Interest
Do not disclose separately the proposed
Dividend in the consolidated B/S??
40
Do not disclose separately the proposedDividend in the consolidated B/S Why?
It is because, the proposed dividend of subsidiary is shown with the minority interest(Minority’s share )and also in the P/L A/c of Holding (Holding company’s share).
41
A Ltd
Rs.
’00,000
B Ltd
Rs.
’00,000
A Ltd
Rs
’00,000
B Ltd
Rs.
’00,000
Share Capital Rs.10 each
General reserves
Profit and loss a/c
Trade creditors
25.00
3.6
2.4
3.5
34.5
6.00
1.2
1.8
1.0
10.00
Land and building
Machinery
Furniture
40,000 shares in B Ltd.
Stock on hand
Debtors
Bank Balance
6.4
12.6
1.4
5.0
4.1
3.8
1.2
34.5
2.0
3.4
0.6
----
2.5
1.0
0.5
10.00
Balance Sheet as on 31st March 2008
A Ltd. acquired 40,000 shares of B Ltd . On the date of acquisition,
the B Ltd. had profits and reserves undistributed Rs. 1,00,000. Out of pre-
Acquisition profits Rs.60,000 was distributed as dividend.
Prepare :-1.Minority Interest 2.Cost of control/goodwill
3.Consolidated Balance sheet as on 31st March 2008
Exercise-11
42
Step-2: Capital Profit of B Ltd= 1,00,000(Pre- acquisition profit)
Note:- Do not bother about Holding Company’s Balance sheet
While preparing Minority Interest or cost of Control
Holding company A’s share
Rs.66,667
Step-1 A Ltd in B Ltd: Minority shares in B Ltd.
40:20=2:1
Minority share holders
Rs.33,000
: 60,000 x 2/3=40,000
Rs.66,667-Rs.40,000=Rs.26,667
Rs60,000 x 1/3= Rs.20,000
Rs.33,000-20,000=13,333
Less:Dividend received out of Capital profits
Remaining capital profits
43
Step-2:Revenue profit(Post acquisition profit)
=[Rs.1,20,000-(1,00,000-60,000)](Remaining Reserve)
+1,80,000(P/L A/c)=Rs.2,60,000
The reserve of Rs.1,20,000 remains in the Balance sheet is
after paying dividend of Rs.60,000
(ie.,out of the capital Profits of Rs.1,00,000.) to the share holders.
Rs.2,60,000
Majority(A Ltd)
Rs.2,60,000 x2/3=Rs.1,73,333Minority
Rs.2,60,000 x1/3=Rs.86,667
44
Step-3:- Minority Interest
1.Share capital 20,000 x 10 = Rs.2,00,000
Share of remainingCapital Profit
Rs.13,333
Share of revenueprofit
Rs.86,667
Total Rs.3,00,000
Note:- Amount of dividend received by minority shareholders
has not been added as they have already received the dividendin cash.
45
Calculation of goodwill or cost of control
(for Holding company point of view)Step-4
Amount paid to acquire shares
Of B Ltd.Rs.5,00,000
Less: Face value of share 40,000 x 10=Rs.4,00,000
Less: Capital profits received
In the form of dividendRs.40,000
Less:-Holding company’s share of
Remaining capital profitsRs.26,667
Good will Rs.33,333
46
Liabilities Rs.00,000 Assets Rs.00,000
Share capital 2,50,000 shares of 10 each
General reserve
Profit and loss a/c(Note-3)
(2,40,000 – 40,000 + 1,73,333)
Trade creditors
(3,50,000 + 1,00,000)
Minority Interest
Total
25.00
3.60
3.73
4.50
3.00
39.83
Goodwill
Land and Building
(6,40,000 + 2,00,000)
Machinery
(12,60,000 + 3,40,0000)
Furniture
(1,40,000 + 60,000)
Stock in trade
(4,10,000 + 2,50,000)
Debtors
(3,80,000 + 1,00,000)
Bank
(1,20,000 + 50,000)
Total
0.3333
8.40
16.00
2.00
6.6
4.8
1.7
39.83
Consolidated Balance sheet(Exercise-11)
47
Important observations in consolidated Balance sheet
1.All assets of Holding and subsidiary are added and disclose in the consolidated Balance sheet.
2. All third party liabilities of both the companies are added and disclosed(displayed)
3.From the profits of holding company and holding company’s share of subsidiary’s revenue profits subtract capital profits received in the form form of dividend as such dividend taken to calculate capital reserve(reduced from investments).
48
How do you deal Bonus Shares issued by subsidiary?
Issued out of
Pre-acquisition profits
Issued out of
Post-acquisition profits
No effect on
Consolidated
Balance sheet
Note:- Anything is received from subsidiary either in the form of dividend or Bonus
Shares out of Pre-acquisition profits or amounts of pre-acquisition profits
reduces the investment made by holding in subsidiary.
Shares of investments
held by Holding company in subsidiary
Increases due to which cost of
Control reduced(See exercise)
49
A Ltd
Rs.
’00,000
B Ltd
Rs.
’00,000
A Ltd
Rs
’00,000
B Ltd
Rs.
’00,000
Share Capital Rs.100 each
General reserves
Profit and loss a/c
Trade creditors
90.00
20.00
15.00
20.00
145.00
25.00
5.00
10.00
5.00
45.00
Fixed assets
Current Assets
20,000 shares in S Ltd.
65.00
50.00
30.00
145.00
20.00
25.00
------
45.00
Balance Sheet as on 31st March 2008
A Ltd. acquired 20,000 shares of B Ltd on 31st March 2007. On the date of acquisition,
the B Ltd. had reserves undistributed Rs. 5,00,000 and Rs.2,00,000 in the Profit and Loss Account
when A Ltd. acquired B Ltd. B Ltd.issued bonus shares @1 for every 5 shares
Held out of post-acquisition profits.
Calculate: 1. Cost of control before and after issue of bonus shares
2. prepare consolidated Balance sheet
Exercise-12
50
Cost of control before issue of Bonus sharesCost of 20,000 shares 30,00,000Less: Face value 20,00,000 share of capital profits 1. Reserves 5,00,000 x 4/5=4,00,000 2. Profit 2,00,000 x 4/5=1,60,000 5,60,000 25,60,000 Cost of control 4,40,000
Step-1
Cost of acquiring 20,000 shares 30,00,000
Less:-Paid up value including bonus shares (24,000 x 10 ) 24,00,000
Less:Share of Capital profits ( 7,00,000 x 4/5) 5,60,000
Cost of control 40,000
Step-2 Cost of control after issue of Bonus sharesNumber of shares after bonus issue are (20,000 + 1/5 x 20,000) =24,000
51
Why there is a difference in the cost of control before and after issue of Bonus shares?
The Bonus shares are issued out of revenue profits. How does company issue bonus shares?
The bonus shares are considered as capitalisation of profits.What do you mean by capitalisation of profits?
It means Revenue profits are converted into capital profits before the issue of bonus shares.
Once profit is capitalised it amounts to return of investment made by holding company in subsidiary if bonus shares issued. Therefore, it reduces cost of control.
52
Revenue Profits
Out of Rs.10,00,000 profits Rs2,00,000 were earned pre-acquisition period.The revenue profit is (10,00,000-2,00,000) Rs.8,00,000.
Bonus shares are issued out of revenue profit. It reduces revenue profit. Remaining profit is[Rs.8,00,000-(25,00,000 x1/5)] Rs.3,00,000.
Step-3
53
Share of remaining revenue profitStep-4
Holding company
Rs.3,00,000 x 4/5
=Rs.2,40,000
Minority Interest
Rs.3,00,000 x 1/5
=Rs.60,000
54
Minority Interest
What ever belong to them whether capital profit or revenue profit or bonus shares.
No of shares after bonus shares [5000 + (5000 x 1/5)] 6000 sharesFace value (6000 x 10 ) Rs.6,00,000Share in capital profits Rs.1,40,000(Rs.7,00,000 x 1/5)Share of remaining revenue profit Rs.60,000Minority interest Rs.8,00,000
Step-5
55
Rs. Rs.
Share capital
(90,000 shares Rs.100 each)
Reserves
Profit and loss a/c
(H Ltd. 20,00,000
share in subsidiary Rs.2,40,000)
Creditors
(H Ltd. Rs.15,00,000
S Ltd. Rs. 5,00,000)
Minority Interest
Total
90,00,000(H)
20,00,000(H)
22,40,000(H+S)
20,00,000(H+S)
8,00,000(S)
1,60,40,000
Fixed assets
Current assets
Cost of control(goodwill)
85,00,000(H+S)
75,00,000(H+S)
40,000(Balance)
1,60,40,000
Consolidated Balance sheet as on 31st March 2008Step-6
56
How do you deal the following?
1.Unclaimed dividend given in the Liability side of subsidiary company.
2.Preliminary expenses given in the asset side of subsidiary company
Answer:
Exercise-13
1.Unclaimed dividend is assumed to belong to minority
Share holders.Add to minority Interest.
2.Preliminary expenses is a wasteful expenses. It can not be
Realised in cash. The net worth should be brought down.Capital profit
Of pre-acquisition period should be brought down
to the extent of preliminary expenses.
57
How do you deal the following?
Preference shares given in the subsidiary company balance sheet
Answer: a)Share of Minority share holders to be added to minority interest.
b)Share of Holding company to be added with equity shares held by majority
before calculating goodwill/capital reserve.
Exercise-14
58
How do you deal if debentures of Subsidiary company acquired by Holding company?
We know that debentures are third party liabilities.If same debentures are acquired by holding company from subsidiary company it is known as intra company debts. Remove from either side of the Balance sheet.
Debentures Rs.40,000 Investments in debenture 10,000
1.Balance sheet before
S Ltd H Ltd.
2.Consolidated Balance sheet
Debentures Rs.30,000 Investment in subsidiary Nil
Exercise-15
59
Debenture interest accrued from subsidiary to holding-How do you deal?
It is also inter company debts. Remove from both sides of Balance sheet to the extent belong to holding company.
How ever outsider’s interest due will appear in the liability side of consolidated Balance sheet
Exercise-16
60
What is the Journal entry in the books of Holding company if dividend is received from subsidiary?
Answer:-A. If dividend declared by subsidiary out of pre-acquisition profits, the Journal entries are
1.Bank a/c debit
To Dividend received
2. Dividend received A/c debit
To Investment in shares of subsidiary A/c
Note: Any dividend received from pre-acquisition profits are to be reduced from investments in subsidiary account in order to calculate goodwill/capital reserve.
Exercise-17
61
B.If Dividend received on investments made by holding in subsidiary out of post acquisition profits, Journal entry is
Dividend received A/c debit
To Profit and Loss A/c
Note:- Such dividend is considered as income from investment. It is added to holding company’s profit and loss a/c.
62
Acquisition of shares on different date
If acquired on different dates, AS-21 consolidated Balance sheet only from the date on which holding and subsidiary relationship comes into existence.
63
How do you deal dividend tax?
Dividend paid by Indian company has to pay 15% dividend tax +3% educational cess.It is equal to 15.45%.
The dividend paid and tax reduce profit and loss account.
Even preference dividend reduces profit.
64
Thank U
Knowledge is meant to share, and not to store
Life is to give, and not to receive