Consolidation of financial statements

Shiva

In your given case, Subsidiary has sold an asset to the Holding Co. and since the Asset is a Fixed asset, it is going to stay in the books of the Holding Co. at the end of the period. While consolidating the accounts of the 2 companies, the profit on such sale needs to be eliminated as it is Notional profit from the perspective of Group Entity. So the resulting effect will be to reduce the value of the Asset by the amount of profit. And since the Profits of Subsidiary are inflated due to the notional Profit, the same needs to be eliminated from Subsidiaries Revenue Profits (Not Capital Profits).

To Sum up

effect 1. Reduce Profit amount from asset in CBS

effect 2. Reduce Revenue profits of Subsidiary Co. in WN 5. i.e in Net Worth analysis of Subsidiary Co.

Mukul Jatwani