Before adjustment of reserves of Subsidiary is made, they are categorised into capital and revenue profits..
If a co. acquires shares in another co at mid of one of the previous yrs. and controlling of acquisition is made after passing some time like about 3 yrs....
what will be the treatment of those profits for the yr. in which it acquired....
will they entirely be capital .....or a split is made in them with regards to revenue......
in the mid of acquistion if controlling interest is not there then no distinction between capital and revenue though some kind of goodwill is there which is not accounted since India follows cost method of accounting in stand laone balance sheet .But in IFRS fair value treatment is given for each acquuistion .But on controlling Interest is done after a time gap of 3 years in such a case profits of subsidary is split as capital and Revenue .I think this is para 12 of AS-21.
Wait for other experts to reply on this
whenever you are consolidating the accounts you already assuming the controlling power. so the profits after the date of investment (purchase of shares) should be treated revenue profits and prior to the date of investment should be capital profits every time.
This is my view. lets have some other answers as well
Mr Ashish Gupta I think Swetha is asking doubt on Multiple Acquistion and not Controlling interest acquired by a single lot
Sir actually the question i faced includes a multiple aquisition but my doubt is rather regarding determining the controlling interest......
Like for eg. A acquired shares in B at the end of June 2007 and
The consolidation of fs is being made something like 1 and 1/2 yr later like on Dec 2008..
what is going to be the classification of the profits pertaining to the year...2007.
Like the profit after june 2007(profit of 2007) wholly becomes a revenue profit...or since the consolidation is made in regard to the transactions of 2008, it becomes a capital profit...??
Swetha In July 2007 if 51% of shares are not acquired there is no need for consolidation or bifurcation of Subsidary Profits and in 2008 if 51% is acquired there is a need for classification of subsidary profits into capital and revenue
The share acquired are more than 51%
Consolidation essential when 51% is acquired subsidary profits are bifurcarcated into cpital and revenue profits before acquistion is capital and after acquistion treated revenue
But the consolidation is being made for some other yr. other than the one in which the acquisition is made....so how can those profits be revenue profits for the current yr(2008 in my eg.)
Better u give date of acquistion date on which you want to draw balance sheet whether acquistion is in lots or at a stretch and these datas if furnished will get u the required answer from experts here
I gave all those details in my above eg. and the ac in at a strech as mentioned already in my example
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