Pre-acquisition profit in subsidiary company is considered as:
Question
Pre-acquisition profit in subsidiary company is considered as:
Solution
Pre-acquisition profit in a subsidiary company is considered as the profit earned by the subsidiary company before it was acquired by the parent company. This profit is not considered as part of the consolidated profit of the group after the acquisition. Instead, it is treated as a capital profit and is used to adjust the cost of investment in the subsidiary company in the consolidated financial statements of the parent company.
Here are the steps to consider it:
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Identify the date of acquisition of the subsidiary by the parent company.
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Determine the profit of the subsidiary company before the date of acquisition. This is the pre-acquisition profit.
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In the consolidated financial statements of the parent company, adjust the cost of investment in the subsidiary company by the amount of the pre-acquisition profit.
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The adjusted cost of investment is used to calculate the goodwill or capital reserve in the consolidated financial statements.
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The pre-acquisition profit is not included in the consolidated profit or loss of the group.
Similar Questions
It is important to distinguish between pre-acquisition and post-acquisition equity of a subsidiary to allow:a.post-acquisition equity to be eliminated on consolidation.b.avoidance of double counting of pre-acquisition equity.c.all of the above.d.none of the above.
The effect of the adjustment entry at the date of acquisition is to eliminate the ‘Shares in subsidiary’ asset and the:
. How is profit prior to incorporation treated as ?
Which of the following statements is incorrect?Group of answer choicesA bargain purchase gain arises when the purchase consideration is greater than the FVINA acquired.When a subsidiary has existing goodwill in their books at the date of acquisition, the amount of FVINA will decrease in the acquisition analysis.The Investment in subsidiary account is always eliminated on consolidation and this account will always be equal to zero for the group.If a company acquires shares in a subsidiary cum div, consolidation adjusting entries are required to eliminate dividend payable and dividend receivable up until the dividend is paid by the subsidiary.
a part of the profit which is distributedto shareholders in a company
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