PRE-ACQUISITION PROFITS AND RESERVES OF SUBSIDIARY COMPANY :

Accumulated profits and reserves which appear in the balance sheet of the subsidiary company up to the date of acquisition of its shares by the holding company are called pre-acquisition profits and reserves. Both the holding company and the minority shareholders will have proportionate share in such profits and reserves. The share of the minority shareholders in such profit and reserves will be added to the amount of minority interest. But the holding company’s proportionate share in such profits and reserve should be treated as capital profits and credited to Capital Reserve since the holding company cannot earn any revenue profits from its subsidiary before the shares are acquired in it. While preparing the consolidated balance sheet, this Capital Reserve should be shown on the liabilities side or if there is any Goodwill, it can be shown as a deduction from the Goodwill in the assets side.