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Editorial Board on Accounts and Audit
  • Treatment of Bonus issue in Consolidation

    by Vivek on Monday, September 02, 2019 at 08:28 PM

    Dear Sir, In Consolidation of F.S, Bonus share issue from Post Acquisition Profits by the subsidiary company will reduce Goodwill (i.e.in Cost of control calculation). Why sir ?? 2) What is the logic of reducing Goodwill because entry made by subsidiary will be-- Reserves Dr. To Share Capital ?? 3) As Cost of control is calculated on 'Date of Acquisition of share', thus, whether while issuing bonus share by subsidiary, Parent Co. should again calculate COST OF CONTROL ?? Why sir??

    Replied byEditorial Board Monday, September 16, 2019 at 09:06 PM

    In question of consolidation, when it is given that the subsidiary has issued bonus shares post-acquisition (without any further information about the source of profits), it is assumed by default that bonus shares have been issued by reducing the pre-acquisition reserves & surplus. So, while preparing consolidated financial statements, the share of holding company in the bonus issue is deducted from the cost of investments in the ‘cost of control’ calculation and the balance is deducted from minority interest calculation. Correspondingly, the consolidated share capital gets increased.
    However, if purely post acquisition profits have been used to distribute bonus shares then no such adjustments may be required.

    Note: Please note that opinions of individuals have been used while responding to this query.

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