Pre-acquisition profit in subsidiary company is considered as :
Capital profit
In consolidation of accounts, profits of the subsidiary earned before the date of acquisition of shares by the holding company are pre-acquisition profits.
The holding company paid for these profits as part of the purchase price of the shares, so its share of them is not available for distribution as dividend; it is treated as capital profit and adjusted in computing goodwill or capital reserve on consolidation.
Post-acquisition profits, on the other hand, are revenue profits; goodwill is only the result of the cost of control computation, and the minority's share is minority interest, not an outsiders' liability.
Hence, pre-acquisition profit in the subsidiary company is considered as Capital profit.
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