Pre-acquisition profit in subsidiary company is considered as
Capital profit
In consolidation, a subsidiary's profits are split at the date the holding company acquired its shares. Profits earned before that date are pre-acquisition profits; those earned after it are post-acquisition profits.
The holding company paid for its share of pre-acquisition profits as part of the price of the shares, so these profits are capital profits for the group. They are set against the cost of investment when computing goodwill or capital reserve (cost of control) and cannot be distributed as revenue profit.
Revenue profit is the holding company's share of post-acquisition profits, which goes to consolidated profit and loss. Goodwill is the result of comparing cost of investment with the share of net assets, including capital profits, not the profits themselves. Minority interest is the outside shareholders' share of the subsidiary's capital and of all its reserves and profits.
Hence, Capital profit.
Important Questions from Corporate Accounting
Acquisition of firms is the same as:
(a) a merger
(b) an amalgamation
(c) a takeover
(d) an absorption
Select the correct code.
A concept given for diversified corporations which advocates (a) What businesses should a diversified corporation own and why; and (b) What organizational structure, management processes, and philosophy will foster superior performance from the corporation’s individual business units, is known as:
A letter of acceptance sufficiently stamped and duly addressed is put into the course of transmission. There is a _______.
An agent is personally liable to third parties in which of the following situations?
A. If an agent acts for an undisclosed Principal
B. Trade usage and customs make the agent personally liable
C. If an agent signs a contract in the Principal's name
D. If an agent acts for the named Principal
E. If an agent works for a foreign Principal.
Choose the correct answer from the options given below:
An approach to corporate strategy in which top management views its product lines and business units as a series of investments from which it expects a profitable return is called ________
