Consolidated Financial Statements

19CONSOLIDATED FINANCIAL STATEMENTS

INTRODUCTIONConsolidated financial statementsrefer to the financial statements which lead to the subsidiaries of the holding company its summative accounting figure. Putting another way, consolidated financial statements can be addressed as the combined financial statements of a parent company and its subsidiaries.According to IAS 27 "Consolidated and separate financial statements",consolidated financial statementsare the financial statements of a group presented as those of a single economic entity.As stated by Investopedia, the consolidated financial statements enable you to determine the general health of an entire group of companies as compared to a companys stand alone position. This is because these financial statements provide an aggregated look at the financial position of a company and its subsidiaries.

DEFINITIONS VIDE AS 21Consolidated financial statements can be defined as:1. A Subsidiary is a company that is controlled by another company (known as parent)2. A Parent (also known as a Holding Company) that has one or more subsidiaries.3. A Group is a parent and all its subsidiaries4. Consolidated financial statements are the financial statements of a group presented as those of a single company.5. Equity is the residual interest in the assets of a company after deducting all its liabilities.6. Minority Interest is the part of the net results of operations and of the net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiaries, by the parent.7. ControlControl means, basically,a. The ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of the company; or b. Control of the composition of the board of directors of a company so as to obtain economic benefits from its activities. A company is considered to control the composition of the board of directors of a company, if it has power, without the consent or concurrence of any other person, to appoint or remove all or a majority of directors of that company. A company is deemed to have the power to appoint a director, if any of the following condition is satisfied: a person cannot be appointed as director without the exercise in his favour by that company of such a power as aforesaid; or a persons appointment as director follows necessarily from his appointment to apposition held by him in that company; or the director is nominated by that company or a subsidiary thereof.Objective and Purpose of Consolidated financial statementsThe key purpose of preparing consolidated financial statements is reporting the financial condition and operating result of a consolidated business group, which is considered as a single entity comprised of more than one companies under a common control (also counting entities other than companies)The objective of this Standard is to lay down principles and procedures for preparation and presentation of consolidated financial statements. Consolidated financial statements are presented by a parent (also known as holding enterprise) to provide financial information about the economic activities of its group. These statements are intended to present financial information about a parent and its subsidiaries as a single economic entity to show the economic resources controlled by the group, the obligations of the group and results the group achieves with its resources.1. A parent that presents CFS should present these statements in addition to its separate financial statements. Users of the financial statements of a parent are usually concerned with, and need to be informed about, the financial position and results of operations of not only the enterprise itself but also of the group as a whole. This need is served by providing the users-a) Separate financial statements of the parent; andb) CFS , which present financial information about the group as that of single enterprise without regard to the legal boundaries of the separate legal entities.2. CFS is presented by a parent (also known as holding company) to Provide financial information about the economic activities of its group.3. CFS present financial information about a parent and its subsidiary as a single economic entity4. CFS shows the economic resources controlled by the group, the obligations of the group and results the group activities with its resources.

Meaning of "Holding Company and Subsidiary as per Companies Act, 1956

Simple Definitions:

Holding Company: A holding company is a parent company that owns enough voting stock (more than 50%)in a subsidiary to make management decisions,influenceand control the company's board of directors. However, holding companies that control 80% or more of the subsidiary's voting stock gain the benefits of tax consolidation, which include tax-free dividends for the parent company and the ability to share operating losses.

Subsidiary Company: A subsidiary is a company that is controlled by a holding company or parent; this means at least 50% of its stock is controlled by another company. This 50% or greater stake gives the parent company control.Meaning of holding company and subsidiarySection 4(1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be asubsidiaryof another if, but only if,-

(a)that other controls the composition of its Board of directors; or

(b)that the other exercises or controls more than one-half of its total voting power in a case where it has issued securities and such securities have the same voting rights as equity shares; or

(c)that the other holds more than one-half in value of its paid-up capital, in any other case;

(1A)No company which is asubsidiaryof another company shall, after the commencement of the Companies (Amendment) Act, 2003, become aholdingcompany;

(2)For the purposes of sub-section (1), the composition of a companys Board of directors shall be deemed to be controlled by another company if, but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purposes of this provision that other company shall be deemed to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is to say-

(a)that a person cannot be appointed thereto without the exercise in his favour by that other company of such a power as aforesaid;

(b)that a persons appointment thereto follows necessarily from his appointment as director or manager of, or to any other office or employment in, that other company, or

(c)that the directorship is held by an individual nominated by that other company or asubsidiarythereof.

(3)In determining whether one company is asubsidiaryof another-

(a)any shared held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it;

(b)subject to the provisions of clauses (c) and (d), any shares held or power exercisable

(i)by any person as a nominee for that other company (except where that other is concerned only a fiduciary capacity); or

(ii)by, or by a nominee for, asubsidiaryof that other company, not being asubsidiarywhich is concerned only in a fiduciary capacity;

shall be treated as held or exercisable by that other company;

(c)any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first-mentioned company or of a trust deed for securing any issue of such debentures shall be disregarded;

(d)any shares held or power exercisable by, or by a nominee for, that other or itssubsidiarynot being held or exercisable as mentioned in clause(c) shall be treated as not held or exercisable by that other, if the ordinary business of that other or itssubsidiary, as the case may be, includes the lending of money and the shares are held or the power is exercisable as foresaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business.

4. For the purposes of this Act, a company shall be deemed to be theholding companyof another if, but only, if that other is itssubsidiary.

5. In this section, the expression company includes any body corporate, and the expression equity share capital has the same meaning as in sub-section (2) of section 85.

6. In the case of a body corporate which is incorporated in a country outside India, asubsidiaryorholdingcompany of the body corporate under the law of such country shall be deemed to be asubsidiaryorholdingcompany of the body corporate within the meaning and for the purposes of this Act also, whether the requirements of this section are fulfilled or not.

7. A private company, being asubsidiaryof a body corporate incorporated outside India, which, if incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act to be asubsidiaryof a public company if not less than ninety-nine per cent. of the share capital in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India.Consolidated balance sheet of Holding Company Vs Subsidiary Company's Balance Sheet

Subsidiary company's balance sheet's assets and liabilities will become the part of consolidatedbalance sheet of holding company.1.All the liabilities of subsidiary company will be added in the consolidated balance sheet ofsubsidiary company. But Share capital of subsidiary company in holding company will not shown in the consolidated balance sheet in the books of holding company. Because, this share capital automatically adjust with the amount of the investment of holding company in to subsidiary company.

2. Add all the assets of subsidiary company with the assets of holding company. But Investment of holding company in Subsidiary company will not shown in consolidated balance sheetbecause, investment in subsidiary company will automatically adjust with the amount of share capital of subsidiary company in holding company.

3. Add minority interest in liability side. First of all we should know what minority interest is Minority interest is the shareholder but there is not holding companys shareholder. So, when holding company shows consolidated balance sheet, it is the duty of accountant to show minority interest in the liability side of consolidated balance sheet.

Under Indian Company Act, there is no need to prepare combined or consolidated final accounts of holding and subsidiary company in the books of holding company but holding company attaches the copy of balance sheet, one copy of profit and loss account and one copy of audit report of subsidiary company with his final accounts. But for showing true financial position, often holding company prepare consolidated balance sheet.

It is easy to understand that consolidated balance sheet is a balance sheet in which all the assets and liabilities of holding company and subsidiary company are added with each other butpractically, it is tough to make consolidated balance sheet of holding and subsidiary company

Steps of Consolidation In order that the consolidated financial statements present financial information about the group as that of a single enterprise, the following steps should be taken:1. Eliminate parents cost of Investment & Portion of Equity.2. Calculate Goodwill & Capital Reserve arising on Investment3. Calculate Minority Interest.4. Analyse Profits of subsidiaries into profits before and after acquisition5. Make Intra- Group Adjustments6. Treat of Investments made on different date7. Consolidate Profit & Loss Statement8. Harmonise reporting Dates9. Harmonise Accounting PrinciplesThese steps are explained and illustred in detail

Advantages of CFS:The main advantage of consolidation are given below:1. Overall Picture: From the consolidated financial statements, the users of accounts can get an overall picture of the holding company and its subsidiaries. Consolidated Profit & Loss Account gives the overall profitability of the group after adjustment of unrealized profit involved in mutual transaction and division of profit of the subsidiaries into capital and revenue. Similarly, Consolidated Balance Sheet shows the state of affairs of the group after adjustments of mutual indebtedness and putting separately the minority interest.2. Share Value of Holding Company: Intrinsic share value of the holding company can be calculated directly from the Consolidated Balance Sheet.3. Return on Investments in Subsidiaries: The holding company controls its subsidiary. So its return on investments in subsidiaries should not be measured in terms of dividend alone. Consolidated Financial Statements provide information for identifying revenue profits for determining return on investments.4. Acquisition of Subsidiary: The minority interest data of the Consolidated Financial Statements indicates the amount payable to the outside shareholders of the subsidiary company at book value which is used as the starting point of negotiations at the time of acquisition of a subsidiary by the holding company.

5. Evaluation of Holding Company in the Market: The overall financial health of the holding company can be judged using Consolidated Financial Statements. Those who wants to invest in the shares of the holding company or acquire it, need such data.Contents of CFS1. Which Statements: Consolidated Financial Statements normally includea. Consolidated Balance Sheet,b. Consolidated Statements of profit and loss accountc. Notes, other statements and explanatory material that form an integral part thereof.d. Consolidated Cash Flow statement is presented in case a parent presents its own cash flow statement.

2. Format: The consolidated financial statements are presented, to the extent possible, in the same format as that adopted by the parent for its separate financial statements.Basis of Consolidation: In preparing CFS, The Financial statements of the parent and its subsidiaries should be combined on a line by line basis by adding together like items of assets, liabilities, incomes, and expenses.

General principles of consolidated financial statementsThe general principles involved in consolidated financial statements are: A consolidated financial statement should essentially provide true and fair picture of financial condition and operating result of the business faction. A consolidated financial statement needs to be prepared on the basis of legal-entity based financial statements of the parent company and its subsidiaries which belong to the business faction, and prepared in accordance with the GAAP. A consolidated financial statement needs provide a clear vision about the financial info requisite for interested parties not to mislead their judgments about the business groups condition. The procedures and policies used for preparing consolidated financial statements need to be applied ad infinitum and should not be changed without any reason.

Checklist for preparation of consolidated financial statements1. Estimate group holdings and establish each entitys status in the question.2. Ascertain the fair value of acquired assets and calculate net assets of the subsidiary.3. Estimate goodwill arising on acquisition.4. Adjust for any intra-group activities.5. Estimate the balance carried forward on consolidated retained earnings.6. Estimate the balance carried forward on consolidated reserves.

Scope of Consolidated financial statements1. This Standard should be applied in the preparation and presentation of consolidated financial statements for a group of enterprises under the control of a parent. 2. This Standard should also be applied in accounting for investments in subsidiaries in the separate financial statements of a parent. 3. In the preparation of consolidated financial statements, other Accounting Standards also apply in the same manner as they apply to the separate

It is clarified that AS 21 is mandatory if an enterprise presents consolidated financial statements. In other words, the accounting standard does not mandate an enterprise to present consolidated financial statements but, if the enterprise presents consolidated financial statements for complying with the requirements of any statute or otherwise, it should prepare and present consolidated financial statements in accordance with AS 21 financial statements.

4. This Standard does not deal with: (a) Methods of accounting for amalgamations and their effects on consolidation, including goodwill arising on amalgamation (see AS 14, Accounting for Amalgamations); (b) Accounting for investments in associates (at present governed by AS 13, Accounting for Investments2); and (c) Accounting for investments in joint ventures (at present governed by AS 13, Accounting for Investments3).

Example:Let's assume Company XYZ is aholding companythat owns four other companies: Company A, Company B, Company C, and Company D. Each of the four companies pays royalties and other fees to Company XYZ. At the end of theyear, Company XYZ'sincome statementreflects a large amount of royalties and fees with very few expenses -- because they are recorded on the subsidiary income statements. An investor looking solely at Company XYZ's holding company financial statements could easily get a misleading view of the entity's performance.However, if Company XYZ consolidates its financial statements -- "adding" the income statements, balance sheets, andcash flowstatements of XYZ and the four subsidiaries together -- the results give a more complete picture of the whole Company XYZ enterprise.In Figure 1 below, Company XYZ's assets are only $1 million, but the consolidated number shows that the entity as a whole controls $213 million in assets.

In the real world,generally accepted accounting principles (GAAP)require companies to eliminate intercompany transactions from their consolidated statements. This means they must exclude movements ofcash,revenue, assets, or liabilities from one entity to another in order to avoid double counting them. Some examples include interest one subsidiary earns from aloanmade to another subsidiary, "management fees" that a subsidiary pays theparent company, andsalesand purchases among subsidiaries.

Presentation of Consolidated Financial Statements A parent which presents consolidated financial statements should present these statements in addition to its separate financial statements. Users of the financial statements of a parent are usually concerned with, and need to be informed about, the financial position and results of operations of not only the enterprise itself but also of the group as a whole. This need is served by providing the users Separate financial statements of the parent; and Consolidated financial statements, which present financial information about the group as that of a single enterprise without regard to the legal boundaries of the separate legal entities.

Consolidation Procedures In preparing consolidated financial statements, the financial statements of the parent and its subsidiaries should be combined on a line by line basis by adding together like items of assets, liabilities, income and expenses. In order that the consolidated financial statements present financial information about the group as that of a single enterprise, the following steps should be taken: (a) The cost to the parent of its investment in each subsidiary and the parents portion of equity of each subsidiary, at the date on which investment in each subsidiary is made, should be eliminated; (b) any excess of the cost to the parent of its investment in a subsidiary over the parents portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, should be described as goodwill to be recognised as an asset in the consolidated financial statements; (c) when the cost to the parent of its investment in a subsidiary is less than the parents portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, the difference should be treated as a capital reserve in the consolidated financial statements; (d) minority interests in the net income of consolidated subsidiaries for the reporting period should be identified and adjusted AS 21 against the income of the group in order to arrive at the net income attributable to the owners of the parent; and (e) Minority interests in the net assets of consolidated subsidiaries should be identified and presented in the consolidated balance sheet separately from liabilities and the equity of the parents shareholders. Minority interests in the net assets consist of: the amount of equity attributable to minorities at the date on which investment in a subsidiary is made; and The minorities share of movements in equity since the date the parent-subsidiary relationship came in existence. Where the carrying amount of the investment in the subsidiary is different from its cost, the carrying amount is considered for the purpose of above computations.Explanation: a) The tax expense (comprising current tax and deferred tax) to be shown in the consolidated financial statements should be the aggregate of the amounts of tax expense appearing in the separate financial statements of the parent and its subsidiaries.b) The parents share in the post-acquisition reserves of a subsidiary, forming part of the corresponding reserves in the consolidated balance sheet, is not required to be disclosed separately in the consolidated balance sheet keeping in view the objective of consolidated financial statements to present financial information of the group as a whole. In view of this, the consolidated reserves disclosed in the consolidated balance sheet are inclusive of the parents share in the post-acquisition reserves of a subsidiary. 1. The parents portion of equity in a subsidiary, at the date on which investment is made, is determined on the basis of information contained in the financial statements of the subsidiary as on the date of investment. However, if the financial statements of a subsidiary, as on the date of investment, are not available and if it is impracticable to draw the financial statements of the subsidiary as on that date, financial statements of the subsidiary for the immediately preceding period are used as a basis for consolidation. Adjustments are made to these financial statements for the effects of significant transactions or other events that occur the date of such financial statements and the date of investment in the subsidiary. 2. If an enterprise makes two or more investments in another enterprise at different dates and eventually obtains control of the other enterprise, the consolidated financial statements are presented only from the date on which holding-subsidiary relationship comes in existence. If two or more investments are made over a period of time, the equity of the subsidiary at the date of investment, for the purposes of paragraph 13 above, is generally determined on a step-by-step basis; however, if small investments are made over a period of time and then an investment is made that results in control, the date of the latest investment, as a practicable measure, may be considered as the date of investment. 3. Intra group balances and intra group transactions and resulting unrealised profits should be eliminated in full. Unrealised losses resulting from intragroup transactions should also be eliminated unless cost cannot be recovered. 4. Intragroup balances and intragroup transactions, including sales, expenses and dividends, are eliminated in full. Unrealised profits resulting from intragroup transactions that are included in the carrying amount of assets, such as inventory and fixed assets, are eliminated in full. Unrealised losses resulting from intragroup transactions that are deducted in arriving at the carrying amount of assets are also eliminated unless cost cannot be 5. The financial statements used in the consolidation should be drawn up to the same reporting date. If it is not practicable to draw up the financial statements of one or more subsidiaries to such date and, accordingly, those financial statements are drawn up to different reporting dates, adjustments should be made for the effects of significant transactions or other events that occur between those dates and the date of the parents financial statements. In any case, the difference between reporting dates should not be more than six months. 6. The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements are usually drawn up to the same date. When the reporting dates are different, the subsidiary often prepares, for consolidation purposes, statements as at the same date as that of the parent. When it is impracticable to do this, financial statements drawn up to different reporting dates may be used provided the difference in reporting dates is not more than six months. The consistency principle requires that the length of the reporting periods and any difference in the reporting dates should be the same from period to period. 7. Consolidated financial statements should be prepared using uniform accounting policies for like transactions and other events in similar circumstances. If it is not practicable to use uniform accounting policies in preparing the consolidated financial statements, that fact should be disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied. 8. If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements when they are used in preparing the consolidated financial statements. 9. The results of operations of a subsidiary are included in the consolidated financial statements as from the date on which parent-subsidiary relationship came in existence. The results of operations of a subsidiary with which parent-subsidiary relationship ceases to exist are included in the consolidated statement of profit and loss until the date of cessation of the relationship. The difference between the proceeds from the disposal of investment in a subsidiary and the carrying amount of its assets less liabilities as of the date of disposal is recognised in the consolidated statement of profit and loss as the profit or loss on the disposal of the investment in the subsidiary. In order to ensure the comparability of the financial statements from one accounting period to the next, supplementary information is often provided about the effect of the acquisition and disposal of subsidiaries on the financial position at the reporting date and the results for the reporting period 10. An investment in an enterprise should be accounted forin accordance with Accounting Standard (AS) 13, Accounting for Investments, from the date that the enterprise ceases to be a subsidiary and does not become an associate.11. The carrying amount of the investment at the date that it ceases to be a subsidiary is regarded as cost thereafter. 12. Minority interests should be presented in the consolidated balance sheet separately from liabilities and the equity of the parents shareholders. Minority interests in the income of the group should also be separately presented. 13. The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses. If the subsidiary subsequently reports profits, all such profits are allocated to the majority interest until the minoritys share of losses previously absorbed by the majority has been recovered. 14. If a subsidiary has outstanding cumulative preference shares which are held outside the group, the parent computes its share of profits or losses after adjusting for the subsidiarys preference dividends, whether or not dividends have been declared.Illustration Note: This illustration does not form part of the Accounting Standard. Its purpose is to assist in clarifying the meaning of the Accounting Standard. In the case of companies, the information such as the following given in the notes to the separate financial statements of the parent and/or the subsidiary, need not be included in the consolidated financial statements: i. Source from which bonus shares are issued, e.g., capitalization of profits or Reserves or from Share Premium Account. ii. Disclosure of all unutilized monies out of the issue indicating the form in which such unutilized funds have been invested. iii. The name(s) of small scale industrial undertaking(s) to whom the company owe any sum together with interest outstanding for more than thirty days.iv. A statement of investments (whether shown under Investment or under Current Assets as stock-in-trade) separately classifying trade investments and other investments, showing the names of the bodies corporate (indicating separately the names of the bodies corporate under the same management) in whose shares or debentures, investments have been made (including all investments, whether existing or not, made subsequent to the date as at which the previous balance sheet was made out) and the nature and extent of the investment so made in each such body corporate. v. Quantitative information in respect of sales, raw materials consumed, opening and closing stocks of goods produced/ traded and purchases made, wherever applicable. vi. A statement showing the computation of net profits in accordance with section 349 of the Companies Act, 1956, with relevant details of the calculation of the commissions payable by way of percentage of such profits to the directors (including managing directors) or manager (if any).vii. In the case of manufacturing companies, quantitative information in regard to the licensed capacity (where licence is in force); the installed capacity; and the actual production. viii. Value of imports calculated on C.I.F. basis by the company during the financial year in respect of : raw materials; components and spare parts; capital goods.ix. .Expenditure in foreign currency during the financial year on account of royalty, know-how, professional, consultation fees, interest, and other matters. x. Value of all imported raw materials, spare parts and components consumed during the financial year and the value of all indigenous raw materials, spare parts and components similarly consumed and the percentage of each to the total consumption.xi. The amount remitted during the year in foreign currencies on account of dividends, with a specific mention of the number of non-resident shareholders, the number of shares held by them on which the dividends were due and the year to which the dividends related. xii. Earnings in foreign exchange classified under the following heads, namely:- export of goods calculated on F.O.B. basis; royalty, know-how, professional and consultation fees; interest and dividend; Other income, indicating the nature thereof.

Preparing simple consolidated financial statements (1) How is a parent-subsidiary relationship identified?IAS 27 defines consolidated financial statements as the financial statements of a group presented as those of a single economic entity.A group is made up of a parent and its subsidiary.Illustration 1 shows an example of a typical group structure.

The illustration shows how a parent company has control over a subsidiary. At Paper F3 level, it is assumed that control exists if the parent company has more than 50% of the ordinary (equity) shares i.e. giving them more than 50% of the voting power.However, there are examples where a holding of less than 50% of the ordinary shares can still lead to control existing. This may be because the parent has: the power over more than 50% of the voting rights by virtue of agreement with other investors the power to govern the financial and operating policies of the entity under statute or an agreement the power to appoint or remove the majority of the members of the board of directors, or The power to cast the majority of the votes at meetings of the board of directors.A typical MCQ may describe a number of different investments and you would need to decide if they are subsidiaries i.e. if control exists.

Consolidated Balance Sheet of H.Ltd.and its Subsidiary S Ltd. As at 31st March 2012PARTICUALRSRS

1. EQUITY AND LIABILITIES2. Share holders Funds3. Share Capital (12000 Equity Shares of RS1 each).. 4. Minority Interest5. Current Libality {Trade Payable (8,000+3,000) }TotalIi AssistsCurrent Assets (16,000+8,000) Total

12000100011000

6. 24000

7. 24000

8.

Explantory Note :- In the above illustration. H.Co. holds only 4/5th of the shares and the remaining 1/5th is being held boy outsider. So,the outsiders have 1/5th shae in the net assets which must be shown by H.Co. on the liability side under the heading Minority Interest. Alternatvely,Minority interest can be computed as shown below: Minority Interest 1/5th in the assets of S.CoLess : 1/5th in the Liabilititeso of S.Co.1/5th in the Net Assets.

MINORITY INTEREST INCOMEMinority interest in the net income of consolidated subsidiaries for the reporting period should be identified adjusted against the income of the group in order to arrive at the net income attributable to the owner of the parent. Minority interests in the income of the group should be separately present in the Consolidate Profit & Loss Statement.

NEGATIVE MINORITY INTERESTA. Adjusted Initially Against Majority Interest: The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses (i.e. to the extent of uncalled capital)B. Set-off Against subsequent profits: If the subsequently reports profit , all such profits are allocated to the majority interest until the minoritys share of losses previously absorbed by the majority has been recovered.ANALYSE PROFITS OF SUBSIDIARY ON/AFTER ACQUISITION1. Profits of Subsidiary Company: For the purpose of preparing the consolidated accounts, all reserves and profits of subsidiary company should be classified into pre and post acquisition reserves and profits. Profits earned by subsidiary company up-to the date of acquisition are capital profits from the view point of holding company.2. Capital Profits: The Net Worth of the Subsidary on the date of Acquisiton is equal to its share capital plus its accumulated reserves or capital profits. Capital Profits mean the profit or reserve of the subsidiary company on the date of acquisition of controlling interest. This is required to be calculated for finding out the Cost of Control.3. Revenue Profits : Revenue Profits mean profits of the subsidiary company after the acquisition of controlling interest. This is required to be calculated for preparing the Consolidated Profit and Loss Account.