Important points for holding company with subsidiary
The following points are important:
1) The first approach is to determine the effective shareholding by the holding company and Minority Interest in the sub-subsidiary company.
For the holding company the effective shareholding is given as:
80% x 75% = 60%
and the minority interest will be computed in 2 stages: - i.e.
Direct minority interest (100% - 75%) = 25%
TOTAL Minority interest = 40%
Indirect minority interest (20% x 75%) = 15%
2) Care should be taken when computing goodwill. The following approach will normally be used:
If the holding company acquired the subsidiary company after the subsidiary company has acquired the subsidiary company, the goodwill can be computed as a combined figure and the profit and loss and capital reserves on acquisition of the subsidiary company will be on the same date the holding company acquired subsidiary company.
If the holding company acquires the subsidiary company and thereafter the subsidiary company acquires the sub-subsidiary company then goodwill should be computed in two stages i.e. At the point when the holding company acquired subsidiary company and on the date when the group acquired the sub-subsidiary company.