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When the value of "Investment in subsidiary" in the holding company's balance sheet is more than the book value of the net assets acquired, the difference represents

When the value of "Investment in subsidiary" in the holding company's balance sheet is more than the book value of the net assets acquired, the difference represents Correct Answer Goodwill on consolidation

The correct answer is Goodwill on consolidation

Important PointsA. When the value of "Investment in subsidiary" in the holding company's balance sheet is more than the book value of the net assets acquired:

  • When the value of "Investment in Subsidiary" in the holding company's Balance Sheet is more than the book value of the net assets acquired, the difference represents "Goodwill on Consolidation". 
  • In this case, Investment in the Subsidiary will not cancel out against the share capital of the subsidiary unless goodwill equal to the difference of the two items is shown on the assets side of the Consolidated Balance Sheet.

B. When the value of "Investment in subsidiary" in the holding company's balance sheet is less than the book value of the net assets acquired:

  • Conversely, if the value of Investment in the Subsidiary is less than the book value of the net assets acquired, the difference represents Capital Reserve on Consolidation.
  • In this case also, Investment in a Subsidiary will not cancel out against the share capital of the subsidiary unless capital reserve equal to the difference of the two items is shown on the liabilities side of the Consolidated Balance Sheet.

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