Hope you all are doing well.
Here is my question :
Context: We are closing on 31/12/N-1, and at that date, Mother holds 100% of Child A which holds 100% of child B.
Mother => 100% child A = > 100% CHild B
Mother is us, and we, as a group, consolidate on our own.
Our group belongs to a larger group (Grandma) which makes their consolidation on their own, which is totally independent of ours.
During N, those events happened :
- The capital increase from cash injection in Child B by Child A
- Grandma gave Mother, 75% of child C against 49,9% of child B.
Some numbers :
at 31/12/N-1, the book value of the shares of child B in child A was 3K€ (just to say that child B was near zero)
During N, Child A injected 8M€ into child B, at some point, the equity of child B became 8M€
The net equity of child C at the moment of the transfer was 20M€, for a book value of the shares of 4M€ in Grandma.
After all those operations, here are the schemes :
Mother = >; 100% child A = >; 50,1% CHild B = >; 75%€ CHild C
Just focusing on statutory accounting at the moment :
In Child A, when CHild A gave 49,9% of the shares to Grandma, Child A should book the following :
Dt : Loss (PL from the selling of shares) 4M€
Cr : Shares Child B (Balance sheet assets) 4M€
In CHild B, when CHild B received Child C, CHild B should book the following (Book value of CHild A in Grandma was 4M€):
Dt : Shares child C (Balance sheet assets) 3M€
Cr : Gain (PL) 3M€
From a consolidation standpoint :
Mother gave 49,9% of Child B to Grandma, the equity value of child B after capital increase, was 8M€. 49,9% makes it 4M€.
CHild B received 75%€ of CHild C. The total equity value of Child C was 20M€. Mother received 50,1% * 75%€ of Child C which was 37,6% of 20M€. Which was 7,52M€.
For me, I think that without looking at what was booked in the statutory accounts, just on the consolidation level, this operation will lead to recognizing negative goodwill of 7,52€ - 4M€ = 3,52M€ in the PL.
Now, if I take into account what happened in statutory accounts of CHild A and CHild B, as those entities are consolidated in full, their PL will be also integrated in Mother in full. So, the consolidated PL impact of those operations before my consolidation adjustment entry would be a loss of 1M€.
I should book a consolidation entry at the top level in Mother (because is Mother who'll benefit from it) :
In Mother :
Dt : Equity 4,52M€
Cr : Negative goodwill (Profit) 4,52M€
The negative goodwill should appear in our PL in Non-recurring operational income.
Thus, If I look at my consolidated PL, I'll finally have a positive impact on 3,52M€.
What do you think of my analysis, please give me your inputs!
Thank you very much !!!