Wednesday, December 13, 2006

Njoi the confusion … Once again

After 3 days of wrkng on ths assignment, now I hav got some idea of wht the concept is and how to wrk on it. But, its full of calculations and a total brain wrk.

Ok … so get ready to get more confused…. Ha aha ha….

The situation is like, we got a private equity assignment for a company A. Now, the client company has other two group companies B & C. Their promoters (shareholders) hav plans to consolidate operations of all the three companies in future. Now, one of the investors wants to know the exact impact of consolidation exercise and wants to check the consolidated financial statements.

As I explained in my previous post, ther r 3 companies A, B & C all promoted by common promoters.

Co. A is listed co. (public ltd. co. whose shares r listed in stock exchange) with promoters holding some % of equity and public holding some % of equity. V r given its Share Capital and Reserves.

Co. B is unlisted co. where promoters r holding the entire equity, Share Capital & Reserves provided.

Co. C is newly ptromoted by Co. A, B & individual promoters.
V r given Co. C’s Sh. Cap & its equity holding pattern wher A hold some %, B some % , other promoters some % and Private equity investors or outsiders (Minority Interest – called as per Co. Law) holding some % of equity.

The proposal is:

In Year 2006-07, Co. A will acquire say 60% equity of Co.B wher Co. A shall issue some amount of shares in consideration to the shareholders of Co.B.

So, now v hav to prepare consolidated accounts of Co.A for 2006-07, making adjustments in Profit & Loss A/c and Balance Sheet …... As Co. A hav to pay some amt. of shares, so Co. B’s Net worth wld change to the extent consideration recd. from A and the presentation in consolidated B/S wld change to tht extent. Ther r lot of calculations keeping in mind the swap ration n all to adjust the reserves of the co. …. But .. if I explain tht, u all wld go mad… :)))

Now, In 2007-08, Co. C will acquire some % of equity of Co. A by issuing some amt of shares of C to shareholders of A and some % of equity of B by again issuing some amt of shares to shareholders of B (As A holds 60% of B and C holds some % of A, so C will hold some % indirectly as well as directly).

So, now v all r busy preparing their individual financial statements, thn consolidated and thn projected ones for future years.

The most difficult thng is …. How to give the treatment of investments made by A & B in C and investment made by A in B, whether to knock off from equity of C or to adjust against the reserves. And another difficult thng is Presentation. After giving all these effects, how to present those financial statemtents showing those adjustments… ??

So …. hands on ur head .... I guess u wanna kill me ….. hahaha ah…. I can understand tht … v too had the same feelings when our manager was explaining it…. :)))

4 comments:

Prakash Venkat said...

Actually I understood the post quite clearly ..... Ofcourse I have many more doubts as Iam not an expert in this area (The more u know more the doubts :) ) That seems to be a challenging work and involving lots of calculations ......

Urvi said...

@PV... Oh thtz good.. it means ths expln. was better :)

I knw wht al doubts u mst b having.. but its difficult to explain it verbally .. :(

Yaa.. lot of calculations.. but njoying it :)

Ricky said...

My head is spinning...lol. I am a Business student too but this is too much...wait...three much :P

It may also take me three reads to understand it completely ;-)

Urvi said...

@ricky... hahahaha... thtz good.. these r the tru skills of making ppl lost... :)))