IPO Accounting

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oleksandr

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Hi there,

I would greatly appreciate it if you could help me with the following question:

Suppose you have a parent co and its subsidiary. How does the subsidiary's IPO affect the parent's balance sheet/income statement?
Where can I read up on that?

Thanks!
 
if it is consolidated it is presented just as if the parent issued it. increase equity, increase cash flow from financing.

if presented on a consolidating basis, it just is broken out seperate and rolled up into the consolidation.
 
Thanks but could you please be a little bit more specific? Why would it be consolidated if the subsidiary goes public? I presume that would depend on the % ownership of the parent... Sorry if it sounds like a dumb question.
 
@Olesksandr you question is not dumb. When you said parent, the automatic assumption is that the subsidiary is owned and monitored by another (one single parent). And it��s the duty of the parent company to give account of this IPO of one of its children. There do this by reporting it on their consolidated financial statement.

Well if the parents let say own 60% of this subsidiary (I do not know if we can call them parents again), they have to give account of this 60% on their consolidated balance sheet. As Ralph said, they have to increase equity by 60% and cash inflow by 60%. The thing is that the remaining 40% has to be reported somewhere.

If the remaining 40% is owned by another parent company (again, its hard to call it parent has they do not hold 100% of the subsidiary). This company has to then give account of the remaining 40%.

Come year end, and if this subsidiary makes good moneys and decides to payout dividends, Parent A will have to report for dividends paid by 60% of total dividend paid by the subsidiary, and Parent B will have to report 40% of total dividend as dividends paid by one of its subsidiary.

I hope this helped or at least made sense :-)
 
Sugar,

Thanks for the explanation. I understand consolidation as regards the majority shareholder, minority shareholder. I'm a little confused how it works if the subsidiary goes public. My reasoning is like this:

1. The "parent" still owns a block of shares (>50%) which qualifies it for a majority holder. Hence, the conventional consolidation rules should apply. (On second thoughts, doesn't it look like a carve-out and NOT an IPO?)

2. The "parent" washes its hands off of the "subsidiary", hence the balance sheet positions decrease by the amount of the subsidiaries assets. (Though this doesn't make a lot of sense to me.)

Does it make sense?
 
Basically the relationships outlined previously by sugar and ralph hold. Note that CFs are distorted and create an aberration that an analyst should be aware of. Also with holdings less than 50% everything else is unconsolidated on the parent�s BS. Over 50% there is a consolidation of the subsidiary�s holdings on the parent�s BS, this is a reason why many companies elect to hold lesser portions of ownerships in certain companies; if the increase in liabilities will increase D/E & leverage ratios.

*Edit* minority shareholder holdings of a company are a major example of "off balance sheet financing".



Edited 1 time(s). Last edit at Friday, June 23, 2006 at 01:42AM by jamespucyk.
 
Thanks, James!

Just to put it in prospective, if the subsidy goes public and issues 1 million shares, the parent should retain at least 500,000 in which case the former subsidiary's assets are consolidated. Do I get it right?

Thanks!
 
at 50%, i believe that the firm needs to consolidate but I'm not 100% and it's friday so I'm not looking up anything, anyone else back me up?
 
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