When the subsidiary company has accumulated profit or loss the holding company may acquire the shares of the subsidiary company at a premium or at a discount. In such cases as a preliminary to the preparation of consolidated balance sheet, goodwill or capital reserve resulting from out of acquisition of shares in the subsidiary must be ascertained.
Goodwill or Cost of Control may be stated as the excess price paid for the investment over and above the share in equity or the net assets acquired by the holding company. Conversely Capital Reserve is the excess of the share in equity or net assets of the subsidiary over and above the price paid for the investment.