The hidden reserves (also referred to as fair value adjustments) are the difference between the value of a balance sheet item at the time of consolidation and its value on the balance sheet of the investee company, the latter value being less if the item is on the asset side, or greater if on the liabilities side.
Hidden reserves affect the consolidation of investments.
When the book value method is applied, and the differential is located on the asset side, hidden reserves are eliminated up to the amount of the group's share.
When the revaluation method is used, one of the following applies:
The balance sheet items are already revalued on the corporate valuation, in which case there is no need to make entries for the hidden reserves. The balance sheet items are revalued when eliminating the group's share and the minority share during consolidation of investments.If the group's share of hidden reserves exceeds the asset-side differential, these can be eliminated proportionally, or according to priority settings.
Depending on the balance sheet item in question, the eliminated hidden reserves can be amortized during subsequent consolidation.
More terms such as hidden reserves in Dictionary H.
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