Accounts of Holding Companies - Holding Companies, Advanced Corporate Accounting B Com Notes | EduRev

Advanced Corporate Accounting

B Com : Accounts of Holding Companies - Holding Companies, Advanced Corporate Accounting B Com Notes | EduRev

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Accounts

The following documents in respect of a subsidiary or subsidiaries should be attached with the balance sheet of a holding company:

(a) A copy of Balance Sheet of Subsidiary.
(b) A copy of its Statement of Profit and Loss.
(c) A copy of Report of its Board of Directors.
(d) A copy of Report of its Auditors.
(e) A Statement of Holding Company’s interest in Subsidiary.

According to section 129(3) of the Companies Act 2013, a holding company shall prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own, which shall also be laid before the annual general meeting of the company along with the laying of its financial statements.

Consolidated Balance Sheet

In addition to the legal balance sheet as prescribed in Schedule III, the holding company may also publish a Consolidated Balance Sheet in which the assets and liabilities of all the subsidiaries are shown along with its own assets and liabilities as the Balance Sheet of a head office incorporates the assets and liabilities of its branches. By way of Consolidated Balance Sheet, the investments of the holding company in the subsidiary company are replaced by net assets.

Minority Interest

When some of the shares of the subsidiary company are held by outsiders (other than the holding company), their interest in the subsidiary company is called as Minority Interest in subsidiary company. The minority interest is shown on the liabilities side of the Balance Sheet of the holding company under the head ‘Share Capital’. The minority interest can be calculated as follows:

Paid up value of shares held by outsiders xxx
Add: Proportionate share of capital/ revenue profit and/or reserves xxx
xxx
Less: Proportionate share of capital/ revenue losses xxx
Value of Minority Interest xxx


If the preference shares are held by outsiders, paid up value of such shares together with dividend thereon(if there is profit)is added to the value of minority interest.

Cost of Control (Goodwill) or Capital Reserve

If the holding company purchases the shares of the subsidiary company at a price more than their paid up value, the excess is cost of control or goodwill, if there is no reserve or profit or loss balance in the subsidiary company on date of acquisition of shares of the subsidiary company.

If the shares are purchased at a price which is less than the paid up value of the shares, the difference is taken as capital reserve or profit. The goodwill or cost of control is shown on the assets sideand the capital reserve or profit is shown on the liabilities sidein the Consolidated Balance Sheet.

Illustration 1: The following are the liabilities and assets of the holding company H Ltd. and its subsidiary S Ltd. as on 31st December 2014:

 

Liabilities

H Ltd. Rs.

S Ltd. Rs.

Assets

H Ltd. Rs.

S Ltd.

Rs.

Share Capital:

 

 

Sundry Assets

260000

240000

Shares of Rs. 10

400000

200000

Investments:

 

 

each

80000

20000

20000 shares in S

300000

 

Profit and Loss

40000

16000

Ltd.

 

 

Account

40000

4000

 

 

 

General Reserve

560000

240000

 

560000

240000

Current Liabilities

 

 

 

 

 

 

H Ltd. acquired the shares of S Ltd. on 31st December 2014. Prepare the Consolidated Balance Sheet.

Solution: Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as on 31st December 2014

Particulars

Note

Amount

 

No.

(Rs.)

A. Equity and Liabilities

Shareholders’ Fund

a. Share Capital

1

400000

b. Reserves and Surplus

2

120000

Current Liabilities

H Ltd.                  40000

S Ltd.                    4000

 

 

 

44000

Total

 

564000

B. Assets

Non-current Assets

Fixed Assets

Tangible Assets - Sundry Assets

H Ltd.                 260000

S Ltd.                 240000

 

 

 

 

 

 

500000

Intangible Assets - Goodwill

 

64000

Current Assets

 

Nil

Total

 

564000

 

Notes to Accounts

Note No.

Particulars

Amount

(Rs.)

1.

Share Capital

Issued and Subscribed

 

 

40000 Equity shares of Rs. 10 each

400000

2.

Reserves and Surplus

 

 

General Reserve

40000

 

P & L A/c

80000

120000

 

Calculation of Goodwill or Cost of Control:

 

Rs.

Rs.

Cost of Shares in S Ltd.

Less: Face value of shares in S Ltd.

200000

300000

Profit and Loss Account

20000

 

General Reserve

16000

236000

Goodwill or Cost of Control

 

64000


Illustration 2: The liabilities and assets of the holding company A Ltd. and its subsidiary B Ltd. as on 31st December 2014 are as follows:

Liabilities

A Ltd.

B Ltd.

Assets

A Ltd.

B Ltd.

 

Rs.

Rs.

 

Rs.

Rs.

Share Capital: 

72000

36000

Sundry Assets Investments:

 120000

 72000

 Shares of Re. 1 each

18000

12000

36000 shares in B Ltd.

45000

 

Profit and Loss Account

12000

6000

 

 

 

 General Reserve

63000

18000

 

 

 

Current Liabilities

165000

72000

 

165000

72000


A Ltd. acquired the shares in B Ltd. on 31st December 2014. Prepare the Consolidated Balance Sheet.

Solution: Consolidated Balance Sheet of A Ltd. and its Subsidiary B Ltd. as on 31st December 2014

Particulars

Note

No.

Amount

(Rs.)

A. Equity and Liabilities

Shareholders’ Fund

   

a. Share Capital

1

72000

b. Reserves and Surplus

2

39000

Current Liabilities    
A Ltd.                  63000  

B Ltd.                 

   18000

81000

Total

 

192000

B. Assets

Non-current Assets

Fixed Assets

Tangible Assets - Sundry Assets

A Ltd.                 120000

B Ltd.                 72000

 

 

 

 

192000

Intangible Assets

 

Nil

Current Assets

 

Nil

Total

 

192000


Notes to Accounts

Note No.

Particulars

Amount(Rs.)

1.

Share Capital

Issued and Subscribed

 

 

72000 Equity shares of Re. 1 each

72000

2.

Reserves and Surplus

 

 

Capital Reserve

9000

 

General Reserve

18000

 

P & L A/c

12000

39000


Calculation of Capital Reserve:

 

Rs.

Rs.

Cost of Shares in B Ltd.

 

45000

Less: Face value of shares in B Ltd.

36000

 

Profit and Loss Account

12000

 

General Reserve

6000

54000

Capital Reserve

 

9000


Illustration 3: The following are the liabilities and assets of the holding company P Ltd. and its subsidiary Q Ltd. as on 31st December 2014. P Ltd. acquired 12000 shares in Q Ltd on 31st December 2014. Prepare the Consolidated Balance Sheet.

Liabilities

P Ltd. Rs.

Q Ltd. Rs.

Assets

P Ltd. Rs.

Q Ltd. Rs.

Share Capital:

 

 

Sundry Assets

48000

24000

Shares of Re. 1

36000

15000

Investments:

 

 

each

24000

9000

12000 shares in Q

12000

 

Sundry Liabilities

60000

24000

Ltd.

60000

24000


Solution: Share of holdings by P Ltd.in Q Ltd. = 12000 shares out of 15000 shares = 80% Share of holdings by Outsiders in Q Ltd. = 3000 shares out of 15000 shares = 20% Consolidated Balance Sheet of P Ltd. and its Subsidiary Q Ltd. as on 31st December 2014

Particulars

Note

No.

Amount

(Rs.)

A. Equity and Liabilities

Shareholders’ Fund

 

 

a. Share Capital

1

36000

b. Reserves and Surplus

 

Nil

Minority Interest

Current Liabilities

P Ltd.                   24000

 

3000

Q Ltd.                   9000

 

33000

Total

 

72000

B. Assets

Non-current Assets

Fixed Assets

Tangible Assets - Sundry Assets

P Ltd.                 48000

Q Ltd.                24000

 

72000

Intangible Assets

 

Nil

Current Assets

 

Nil

Total

 

72000


Notes to Accounts

Note No.

Particulars

Amount

(Rs.)

1.

Share Capital

 

 

Issued and Subscribed

 

 

36000 Equity shares of Re. 1 each

36000


Calculation of Minority Interest = 3000 shares of Re. 1 each = Rs. 3000

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