Accounts of Holding Companies - Holding Companies, Advanced Corporate Accounting | Advanced Corporate Accounting - B Com PDF Download

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:

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 31^st December 2014:

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 31^st December 2014

Notes to Accounts

Calculation of Goodwill or Cost of Control:

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

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

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

Notes to Accounts

Calculation of Capital Reserve:

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

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 31^st December 2014

Notes to Accounts

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