HOLDING COMPANY V/S

SUBSIDIARY COMPANY –
ACCOUNTING PERSPECTIVE
by :
DR. T.K. JAIN
AFTERSCHO☺OL
centre for social entrepreneurship
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bikaner 334001 rajasthan, india
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5 DECEMBER 09 www.afterschool.tk 1
 My word.....
My purpose here is to give overview regarding
consolidation of accounts of holding and subsidiary
company for budding entrepeneurs. This is a basic
information. For details read other books. Be
entrepreneur, change the society, change the world. Go
with positive spirit. Please pass this presentation to all
those who might need it. Let us spread knowledge as
widely as possible. I welcome your suggestions. I also
request you to help me in spreading social
entrepreneurship across the globe – for which I need
support of you people – not of any VIP. With your help, I
can spread the ideas – for which we stand....
5 DECEMBER 09 www.afterschool.tk 2
 What is a subsidiary company?

Sec 4 : of company act : a company is a

subsidiary of another if the other
1. controls the composition of its board of
directors or
2. has more than half of its equity shares or
voting rights

5 DECEMBER 09 www.afterschool.tk 3
 What is a holding company ?

It is not defined, but from definition of

subsidiary company, it is clear that holding
company is the company which has majority
shareholding in another company called
subsidiary comapany

5 DECEMBER 09 www.afterschool.tk 4
 Legal requirements : Sec. 212
Holding company must disclose the following
along with its accounts :
1. balance sheet of subsidiary
2. profit and loss statement of subsidiary
3. report of the board of directors of subsidiary
4. statement of interest in subsidiary and
changes in interest during last year
5. auditor report of subsidiary and if any
information is not available, details about that
5 DECEMBER 09 www.afterschool.tk 5
 Part I & II of schedule VI
regarding holding company
Part I : the holding company's balance sheet
must merge the balance sheet of subsidiary
Part II : the P & L account of holding company
must merge P & L account of subsidiary
* intercompany transactions between holding
and subsidiary company must be eliminated
* contingent liabilities will not have liabilities
regarding subsidiary company
5 DECEMBER 09 www.afterschool.tk 6
 Statement of interest

It is prepared by holding company

it shows the extent of interest in subsidiary
company

5 DECEMBER 09 www.afterschool.tk 7
 What is minority interest ?

The share of equity held by other than holding

company is called minority interest. It is
calculated by following formula :
Share in equity + share in reserve + share in
profit from revaluation of assets+share in profit
– share in losses – share in losses from
revaluation.
5 DECEMBER 09 www.afterschool.tk 8
 How to do consolidation of
accounts?
See investment account in holding company –
it will show shares of subsidiary and other
investments. From this remove shares of
subsidiary.
Remove share capital of subsidiary company
add all assets and liabilities (removing inter
company transactions ) and find minority
interest and consolidate the two accounts.
5 DECEMBER 09 www.afterschool.tk 9
 Example of consolidation....

H is a holding company and gives following

details :
liabilities assets
shares 1000 investments in S 1000
creditors 200 debtors 400
profit 200 (debtors inclucinding S (100))
5 DECEMBER 09 www.afterschool.tk 10
 Accounts of S (subsidiary
company )

S company and gives following details :

liabilities assets
shares 1200 Plant and machine 1400
creditors 400 debtors 400
profit 200 (debtors include H: 50)

5 DECEMBER 09 www.afterschool.tk 11
 Consolidated balance sheet

:
liabilities assets
shares 1000 Plant & mach. 1400
Minority 233
creditors 450 debtors 650
profit 367 TOTAL 2050
TOTAL 2050
5 DECEMBER 09 www.afterschool.tk 12
 NOTES...

We have clubbed together all the heads. While

clubbing, debtors and creditors were adjusted
(for transactions between holding and
subsidiary company) thus these figures are not
simple additions but they have been adjusted.

5 DECEMBER 09 www.afterschool.tk 13
 What is preacquisition profit /
loss?
Holding company acquires subsidiary on a
particular date, the profit / loss before that date
is called pre-acquisition profit / loss
it is shown separately in the holding company's
balance sheet.
Suppose profit for the year was 100. Holding
company acquired subsidiary in middle of the
year (on 1/10/09) so pre-acquisition profit is
50.
5 DECEMBER 09 www.afterschool.tk 14
What is capital profit / goodwill ?

If holding company pays less than the worth of

the subsidiary, there is capital profit
if holding company pays more than the worth
of the subsidiary, there is goodwill.
Example : If the price of equity of subsidiary is
100, but holding company pays Rs. 120. There
is goodwill of 20.
5 DECEMBER 09 www.afterschool.tk 15
 Download link....

http://www.scribd.com/people/documents/3704370
http://www.scribd.com/doc/28692491/How-to-Prepa
http://www.scribd.com/doc/28442846/Accounting-f
http://www.scribd.com/doc/28013426/Accounting-f
http://www.scribd.com/doc/27560955/Accounting-f
http://www.scribd.com/doc/27239762/How-to-Set-U

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 Download more resources

http://www.esnips.com/web/onlinespeeches

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 DOWNLOAD MORE
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 Download more material...

http://www.scribd.com/doc/13094880/Economics-A
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http://www.scribd.com/doc/14630181/Accounting-L
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