holding company accounts

1. ADVANCED FINANCIAL ACCOUNTING
HOLDING COMPANY ACCOUNTS

2. Definition
• Definition: Section 4 of the companies Act 1956 defines a Holding
company and Subsidiary company by relation to each other.
• According to this section, a company shall be deemed to be a subsidiary
company of another if, and only if:
1. That other company controls the composition of the Board of Directors
;or
2.That other company holds more than half of the nominal value of the
equity share capital ; or
3.That company is a subsidiary of any other company which is a subsidiary
of another company.

3. Accounts
Under Section 212 of the Companies Act, the following must be attached to the Balance sheet of a Holding company:
1. A copy of the Balance sheet of the subsidiary companies.
2.A copy of Profit and Loss Account.
3.A copy of the report of its Board of Directors,
4.A copy of the report of the Auditors ,
5.A statement of the holding company interest in Subsidiary
company
6. The profits of the subsidiary as far as they concern the
holding company.

4. Consolidated Balance sheet.
As per AS -21 a Holding company must prepare a consolidated Balance sheet in
addition to its Balance sheet.
Consolidated balance sheet is a Balance sheet incorporating the assets and liabilities
of Holding company and its Subsidiary company.

5. Steps in preparation for Consolidated Balance
sheet
Step -1: Calculation of Ratio of holdings in subsidiary company shares
1.Ascertain number of shares in Subsidiary company, by dividing share capital by face value of each share.
2.Ascertain number of shares held by the Holding company.
3.Ascertain number of shares held by the Minority shareholder.
4.Calculate ratio of holding between Holding company and Minority Shareholder.

6. Step - 2 : Calculation of Pre-acquisition profits or capital profits
Capital profits are the profits earned by the Subsidiary
company before the date of acquisition of Majority shares by
the Holding company.
Capital profits includes the following:
1.Reserves opening balance,
2.Profit &Loss a/c opening balance,
3.Current year Profit or Loss up to the date of acquisition,
4.+ Increase in value of Assets
5.- Decrease in value of Assets

7. Current year profits are calculated as follows:
1.Profit and Loss account closing balance , XXX
2.Less Profit &Loss a/c opening balance, XXX
3.Add Transfer to reserve during the year XXX
Current year profits XXX
Total capital profits are divided between Holding company
and Minority shareholder as per Ratio calculated in step -1

8. Step -3:Calculation of Post-acquisition profits or Revenue profits
Revenue profits are the profits earned by the
Subsidiary company after the date of acquisition.
OR
Current year profits after the date of acquisition.
Total revenue profits are divided between Holding
company and Minority shareholder as per Ratio
calculated in step -1

9. Step - 4: Calculation of Minority interest.
Minority interest refers to the share of Minority
shareholders in Subsidiary company’s share capital,
Capital profit and revenue profits.
Minority interest is calculated as follows:
1.Face value of share capital held by the Minority shareholders
2.Add: Capital profits belongs to Minority shareholders
3.Add: Revenue profits belong to Minority shareholders.

10. Step -5:Calculation of Goodwill or Cost of control or capital reserve
Cost of control refers to the cost incurred by the
Holding company to acquire the controlling
interest in Subsidiary company.

11. Cost of control is calculated as follows:
1.Investments of Holding company - XXXX
2.Less Benefits from Subsidiary company:
Share capital of subsidiary co belongs to Holding co - XXXX
Holding co share in Capital profits - XXXX
Difference may be either Good will/Capital reserve - XXX
+/- Goodwill of Holding company if any ) - XXX
XXX
( when investments are higher than net benefits the difference is Good will otherwise the difference is capital reserve )

12. Step - 6: Calculation of unrealized profits.
Unrealized profits are the profits earned by either Holding
company or Subsidiary company on sale of goods, which are
remaining unsold and included in stock as on the date of
acquisition of majority shares by Holding company.
Unrealized profits are deducted from P&L a/c on Liabilities side and from stock
on assets side while preparing consolidated balance sheet.

13. Step -7: Adjustment of inter company Owings.
Mutual indebtedness between Holding company and Subsidiary company are
adjusted by deducting such amounts from sundry debtors and sundry
creditors.

14. Consolidated Balance sheet
Liabilities & Assets Amount
Capital &Liabilities : Share capital ( Share Capital of Holding co only)
Capital Reserves ( Cost of control balance)*
General Reserves ( General reserves of Holding co only)
Profit & Loss A/c (Holding co + H Co Share in Revenue profits)
Debentures (Debentures of H co + S co Less Inter Co holdings)
Creditors( Creditors of H co + S co Less Inter Co holdings)
Bills Payable(Bills Payables of H co & S co Less Inter Co holdings)
O/s Expenses
Minority Interest
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
Total XXXX
Assets : Good Will ( Cost of control balance)*
Land & Building (L&B of H co + S co Less Inter Co holdings)
Plant & Machinery (P&M of H co + S co Less Inter Co holdings)
Furniture (Furniture of H co + S co Less Inter Co holdings)
Investment (Investments of Holding company are excluded)
Stock (Stock of H co + S co Less Stock reserve)
Debtors (Debtors of H co + S co Less Inter Co holdings)
XXX
XXX
XXX
XXX
XXX
XXX
XXX

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