ADVANTAGES OF CONSOLIDATION Single source document Intrinsic value of share Return on investment in subsidiaries Acquisition of subsidiary Evaluation of holding company

1. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Affiliated to Institution of G.G.S.IP.U, Delhi
Corporate Accounting
Paper Code-BCOM202
Assistant Professor
Neha Spall

2. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Affiliated to Institution of G.G.S.IP.U, Delhi
Holding companies account

3. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Holding and subsidiary company
Holding
company
• As per sec 2 (46) holding company, in
relation to one or more other companies,
means a company of which such companies
are subsidiary companies
Subsidiary
company
• As per sec.2(86) subsidiary company in
relation to any other company, means a
company in which the holding company (I)
Controls the composition of BOD (II) Controls
more than half of the total share capital.

4. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
CONSOLIDATION OF FINANCIAL
STATEMENT
– ADVANTAGES OF CONSOLIDATION
1. Single source document
2. Intrinsic value of share
3. Return on investment in subsidiaries
4. Acquisition of subsidiary
5. Evaluation of holding company
• DISADVANTAGES OF CONSOLIDATION
1. Concealment of information
2. Misleading information

5. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Wholly owned subsidiary company
• From the following extract of the H Ltd. and S Ltd. ,
prepare a consolidated balance sheet of H Ltd. and
its subsidiary S Ltd.
Liabilities H Ltd. S Ltd Assets H Ltd. S Ltd.
Share capital
per share of
Rs. 10 each
10,00,000 5,00,000 Sundry assets 7,00,000 5,40,000
Other
liabilities
2,00,000 40,000 Investment in
50,000 shares
of S Ltd. at
par
5,00,000 _
total 12,00,000 5,40,000 12,00,000 5,40,000

6. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Consolidated balance sheet
AS PER SHEDULE VI
• Consolidated balance sheet of H Ltd and its
subsidiary S Ltd as on……
S
no.
Particulars Not
e
Rs.
I
II
EQUITY AND LIABILITIES
1. Share holders funds
(a) share capital
2 . Other liabilities
Total equity and liabilities
ASSETS
Sundry assets
Total Assets
1
2
3
10,00,000
2,40,000
12,40,000
12,40,000
12,40,000

7. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Notes to account
1. Share capital
issued subscribed and fully paid up
1,00,000 equity share of Rs.10 each (H Ltd) 10,00,000
2. Other liabilities
H Ltd. 2,00,000
S Ltd. 40,000
3. Other Assets
H Ltd. 7,00,000
S Ltd. 5,40,000

8. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Minority interest
• When the share is being held jointly by the holding company
and outside shareholders or minority interest holders.
In brief, the total interest of the outside shareholders consist
of :
I. Their proportionate share in the share capital of the
subsidiary company
II. Their proportionate share in the reserves (both pre –
acquisition and post- acquisition ) of subsidiary company.
III. Their proportionate share in the surplus (both pre –
acquisition and post- acquisition ) of subsidiary company.

9. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Minority interest
• From the following extract of the H Ltd. and S Ltd. ,
prepare a consolidated balance sheet of H Ltd. and
its subsidiary S Ltd.
Liabilities H Ltd. S Ltd Assets H Ltd. S Ltd.
Share capital
per share of
Rs. 10 each
10,00,000 5,00,000 Sundry
assets
8,00,000 5,40,000
Other
liabilities
2,00,000 40,000 Investment
in 40,000
shares of S
Ltd. at par
4,00,000 _
total 12,00,000 5,40,000 12,00,000 5,40,000

10. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Consolidated balance sheet AS PER
SHEDULE VI
• Consolidated balance sheet of H Ltd and its
subsidiary S Ltd as on……
S no. Particulars Note Rs.
I
II
EQUITY AND LIABILITIES
1. Share holders funds
(a) share capital
2. Minority interest
3 . Other liabilities
Total equity and liabilities
ASSETS
Sundry assets
Total Assets
1
2
3
4
10,00,000
1,00,000
2,40,000
13,40,000
13,40,000
13,40,000

11. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Notes to account
1. Share capital
issued subscribed and fully paid up
1,00,000 equity share of Rs.10 each (H Ltd) 10,00,000
2. Minority interest
(1/5 share in the share capital of S Ltd.) 1,00,000
3. Other liabilities
H Ltd. 2,00,000
S Ltd. 40,000
4. Other Assets
H Ltd. 8,00,000
S Ltd. 5,40,000

12. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75

13. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Example
• For example if Rs.50,000 shares (face value or nominal
value) is purchased by the holding company for
Rs.60,000, the investments would represent : non
current investments ( at cost ): Rs.60,000. the goodwill
will be calculated as under:
Investment at cost – paid up value of share purchased
Rs.60,000 – Rs.50,000 = Rs.10,000
On the other hand if purchased for Rs.45,000, then
5,000 will be shown as capital reserve on consolidation.

14. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Cost of control
• From the following extract of the H Ltd. and S Ltd. , prepare a
consolidated balance sheet of H Ltd. and its subsidiary S Ltd.
Liabilities H Ltd. S Ltd Assets H Ltd. S Ltd.
Share capital per share
of Rs. 100 each
10,00,000 5,00,000 Sundry assets 7,00,000 6,20,000
Creditors 2,00,000 50,000
Reserves _ 20,000 Investment in 5,000
shares of S Ltd. at cost
6,00,000 _
Profit and loss account 1,00,000 50,000
Total 13,00,000 6,20,000 13,00,000 6,20,000

15. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
CALCULATION OF COST OF CONTROL OR GOODWILL
• Cost price of the investment in the shares of S Ltd.
Rs.6,00,000
Less: the nominal value of the shares acquired Rs.5,00,000
Rs.1,00,000
Less: share in pre-acquisition reserves Rs.20,000
share in pre-acquisition surplus Rs50,000
Rs.30,000

16. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Consolidated balance sheet AS PER SHEDULE VI
Consolidated balance sheet of H Ltd and its subsidiary S Ltd as on……
S no. Particulars Note Rs.
I
II
EQUITY AND LIABILITIES
1. Share holders funds
(a) share capital
(b) reserves and surplus
2. Minority interest
3 . current liabilities
Trade payable
Total equity and liabilities
ASSETS
Non current assets
(a) Fixed assets
(i) Tangible (assumed)
(ii) Intangible
Total Assets
1
2
3
4
5
10,00,000
1,00,000
_
2,50,000
13,50,000
13,20,000
30,000
13,50,000

17. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75

18. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
Inter company transaction
The inter company transaction are to be
eliminated while preparing the consolidated
balance sheet like:
a. Loan
b.Debtors and Creditors
c. Similarly bills of exchange

19. TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75
•Thank you