Group Financial Statement

1. GROUP FINANCIAL STATEMENTS
Dr Manoj

2. HOLDING COMPANY
power/monopoly power, firms may amalgamate – one firm may absorb
another firm in which case their size increases and legal in a larger firm
comes into existence. This implies dissolution of one or more existing firms.
A legal procedure has to be followed for this purpose.
However, Firms may continue without any dissolution by investing in the
shares of another company and thereby, acquiring ownership interest to the
extent of the holding.
If a company holds more than 51% of the issued share capital of another firm
or controls composition of Board of Directors of another firm, the company
holding the majority share is termed as holding company and the company
whose shares are held is termed as subsidiary company.

3. • A partly owned subsidiary is one in which the holding company (or the
group) does not hold all the shares. The interest of shareholders outside
the group is called ‘Minority Interest’.
• While the wholly owned subsidiary is one where all the shares are owned
by the holding company.
• From legal point of view both the companies continue to enjoy, separate
legal entity but from the point of view of investor, lender as well as
management, then, may very well be regarded as single entity.
• Legally accounts of these companies are complied separately but a more
realistic picture will be presented if consolidated accounts especially with
respect to published statements- income and position statements are also
included in published reports.
• For this purpose inter company transactions have to be eliminated from all
stages and a single Profit and Loss Account and Balance Sheet compiled for
the group as a whole.
• If a company is a subsidiary company, it is also deemed to be a subsidiary
of the holding company.

4. ACCOUNTING TREATMENT
It seems to be intention of the companies act that the financial year of holding and
subsidiary firm should end on the same date. Section 129 of The Companies Act
2013 requires that a holding company shall attach to its Balance Sheet the
following documents.
• A copy of the Balance Sheet of the subsidiary.
• A copy of the Profit and Loss Account of the subsidiary.
• A copy of the board of Directors report and auditor’s report.
• A statement of holding company’s interest.
Accounting Standard AS –21 requires that holding company shall also present
consolidated financial statement in addition to the separate financial statements as
stated above.
Consolidated Balance Sheet with respect to the consolidation process is carried out
on a step by step basis so that common transaction are eliminated and the assets
and liabilities of the entire group are presented in a single Balance Sheet and P/L
Account at market prices.

5. The consolidation of the Balance Sheet is carried out in the following steps :
1. Elimination of inter company investments account
2. Determination of Minority Interest:
Elimination of inter company investments account -A holding company by
definition holds majority shares in the subsidiary company which appears
as an investment on the assets side of the Balance Sheet of the holding
company. In the context of subsidiary company it is part of issued capital on
the liability side.
As a first step in the consolidated process the investment account in the
Balance Sheet of the holding company in the subsidiary company is
eliminated and the assets (leaving aside fictitious assets or including an
adjustment for them) and all outside liabilities will be incorporated into the
holding company’s Balance Sheet as shown below :-

6. • Co. H is a holding company
• Co. S is subsidiary of Co. H
• As co. H hold all the shares of co. S so there is no Minority interest
• While making consolidated statement we should eliminate inter co.
investments.
15,000
15,000