Holding and Subsidiary Companies, Treatment related to these Accounts, Capital Profit, Revenue Profit, Cost of Control, Minority Intrest

1. Government P.G. College
Dharamshala
Submitted BY :
Akhil, Rajat,
Rishi, Sourabh
Submitted To :
DR. Manjeet Singh
TOPIC: HOLDING & SUBSIDIARY
COMPANY

2. INTRODUCTION OF
HOLDING COMPANY
• When a company acquires majority shares in the ownership capital or
is in a position to influence or control the management of the other
company, the company is called a Holding Company and other
company a Subsidiary.
• Subsidiaries have their separate existence and are managed by
independent governing boards (in case of public enterprises) and
Holding company (in case of commercial enterprises).
• Holding company is the one that holds either the whole of the share
capital or a majority of shares in one or more companies.
• Its object is to promote combination movement
• Example = Coal India is a Holding Company. Bharat Holding Ltd,
Mahanadi Coal Field Ltd are its Subsidiary Company.

4. ADVANTAGES OF
HOLDING COMPANY
• Better quality decisions.
• Better utilization of financial and other reserves.
• Large Capital
• Avoidance of Competition
• Economies of large scale operations
• Secrecy Maintained
• Risk Avoided

5. CONSOLIDATED
BALANCE SHEET
• In India, although a holding company is not required by law
to prepare a consolidated Balance sheet or a consolidated P
& L A/c is of much help to the holding company to show
clear pictures.
• So, in addition to the ‘legal’ Balance sheet as prescribed in
Schedule VI, the holding company may also publish in a
consolidated Balance sheet in which the assets and liabilities
of all the subsidiaries are given along with its own assets and
liabilities as the Balance sheet.

7. CAPITAL & REVENUE
PROFITS
• The holding company may acquire the shares in the subsidiary company either
on the balance sheet date or any date earlier than balance sheet date. All the
profit earned by the subsidiary company till the date of acquisition of shares by
holding company have to be taken as capital profits for the holding company.
Such reserves loose their individual identity and considered as capital profits.
• Profit of the subsidiary company made after the date of the purchase of shares
by the holding company are treated as reserve profits.
• Holding companies share of such profits is added to the profits of the holding
company and share of such profits belonging to the minority shareholders is
added to the amount of the minority interest.
• For example: If A Ltd. Acquire B Ltd. On 1st November 2018 in the Financial Year
2018-19, then profit after 1st November is called Revenue Profit.

8. TREATMENT OF UNREALISED
PROFIT
• If the goods sold at a profit by the subsidiary company to the holding company or vice-versa
remain unsold at the close of the financial year, the profit charged by the company on unsold
goods remains unrealized.
• So, a stock reserve is created and profit is reduced by the unrealized profit.
• It Must be eliminated from the Consolidated Accounts

9. TREATMENT OF FICTITIOUS
ASSETS
• Given on the assets side of the balance sheet,
• If there, then those items must be deducted from the capital profits or
added to the capital loss before distributing the same among the
holding company and minority shareholders.

10. ELIMINATION OF COMMON
TRANSACTIONS
Common transactions should be eliminated. Such transactions are :
1. Goods sold on credit by the holding company to the subsidiary company or vice-versa will
appear as debtors in the Balance Sheet of the company selling goods and as creditors in the
balance sheet of the company purchasing goods.
2. Loans advanced by the HC to the SC or vice-versa appears as an asset in the Balance sheet of
the company which gives such loans and as a liability in the balance sheet of the company
that takes loans.
3. Debentures issued by one company and held by the other company.

11. TREATMENT OF GOODWILL
• Goodwill appearing in the balance sheet of subsidiary company will be shown
along with goodwill (if any) of the holding company.
• In case there is capital reserve it will be adjusted in Capital reserve on
consolidation.
PARENTS PAY:
1,20,000
100%
SUBSIDIARY’S
EQITY:
1,00,000
GOODWILL
20,000

12. COST OF CONTROL
• If the holding company purchases the shares of the subsidiary
company at a price which is more than paid-up value of the shares,
the excess amount paid represents payment for goodwill or cost of
acquiring control of the subsidiary control
• In order to make effective control in the subsidiary, a succession of
purchase is required by the parent company. In other words, when
shares are acquired by the holding company on different dates,
computation of Goodwill needs some careful consideration.

13. MINORITY INTEREST
• When some of the shares of the subsidiary company are held by outsiders, their interest, known
as the minority interest in the subsidiary company, is calculated and shown on the liabilities side
of the Balance Sheet of the holding company.
Add : paid up value of the shares Rs.
held by outsiders ****
Add : proportionate share of the
Sub. company’s profits & res. ****
Prop. increase in the value of
Assets of the sub. co. ****
****
Less : company’s losses ***
decrease in value of assets ***
***
Value of Minority interest ****

15. TREATMENT OF
UNCLAIMED DIVIDEND
• Unclaimed dividend are those dividend which have been
paid by the company but they are not taken or claimed by
the shareholder
• If unclaimed dividend is given in the Balance Sheet of the
subsidiary account, it must the added in full to the total of
minority interest in the consolidated balance sheet.

17. OTHERS
• Other than the discussed treatments the following treatments
are also to be done, if present :
1. Revaluation of assets and liabilities;
2. Preference shares;
3. Treatment of dividend;
4. Proposed dividend;
5. Treatment of debentures.