This document discusses key concepts related to holding companies and consolidation of financial statements. It defines a holding company as one that controls other companies by owning a majority of shares or having the power to appoint directors. It also defines subsidiary companies and minority interest. It provides examples of how to calculate capital profit, revenue profit, cost of control (goodwill), and minority interest for consolidation purposes. Finally, it outlines key points to consider when preparing a consolidated balance sheet, such as treatment of the parent and minority interests, ensuring consistent reporting dates, and eliminating intercompany balances.

1. CORPORATE ACCOUNTING
Dr. D. Heena Cowsar
Assistant Professor of Commerce
Bon Secours College for Women, Thanjavur

2. Syllabus

3. Unit 4- Holding Company
A holding company is one which controls one or more
companies
 by means of holding majority of shares in that company
or companies
 by having powers to appoint—directly or indirectly—the
whole, or a majority, of the Board of Directors of those
companies.
 For eg. XYZ company have a capital of Rs. 100000, ie.,
10000 shares of Rs. 10 each. ABC company acquire 7500
shares of Rs. 10 each from the XYZ company.
Question no.1
1. What is the percentage of shares acquired by ABC
company?

4. Subsidiary Company:
A company controlled by a holding company is known as a subsidiary
company. Practically, it is a part and parcel of the combination
movement in business and is operated for the purpose of controlling
companies engaged in a similar line of business.
Minority interest
Minority interest, also known as non-controlling interest (NCI)
represents an ownership of less than 50% in a company and being
reported in the consolidated financial statements of the parent
company.
 For eg. XYZ company have a capital of Rs. 100000, ie., 10000
shares of Rs. 10 each. ABC company acquire 7500 shares of Rs. 10
each from the XYZ company and MNO company acquired the
remaining shares
Question no.2
2. What is the percentage of shares acquired by MNO company?

5. Main points to be prepared
 Calculation of Capital Profit
 Calculation of Revenue Profit
 Computation of Capital Reserve or Cost of
Control (Goodwill)
 Calculation of Minority Interest and
 Consolidated Balance sheet

6. Capital Profit
 Profit earned before the date of acquisition of
shares.
 It may be a money bought into the company
through internal measures.
 It is a profit not earned in the regular course
of business.
Eg. Income earned through sale of an asset
Income from sale of premium shares

7. How to compute Capital profit
Balance sheet of a S&Co as on 31.03.2015
Liabilities
General Reserve (01.04.2014) – Rs. 10,00,000
Profit & Loss – Rs 500,000
The H& Co acquired shares on 01.07.2014

8. Solution
Calculation of Capital Profit
General Reserve – Rs. 10,00,000
Add: P& L– Rs. – Rs. 125000
(500000 * 3/12)
----------------
Rs. 11, 25,000
-----------------

9. Revenue Profit
It is also called as post acquisition profit.
It is the money, the business earns through trade.
Revenue profit is the outcome of regular transactions
of the business.
It is a profit earned after the date of acquisition of
shares.
How to compute Revenue profit based on the above
mentioned details
Rs. 500,000 – Rs. 125,000 = Rs. 375,000
If for eg. The date of acquisition of shares by H & co is
01.01.2015, Calculate capital & revenue profit.

10. Computation of Cost of Control
 The amount of shares acquired by holding company will be shown as
investment under subsidiary company. Excess paid or less paid for acquisition
of shares in the subsidiary is to be shown as Goodwill or Capital Reserve.
 Format for computation
Rs. Rs.
Amount paid to purchase shares (B/S) XXX
Add: Hco share of capital loss XXX
Add: Goodwill of H co (B/S) XXX
Add: Goodwill of S Co (B/S) XXX
XXX
Less: FV of shares purchased XXX
H Co share of capital profit XXX
H Co share of dividend XXX
H Co share of bonus shares issued by Sco XXX XXX
Goodwill or Capital Reserve XXX

11. Computation of Minority Interest
 NominalValues of the shares acquired XXX
 Add: Minority share of capital Profit XXX
 Add: Minority share of revenue profit XXX
 Less: Minority share of capital Losses XXX
 Less: Minority share of Revenue Losses XXX XXX
____
Minority Interest XXX
Treatment: Minority interest will appear in the liability
side of the balance Sheet.

12. Consolidated Balance sheet
A holding company is required to present to its shareholders
consolidated balance sheet of holding company and its subsidiaries.
The following points need special attention while preparing
consolidated balance sheet.
1) Share of holding company and share of minority (outside
shareholders).
2) Date of Balance sheet of holding company and that of various
subsidiary companies must be same. If they are not so necessary
adjustment must be made before consolidation.
3) Date of Acquisition of control in subsidiary companies.
4) Inter company owing.
5) Revaluation of fixed assets as on date of acquisition,
depreciation, adjustment on revaluation amount etc. which are
discussed here in after.