Holding Company, Consolidated Balance sheet proforma, Cost of control format, minority interest format, calculation of Capital & Revenue Profit with time ratio, share ratio - Exercises

1. Holding COMPANY
DR. D. HEENA COWSAR
ASSISTANT PROFESSOR OF COMMERCE
BON SECOURS COLLEGE FOR WOMEN,
THANJAVUR

2. Consolidated Balance sheet
Liabilities Amount Assets Amount
1. Share Capital:
Share Capital of Holding Co XXX
6. Fixed Assets:
i) Cost of Control XXX
2. Reserves & Surplus:
i) Capital Reserves of H& Co XXX
ii) Plant & Machinery : H& Co
S& Co
XXX
XXX XXX
Add: Share of Preacquisition Reserves & Profits of S & Co XXX XXX iii) Other Fixed Assets: H & Co
S& Co
XXX
XXX XXX
ii) Revenue Profit of H & Co XXX 7. Investments of H& Co XXX
Add: S& Co share in revenue Profit XXX XXX 8. Current Assets Loans & Advances: H& Co XXX
iii) P&L of H& Co XXX S& Co XXX
Add: Revenue Profit of H& Co XXX XXX
XXX Less: Inter company Owings XXX
Less: Unrealised Profit XXX XXX Less: Unrealised Stock XXX XXX
3. Loans : H& Co XXX 8. Miscellaneous Expenses XXX
Add: S& Co XXX XXX
4. Current Liabilities & Provisions:
H& Co XXX
S& Co XXX XXX
5. Minority Interest XXX
XXX XXX

3. 1. Elimination of common transactions
It is also called as Mutual Owings. Both the Holding & Subsidiary company
mutually understands and owe money to each other like buying & Selling of
Goods, Lending & borrowing of money, Rendering service to each other etc. it
mainly affect in the following transactions.
Debtors & Creditors
Bills receivable & Bills Payable
Loan payable & loan receivable
Accounting treatment:
If the same amount shown by both the companies, it can be reduced on both
sides of the consolidated B/S.

4. Provision for Unrealized Profit
Definition: Profit which has been made but not yet realized in the accounting year, such as
a stock which has risen in value but is still being held unsold.
If subsidiary company sells the goods to holding company or holding company sells the
goods to subsidiary company at profit and if such goods will not be sold to third party, then
the profit will not realized , so such unrealized profit will not credited to profit and loss
account . At this time a stock reserve account is opened and all amounts of unrealized profit
transfers to this account and this accounts total amount is deducted from closing stock of
consolidated balance sheet.
An unrealised inter-company profit exists only when there is a sale of goods by one
company in the group to another at a profit, and the same goods remain unsold and appear
as an asset in the Balance Sheet.
This unrealised profit made by the selling company is to be eliminated at the time of
preparing a Consolidated Balance Sheet since such profit is true from the individual point of
view but not from the view of a group.

5. Contd..
The following principles should be followed for the purpose:
(i) Ascertain the amount of profit on unsold stock supplied by the company
(ii) Share of minority interest should be deducted from such unrealised profit
so calculated, and
(iii) The balance of unrealised profit (i.e., Holding Company’s share or after
deducting minority interest) is to be deducted from the profit of the company
who is selling the goods and from the books of the company receiving those
goods as well.
In short, holding company’s share of unrealised profit should be deducted
from the Consolidated Stock in the assets side of the Consolidated Balance Sheet
and the same amount should also be deducted from the Profit and Loss Account
in the Consolidated Balance Sheet.

6. Treatment of Dividends
 If holding company gets the dividends from subsidiary company, then this
will divide into two parts.
 If subsidiary company declare dividend out of capital profits, then this will
add in capital reserves in consolidated balance sheet.
 But, if subsidiary company has declared the profit out of revenue gains, then
this dividend will add in general profit and loss account and will shown in
the liability side of consolidated balance sheet.

7. Prob.No.1
X Ltd purchased 60% of shares of Y Ltd on 01-01-12 where the balance sheet shows P& L
a/c & General reserve as Rs. 150,000 & Rs. 160,000 respectively. On 31. 12. 2012, the
balance sheet of Y Ltd showed a P& L a/c balance as Rs. 400,000 and General reserve as Rs.
300,000. Calculate Capital Profit & Revenue Profit.
Soln:
1. Share Ratio = 60:40 (or) 3:2
2. Calculation of Capital Profit
P& L (01-01-12) = Rs. 150,000
(+)General Reserve = Rs. 160,000
Capital Profit = Rs. 310,000
3. Calculation of Revenue Profit
P& L (31.12.12) = Rs. 400000 – Rs. 150000 = Rs. 250,000
General Reserve (31.12.12) = Rs. 300000 – Rs. 160000 = Rs. 140000
Revenue Profit = = Rs. 390000

8. Prob. No. 2
H Ltd purchased 75% of shares in S Ltd on 01.07.2011. On 31.12.2011, the balance sheet of S Ltd showed Reserve Fund balance
on 01.01.2011 Rs. 40000, Profit earned during 2011 is Rs. 60000 and Preliminary expenses unwritten off Rs. 20,000. Calculate
Capital Profit & Revenue Profit.
Soln.
1. Share Ratio = 75%: 25% or 3:1
2. Time Ratio = Pre Acquisition Period : Post Acquisition Period
Pre Acquisition Period = 01.01.2011 to 01.07.2011 = 6 Months
Post Acquisition Period = 01.07.2011 to 31.12.2011 = 6 Months
Time Ratio = 6: 6 (or) 1:1 ½x60000 = 30000 (Pre Acquisition Period – Capital Profit)
3. Current year Profit = Rs 60000 ½x60000 = 30000 (Post Acquisition Period – Revenue Profit)
4. Calculation of Capital Profit
General Reserve (01-01-11) = Rs. 40,000
(+)Capital Profit = Rs. 30,000
Rs. 70,000
(-) Preliminary expenses = Rs. 20,000
Capital Profit = Rs. 50, 000
5. Calculation of Revenue Profit
P& L (31.12.11) = Rs. 60000 – Rs. 30000 = Rs. 30, 000