The document discusses the process of preparing a consolidated balance sheet for a holding company and its subsidiaries. It provides a 4 step process: 1) collecting basic information on acquisition date, ownership percentage, pre/post-acquisition periods, 2) analyzing profits and reserves for pre-acquisition periods, 3) calculating the cost of control and goodwill, and 4) calculating minority interest. It also discusses the treatment of various items like unrealized profits, intercompany transactions, contingent liabilities, unclaimed dividends and others in the consolidated balance sheet.

1. HOLDING COMPANY
AND
PREPARATING CONSOLIDATED
BALANCE SHEET
Dr. Shailendrsinh J. V.

3. A Puppet Analogy
DIRECTORS
c
o
m
p
a
n
y
MEMEBERS

5. CONTROLLING THE COMPANY
c
o
m
p
a
n
y
MEMEBERS
DIRECTORS
Own more than 50% of
the ESC

6. A Puppet Analogy
MEMEBERS
c
o
m
p
a
n
y
DIRECTORS
Controlling Directors
1. Nominate
2. No Appointment
without asking
3. Only
director/manager of
Holding Co. shall
become Director of
Subsidiary

7. Exercise Control
• Composition of the board of directors
• Operations
• Decisions
Of the Subsidiary Company

8. Easy
Formati
-on
Econom
y in
Operati
on
Secrecy
of
Control
Preserv
ation of
Goodwil
l
Financi
al
Strengt
h
Financial
Guardian
-ship

9. Power without Responsibility
Exploitation of Subsidiaries
Misuse of Inside Information
Concentration of Wealth
Remoteness of Control

10. Can a holding co. have more
than one subsidiary co.?
The Answer is:

13. Consolidated Financial Statements
• As per section 129 of Companies Act 2013, it
is mandatory to prepare and present CFS in
AGM. Associate , Subsidiary or Joint Venture.
• The guidance for accounting for the same are
in Ind AS 110 on Consolidated Financial
Statements and Ind AS 27 Separate Financial
Statements.

14. Step 1 Basic Information
i. Date of Acquisition
ii. Pre-acquisition period
iii. Post-acquisition period
iv. Share of Holding Company
= No. of Equity Shares held by Holding Co. X 100
Total no. of Shares of Holding Co.

15. Step 2: Analysis of Profits & Reserves
Particulars Total Holding Co Subsidiary Co.
Pre Acquisition Profit:
General Reserve of Subsidiary Co.
For pre acquisition period = xx/12(Cl. Balance
– Op. Bal.)
Surplus of Subsidiary Co.:
Opening Bal.
For pre-acquisition period

16. Step 1 Basic Information
Balance Sheet of SON LTD. as on 31-03-2018
LIABILITIES
Equity Share Capital 200000 e. sh. Rs.
20,00,000
General Reserve (1-4-17) Rs. 5,00,000
Profit & Loss Rs. 2,00,000
160000 e. sh. of the business of SON LTD. were
acquired by MOMY LTD. on 1-1-2018 for Rs.
25,40,420.i. Date of Acquisition = 1/1/2018
ii. Pre-acquisition period = 1/4/17 to 31/12/18 = 9
months
iii. Post-acquisition period = 1/1/18 to 31/3/18 = 3
months
iv. Share of Holding Company
= No. of Equity Shares held by Holding Co. X 100
Total no. of Shares of Holding Co.
= 160000 x 100 = 80%
200000

17. Step 2 ANALYSIS OF PROFIT &
RESERVES
CAPITAL PROFIT Rs.
Reserve before Acquisition =
5,00,000
Profit up to 1-1-2018 =
1,50,000
(2,00,000*9/12)
Total Capital Profit =
6,50,000
REVENU
E
PROFI
T
=
2,00,00
0 * 3/12
=
Rs.50,0
00
General Reserve (1-4-17) Rs.
5,00,000
Profit & Loss Rs.
2,00,000
Momy Ltd. =
6,50,000*80%=5,20,000
Son Ltd. =
6,50,000*20%=1,30,000
Mommy Ltd.
=50,000*80%=40,00
0
Son Ltd.
=50,000*20%=10,00
0

18. Step 3: Calculation of Cost of Control

19. COST OF CONTROLBalance Sheet of SON LTD. as on 31-03-2018
LIABILITIES
Equity Share Capital Rs. 20,00,000
General Reserve (1-4-17) Rs. 5,00,000
Profit & Loss Rs. 2,00,000
80% of the business of SON LTD. was acquired
by MOMY LTD. on 1-1-2018 for Rs. 25,40,420.
Cost of Investment Rs.
25,40,420
Less: Paidup Share Capital in SON LTD. Rs.
16,00,000
(20,00,000*80%)
Less: Pre-acqui. Profit of MOMY LTD.

20. Step 2 ANALYSIS OF PROFIT
CAPITAL PROFIT Rs.
Reserve before Acquisition =
5,00,000
Profit up to 1-1-2018 =
1,50,000
(2,00,000*9/12)
Total Capital Profit =
6,50,000Momy Ltd. = 6,50,000*80%=
Son Ltd. =
6,50,000*20%=1,30,000
5,20,000

21. COST OF CONTROL
Cost of Investment Rs.
25,40,420
Less: Paidup Share Capital in SON LTD. Rs.
16,00,000
(20,00,000*80%)
Less: Pre-acqui. Profit of MOMY LTD. Rs.
5,20,000
(CAPITAL PROFIT)
COST OF CONTROL – GOODWILL
Rs.
4,20,420

22. Step 4: Calculation of Minority
Interest

23. 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.

24. 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.

25. 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.

26. 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.

27. TREATMENT OF CONTINGENT
LIABILITIES
• They are shown as follows :
1. Liability in respect of bills discounted not yet
matured. It is possible that bills may be
discounted on the due date and liability may
arise.
2. Amount uncalled on partly paid shares held.
3. Arrears of dividend on Cumulative
preference shares.

28. TREATMENT OF UNCLAIMED
DIVIDEND
• 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.

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