8. HOLDING COMPANY
Section 2(46) of the Companies Act, 2013 defines
Holding Company. The company is said to be the
holding company if that particular company
holds/owns at least 50% of the other companies
and has the authority to make management
decisions, influences and controls the company’s
board of directors. A holding company may exist for
the sole purpose of controlling and managing
subsidiary companies.
9. SUBSIDIARY COMPANY
Section 2(87) of the Companies Act, 2013 defines
the Subsidiary Company. The subsidiary company is
the company that is controlled by the holding or
parent company. It is defined as a company/body
corporate where the holding company controls the
composition of the Board of Directors. As per the
Companies Amendment Act, 2017, Section 2(87)(ii),
if the holding company have control over more than
one-half of the voting power of another company,
that company will be identified as the subsidiary
company.
10. This phrase is not defined anywhere in the Companies Act,
2013. In common parlance, it is used to specify a
subsidiary of the subsidiary company.
STEP-DOWN SUBSIDIARY COMPANY
13. Can a holding co. have more
than one subsidiary co.?
The Answer is:
14.
15.
16. 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.
17. Step 1 Basic Information
100
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
Total no. of Shares of Holding Co.
18. 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
19. 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)
Profit & Loss
Rs. 5,00,000
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 =
ii. Pre-acquisition period =
1/1/2018
1/4/17 to 31/12/18 = 9
iii. = 1/1/18 to 31/3/18 = 3
months
Post-acquisition period
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
20. Step 2 ANALYSIS OF PROFIT& RESERVES
=
=
REVENUNE
PROFIT
=
General Reserve (1-4-17) 5,00,000
Profit & Loss
Rs.
Rs. 2,00,000
CAPITAL PROFIT Rs.
Reserve before Acquisition =
5,00,000
Profit up to 1-1-2018
1,50,000
(2,00,000*9/12)
T
otalCapitalProfit = 6,50,000
Momy Ltd.
650000*80% = 520000
Son Ltd. =
6,50,000*20%=1,30,000
MommyLtd
=50,000**80%/=40,000
Son=Ltd.
=50,000*20%,=10,000
23. 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
25. 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.
26. 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.
27. 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.
28. 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.
29. 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.
30. 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.
31. 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.
