Holding company and subsidiary company – accounting perspective
HOLDING COMPANY V/S SUBSIDIARY COMPANY – ACCOUNTING PERSPECTIVE by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – CSE & PGPSE STUDENTS (CSE & PGPSE are free online programmes open for all, free for all) mobile : 91+9414430763
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What is a subsidiary company? Sec 4 : of company act : a company is a subsidiary of another if the other 1. controls the composition of its board of directors or 2. has more than half of its equity shares or voting rights
What is a holding company ? It is not defined, but from definition of subsidiary company, it is clear that holding company is the company which has majority shareholding in another company called subsidiary comapany
Legal requirements : Sec. 212 Holding company must disclose the following along with its accounts : 1. balance sheet of subsidiary 2. profit and loss statement of subsidiary 3. report of the board of directors of subsidiary 4. statement of interest in subsidiary and changes in interest during last year 5. auditor report of subsidiary and if any information is not available, details about that
Part I & II of schedule VI regarding holding company Part I : the holding company's balance sheet must merge the balance sheet of subsidiary Part II : the P & L account of holding company must merge P & L account of subsidiary * intercompany transactions between holding and subsidiary company must be eliminated * contingent liabilities will not have liabilities regarding subsidiary company
Statement of interest It is prepared by holding company it shows the extent of interest in subsidiary company
What is minority interest ? The share of equity held by other than holding company is called minority interest. It is calculated by following formula : Share in equity + share in reserve + share in profit from revaluation of assets+share in profit – share in losses – share in losses from revaluation.
How to do consolidation of accounts? See investment account in holding company – it will show shares of subsidiary and other investments. From this remove shares of subsidiary. Remove share capital of subsidiary company add all assets and liabilities (removing inter company transactions ) and find minority interest and consolidate the two accounts.
Example of consolidation.... H is a holding company and gives following details : liabilities assets shares 1000 investments in S 1000 creditors 200 debtors 400 profit 200 (debtors inclucinding S (100))
Accounts of S (subsidiary company ) S company and gives following details : liabilities assets shares 1200 Plant and machine 1400 creditors 400 debtors 400 profit 200 (debtors include H: 50)
NOTES... We have clubbed together all the heads. While clubbing, debtors and creditors were adjusted (for transactions between holding and subsidiary company) thus these figures are not simple additions but they have been adjusted.
What is preacquisition profit / loss? Holding company acquires subsidiary on a particular date, the profit / loss before that date is called pre-acquisition profit / loss it is shown separately in the holding company's balance sheet. Suppose profit for the year was 100. Holding company acquired subsidiary in middle of the year (on 1/10/09) so pre-acquisition profit is 50.
What is capital profit / goodwill ? If holding company pays less than the worth of the subsidiary, there is capital profit if holding company pays more than the worth of the subsidiary, there is goodwill. Example : If the price of equity of subsidiary is 100, but holding company pays Rs. 120. There is goodwill of 20.
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