Corporate Accounting

1. HOLDING COMPANY
Unit III
Dr.A.Vini Infanta
Department of B.Com PA
SRCAS.

2. Meaning of Holding Company
A Holding Company is one which Controls one
or more other companies by means of:
 Holding majority shares
 Controlling the composition of Board of directors
 Controlling a holding company with subsidiaries

3. Definition of Holding Company
Indian Companies Act 1956 Sec 4(4) says, “A
company shall be deemed to be the holding company
of another if, but only if that another is its
subsidiary”
 Eg: If Company A is a Subsidiary of Company B and
Company C is subsidiary of Company A then
company C Becomes Subsidiary for Company B also.
Such Subsidiary is Called as SUB-SUBSIDIARY or
DEEMED SUBSIDIARY.

4. Minority Interest
 A holding company acquires the majority of equity
shares in a subsidiary company representing its
controlling interest. The remaining shares may be in
the hands of general public. Such holding of the
general public in the subsidiary company is called as
Minority Interest.

5. Cost of Control/Capital Reserve/ Goodwill
 When a holding company acquires majority of shares
in a subsidiary company it may be forced to pay
more than the face value and even the book value of
the share. The demand for subsidiary companies
shares is generated with process of acquiring
controlling interest in the subsidiary “pushes up” the
market price of such shares. Thus the cost of control
is the penalty on excess paid by the holding company
to acquire controlling interest.
 If the balance is +ve it is Goodwill.
 If the balance is –ve it is Capital Reserve.

6. Capital Profit or Losses
 All accumulated profits of the subsidiary company on
the date of purchase of the shares by the holding
company is called as Capital Profit or Pre Acquisition
Profit. They may be in forms of Capital Reserve,
General Reserve, Reserve Fund, Share Premium,
P&L a/c etc.

7. Steps in Preparation of Consolidated Balance
Sheet
 Computation of holding & Minority Interest
 Ascertain Pre Acquisition Profits
 Computation of Post Acquisition Profit
 Computation of Minority Interest
 Computation of Goodwill or Capital Reserve
 Calculation of elimination of unrealized Profit
involved in the stock
 Elimination of Inter Company Debts
 Preparation of Consolidated Balance Sheet.