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 5 DECEMBER 09
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My word..... My purpose here is to give overview regarding consolidation consolidation of accounts of holding and subsidiary company for for budding entrepeneurs. entrepeneurs. This is a basic information. For details read other books. Be entrepreneur, change the society, change the world. Go with positive spirit. Please pass this presentation to all those who might need it. Let us spread knowledge as widely as possible. I welcome your suggestions. I also request you to help me in spreading social entrepreneurship entrepreneurship across the globe – for which I need support of you people – not of any VIP. With your help, I can spread the ideas – for which we stand.... 5 DECEMBER 09
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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 5 DECEMBER 09
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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
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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 5 DECEMBER 09
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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 5 DECEMBER 09
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Statement of interest
It is prepared by holding company it shows the extent of interest in subsidiary company
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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. 5 DECEMBER 09
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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. 5 DECEMBER 09
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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)) 5 DECEMBER 09
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Accounts of S (subsidiary company ) S company and gives following details : liabilities assets shares shares 1200 Plant Plant and machine machine 1400 creditors 400 debtors 400 profit 200 (debtors include H: 50) 5 DECEMBER 09
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Consolidated balance sheet : assets Plant & mach. 1400
liabilities shares 1000 Minority 233 creditors 450 debtors 650 profit 367 TOTAL TOTAL 2050 5 DECEMBER 09
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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.
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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. 5 DECEMBER 09
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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. 5 DECEMBER 09
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