Holding Company Accounts

Legal Requirements for Presentation of Information to Members of the

Holding Company:
A holding company is required, u/s 212, to attach to its balance sheet the
following documents in respect of each of its subsidiaries:
1. a copy of the balance sheet of the subsidiary;
2. a copy of its profit and loss account;
3. a copy of the report of its Board of Directors;
4. a copy of the report of its auditors;
5. a statement of the holding companys interest in the subsidiary as
specified in Section 212(3);
6. the statement, if any, refereed to in Section 212(5);
7. the report, if any, referred to in section 212(6).
Rules for Consolidation:
1. nvestments of the Holding Co. and the Share Capital of theSubsidiary
Co. are not recorded in the consolidated Balance sheet of the holding and
subsidiary company.
2. Calculation of Capital Profits and Revenue Profits is to be done keeping
the date of acquisition as the criterion. Any profit or loss of the subsidiary
up to the date of acquisition, constitute capital loss or profit in the hands
of holding co. and after acquisition it becomes revenue profit.
3. Revenue profits of the subsidiary company to the extent of holding
companys share will be added to the profit balance of holding company.
4. Revenue Reserve Value (Post acquisition) of the subsidiary company to
the extent of holding companys share is added to the Reserve balance of
holding company.
5. Calculation of Minority nterests: This is algebraic sum of outside share
holding + share in capital profit + share in revenue profit - Miscellaneous
expenditure if any; etc. and this item is to be shown as a liability in
Consolidated Balance Sheet.
6. Calculation of Cost of Control: Excess paid or less paid for acquisition of
shares in the subsidiary is to be shown as Goodwill or Capital Reserve. t
is calculated as price paid for acquisition of shares less nominal value of
shares, less bonus shares if any issued out of pre-acquisition profits or
reserves, less share in capital profit or loss.
Price Paid Ior Acquisition oI Shares in Subsidiary

xxx
Add / Less: Nominal Value oI Shares xxx

Add / Less: Nominal Value oI Bonus Shares xxx

Add / Less: Capital ProIit / Loss xxx

%otal oI Adjustments

xxx
Capital Reserve / Goodwill

xxx
7.
8. Stock Reserve: (Unrealised Profit ncluded in Closing Stock)
The need for this adjustment arises when either the holding company
sells goods to the subsidiary company or the subsidiary company sells
goods to the holding company. And these goods are usually sold at
normal selling prices. n such cases, either of the company might have
part of such stock which is not yet sold included in their stock. Therefore
at the time of consolidation the holding company should eliminate the
unrealised profit on this stock fully.
Stock Reserve = Rate of Profit x nter-Purchase Stock x Share Ratio of
Holding Co.
The stock reserve amount is subtracted from profit balance of holding co.
and also from closing stock.
9. ntragroup Balances: like debtors and creditors should be eliminated from
both sides of the consolidated Balance Sheet. nter-Bills Receivable and
Bills Payable are also not included. nter Bills Receivable and Bills Payable
= Mutual Bills accepted - Bills Endorsed / Discounted from Bank.
10. Revaluation of assets and liabilities: Profit or loss arising on
revaluation is a part of pre-acquisition profit/loss and accordingly it
should distributed to minority and holding company in their respective
holding ratios.
11. Treatment of Bonus: This depends on source from which it is
declared. f it is from pre acquisition profits, it will not influence cost of
control whereas if it issued from post acquisition profit, it effects cost of
control, i.e. goodwill may be reduced or capital reserve may be increased.
12. Treatment of Dividend (Final and nterim):
f the dividend is received for pre-acquisition period, it should not be
credited to P&L a/c of the Holding company. t should be reduced from
the cost of investments. (See AS 13 for details).
f the dividend is received for post-acquisition period, it should be
credited to the P&L a/c of the Holding Co.
13. Proposed dividend relating to Minority interest should be shown
separately in the holding companys Balance Sheet.
14. f Profit and Loss Account Balances of last year and current year are
not given separately then we prepare Profit and Loss Adj. Account and
find current year profit.
15. Goodwill or Preliminary Expenses are written off from Pre-
Acquisition Reserves profit and if such profits are insufficient then it will
be written off from post acquisition profits.
16. Outstanding nterest on Debenture (which relates to Debentures
purchased by Holding Co.)
Outstanding nterest on Debentures is reduced by nterest on debentures
purchased by the holding company at the time of consolidation. nterest
on debentures purchased by the holding company is added with profit
balance of Holding Co.