Unit-IV

Consolidated Balance Sheet of Holding Companies

4.1 Consolidated Balance Sheet of Holding Companies with one subsidiary only.

One of the most popular companies in business combinations is by the holding company or parent company. A holding company is a company that directly or indirectly acquires all or more than half of the shares of one or more companies in order to secure a controlling interest in a company called a subsidiary. A holding company can appoint a majority of the directors of a subsidiary and can manage such a company. Holding companies may meet directly from such subsidiaries or acquire a majority or stake in an existing company. Such a company is also considered a subsidiary in which the holding company has acquired a majority stake.

Meaning based on the Companies Act

The Companies Act 2013 defines a subsidiary. A company is a subsidiary of another company only if:

a) Another company controls the composition of the board of directors. Also

b) Other –

i) The first mentioned company has the same voting rights in all respects as the preferred stock holders issued prior to the enforcement of this Act exercise or control more than half of the equity stock holders. If you are an existing company that has voting rights in such a company.

Ii) If the company first mentioned is another company, it holds more than half of the nominal value of its share capital. Also

Iii) The company is a subsidiary of a company that is a subsidiary of another company.

Benefits of a Holding Company

The advantages of a holding company are:

1) The subsidiary maintained its own identity.

2) The general public may be unaware of the existence of combinations between different companies.

3) The holding company does not have to invest the entire amount in the stock capital of the subsidiary and enjoys the control of the subsidiary.

4) Losses can be carried forward for income tax purposes.

5) Since each subsidiary creates its own account, the financial position and profitability of each business are known.

6) The holding company may acquire or dispose of additional shares of the subsidiaries in the market as needed.

Disadvantages of the Holding Company

1)     There is a possibility of unauthorized operation of the account.

2)     Intercompany transactions may not be fair prices.

3)     The interests of minority shareholders may not be properly protected.

4)     Accounting for different companies may be created on different days to manipulate the profits or financial position of group companies.

5)     Shareholders of the holding company may not be aware of the true financial position of the subsidiary.

6)     The creditors of the subsidiary and the shareholders of outsiders may not be aware of the true financial position of the subsidiary.

7)     Subsidiaries may be obliged to appoint persons who have selected a holding company, such as corporate auditors, directors, and other officers, with double high remuneration.

8)     Subsidiaries may force the purchase and sale of commodities, specific assets, etc. at the direction of the holding company.

Presentation of an account by the holding company

As provided in Section (212) of the Companies Act 1956. The holding company must attach a balance sheet. Please present the following documents to our shareholders.

a)     A copy of the subsidiary's balance sheet.

b)    A copy of the subsidiary's income statement.

c)     A copy of the subsidiary's board report.

d)    A copy of the subsidiary's audit report.

e)     A statement indicating the degree of equity of the holding company in the subsidiary at the end of the fiscal year.

f)       When the fiscal year of the subsidiary does not match the fiscal year of the holding company.

Statement indicating the following:

i) Has the holding company's equity in the subsidiary changed since the end of the fiscal year of the subsidiary?

Ii) Details of material changes that occurred during the holding company's fiscal year or the subsidiary's fiscal year.

Analysis of Financial Statement

21 – Financial Statement Integration

21 is effective for accounting periods beginning on or after April 1, that is, accounting periods ending on March 31, 2002. A.S. 21 applies to all companies that prepare consolidated financial statements. Required for listed companies and banking companies.

In accordance with AS 21, the consolidated financial statements include:

i) Profit / Loss A / c

Ii) Balance sheet

Iii) Cash flow statement

Iv) Account notes other than regular notes.

v) Segment report

AS 21 also wants the same import terms and treatments when preparing its consolidated financial statements. Consolidated financial statements must be prepared for both domestic and overseas subsidiaries.

Balance sheet integration

The holding company must present its shareholders with a consolidated balance sheet of the holding company and its subsidiaries. The consolidated balance sheet is nothing more than turning up or combining the balance sheets of the holding company and its subsidiaries. However, assets and liabilities are straightforward. That is, it is added row by row, and the combination of equity capital, reserves, and cumulative losses is not added directly to the consolidated balance sheet.

Creating a Consolidated Balance Sheet.

The following points should be especially noted when creating a consolidated balance sheet.

1) Shares of the holding company and shares of minority shareholders (external shareholders).

2) The dates on the holding company's balance sheet and each subsidiary's balance sheet must be the same. If you don't need that much, you'll need to make some adjustments before integrating.

3) Date of acquisition of control of the subsidiary.

4) Inter-company payment.

5) Revaluation of fixed assets, depreciation, adjustment of revaluation amount, etc. on the acquisition date will be explained later.

Management costs / goodwill / capital reserve

The holding company will acquire more than 50% of the shares of the subsidiary. Such shares may be acquired at market prices. May be premium or discount. This amount will be reflected on the asset's holding company's balance sheet as an investment in the subsidiary's stock. This is the price paid for the shares of net assets as of the acquisition date of the subsidiary. The net assets of a subsidiary consist of equity capital, adjusted earnings and reserves, and cumulative losses as of the acquisition date. If the amount paid by the holding company to the shares of the subsidiary exceeds the proportional shares of the subsidiary's net assets as of the acquisition date, the difference is considered goodwill.

If the net assets of the subsidiary exceed the shares acquired by the holding company and the proportional equity inherent in the costs of the acquired shares, a capital reserve in Favor of the holding company is incurred.

If goodwill already exists on the holding company's balance sheet, or both of the goodwill calculated in this way are added to the existing goodwill. The capital reserve is deducted from the goodwill.

In short, the net amount resulting from goodwill and capital reserves is shown on the consolidated balance sheet.

Minority interest

Claims from external shareholders of a subsidiary must be valued and presented as liabilities on the consolidated balance sheet. Minority interests in a company's net assets are nothing but proportional interests in total, such as equity capital and reserve surplus funds. Proportional interest in all assets should be deducted from minority interests.

Therefore, minority interests are the shares of the following outsiders:

1) Share the equity capital of the subsidiary.

2) Reserve share (both before and after the acquisition of the subsidiary).

3) You need to deduct the share of cumulative loss.

4) Proportional distribution of profit or loss due to asset revaluation.

5) Dividends on preferred stock capital and profits of subsidiaries held by outsiders, if any.

Minority interests mean the interests of outsiders. It is treated as an liability and is presented as a consolidation. Balance sheet as current liabilities. This amount is basically the intrinsic value of the shares held by minority shareholders.

Capital profit and profit

The holding company may acquire the shares of the subsidiary on either the balance sheet date or a date before the balance sheet date. All profits earned by the subsidiary by the date the holding company acquires the shares must be considered capital profit of the holding company.

Such reserves lose an individual's identity and are considered capital gains. If the holding company acquires shares on a day other than the subsidiary's balance sheet date, the holding company's perspective must allocate the subsidiary's profits to capital and earnings. Therefore, the profit earned by the subsidiary before the acquisition date is capital gains, and the profit earned by the subsidiary after the acquisition date is profit. While preparing a share of the consolidated balance sheet of capital income, it must be adjusted at administrative costs and the earnings / reserve should be merged with the holding company's reserve and surplus balances.

Elimination of investment in subsidiary stock

Investing in a subsidiary's stock represents the cost the holding company pays to acquire the subsidiary's stock. Investing in a subsidiary's stock allows the holding company to share the subsidiary's net worth. All assets and l while creating a consolidated balance sheet eliminating the holding company's investment in the subsidiary's stock is logical, as the subsidiary's capabilities must be integrated with the holding company's capabilities. Shares of net assets of external shareholders should be treated as minority interests shown on the holding company's debt-side Balance Sheet.

Mutual debt / intercompany transactions

Holding companies and subsidiaries may engage in multiple intercompany transactions in one or more of the following:

1. A loan from a holding company to a subsidiary, or vice versa.
2. A bill of exchange created by the holding company to a subsidiary or vice versa.
3. The holding company sells or purchases goods with credit from its subsidiaries, or vice versa.
4. Corporate bonds issued by one company may be held by another company.

As a result of these intercompany transactions, certain accounts appear on the holding company and subsidiary balance sheets. On the consolidated balance sheet, you need to delete all these common accounts. For example

1. S Ltd. Received a loan from Rs. H Ltd. From 20,000, then Sltd. The balance sheet shows the liabilities of Rs. H Ltd. 20,000 while the balance sheet is displayed on the assets of Rs. 20,000.
2. H Ltd. Creates an invoice for Rs. When 50,000 is booked at S Ltd. And then H Ltd. Is booked, bills receivable Rs are displayed. Bills payable Rs appear in S Ltd. Books. 50,000.
3. S Ltd. Issued Rs corporate bonds. H Ltd. And S Ltd. The 1,00,000 held on the balance sheet of Rs represents the liability of Rs. H Ltd.'s books show assets of Rs 50,000.

When creating a consolidated balance sheet, you should eliminate all of the above intercompany transactions. These can be done by subtracting intercompany transactions from each item on either side of the balance sheet.

Unrealized Profits

The problem of unrealized profits arises when companies in the same group sell goods to each other for profit and the goods are not yet sold by the company at the end of the year.

When you create a consolidated balance sheet, you need to eliminate unrealized profits from your consolidated balance sheet in the following ways:

1. Unrealized profit must be deducted from the holding company's current earnings.
2. The same amount must be deducted from the shares on the company's consolidated balance sheet. Minority shareholders are not affected by unrealized gains.

For Example

S Ltd. Trading socks contain Rs. 60,000 for items purchased from H Ltd. These items are sold by H Ltd. With a profit of 20% of the invoiced price.

Therefore, unrealized profit = 60,000 x 20/100 = 12,000

Unrealized profit Rs. 12,000 is deducted from the consolidated balance sheet inventory and earnings, that is, the income statement.

Contingent Debt

29 defines Contingent Liability as:

Obligations or past events that arise from past events and whose existence may only be confirmed by the occurrence or non-occurrence of one or more uncertain future events that are not entirely under the control of the entity. Is not recognized as the current obligation / provided.

There are two types of such contingent debt.

a)     External contingent liability.

b)    Internal contingent liability.

Internal contingent liabilities are not shown as footnotes on the consolidated balance sheet because they are related to transactions between the holding company and the subsidiary and appear as actual liabilities on the consolidated balance sheet.

Revaluation of assets and liabilities

The holding company may decide to revalue the assets and liabilities of the subsidiary on the day it acquires the shares of the subsidiary. The gain or loss from such a revaluation is a capital gain or loss.

Before or after the holding company acquires shares, the profits from the revaluation of the assets of the subsidiary must be shared by the holding company and minority shareholders in proportion to their respective holdings. Minority interests must be added to minority interests. However, the holding company's shares are treated as capital gains and should be considered in administrative costs.

Further readjustment of depreciation as the asset value increases must be made in the income statement of the subsidiary. You also need to deduct the same amount from the revenue of the subsidiary.

Subsidiary Preferred Stock

If the subsidiary also holds preferred stock capital, the consolidation will be handled as follows.

a)     The nominal value of the non-participating preferred stock capital of the subsidiary held by the holding company must be adjusted for management costs relative to the cost of the preferred stock.

b)    Preferred stock held by outsiders. The paid-in value of such preferred stock must be included in the minority interests.

Bonus share

The issuance of bonus shares by the subsidiary will increase the number of shares held by the holding company and minority shareholders at no additional cost. However, the ownership ratio does not change. Issuance of bonus shares may or may not affect management costs. Whether such shares are issued from capital income or earnings income.

a) It is necessary to check the profit or loss from the sale of shares and adjust while checking goodwill or capital reserve. Simply put, losses or gains from the sale of such shares should be considered in administrative costs.

b) Minority interests and control costs must be determined based on the number of shares held by the holding company and minority shareholders on the consolidated balance sheet date.

Integrated Profit and Loss Account

The consolidated income statement of the holding company and its subsidiaries is provided to show the operating activities of the companies that make up the group. When you create a consolidated income statement for a holding company and its subsidiaries, you need to aggregate the items that appear in the income statements for the holding company and its subsidiaries.

However, at that time, the following adjustments must be made.

1) Create an income statement in column format. Amounts related to intercompany transactions are entered in the adjustment column for each item and deducted when you enter the amount in the total column.

2) All business transactions between companies, such as buying and selling products and interest on loans between group companies, are excluded.

3) All intercompany profits will be adjusted.

4) Dividends received by the holding company from its subsidiaries must be eliminated from both sides of the consolidated income statement.

5) Interest accrued on the bonds of the subsidiary held by the holding company must be accounted for by both the holding company and the subsidiary and then eliminated.

6) The readjustment of depreciation due to the revaluation of fixed assets at the time of stock acquisition by the holding company must be adjusted on the consolidated balance sheet and each fixed asset and consolidated income statement.

7) Minority interests in the interests of subsidiaries must be transferred to the minority interest account as a percentage of gross profit after adjusting for revaluation of fixed assets and before adjusting for unrealized gains on shares.

8) The holding company's shares in pre-acquisition profit must be transferred to controlling costs in case of acquisition of shares during the year.

9) The holding company's shares in the past acquisition profit are considered to be profit

10) The holding company column balance represents the total profit or loss incurred or incurred across the group.

Foreign subsidiary

The final A / c of the overseas subsidiary should be integrated with other subsidiaries in the usual way. The trial balance of the subsidiary or balance sheet and the profit and loss A / c of the overseas subsidiary are first converted into the local currency.

The conversion rules are the same as for foreign branches, which can be summarized as follows:

a) Fixed assets and fixed liabilities are converted at the exchange rate on the date of payment if such assets were purchased, incurred such liabilities, or acquired or raised after the acquisition of shares. Need to do it.

b) Variable assets and liabilities must be translated at the prevailing exchange rate on the last day of the fiscal year.

c) Revenue items or net income for the year must be translated at the average exchange rate for the period.

d) Beginning shares must be converted at the exchange rate at the beginning of the year.

e) The stock capital and reserves of the subsidiary as of the acquisition date must be converted at the prevailing exchange rate on the acquisition date.

f) Transfers of goods purchased from a holding company by a subsidiary, or vice versa, must be converted at the actual rate on the date of purchase or the date of receipt of the transfer.

g) Fixed assets / liabilities as of the acquisition date carried forward must be converted at the prevailing exchange rate on the acquisition date of the shares. If no fixed asset acquisition date rate is specified.

After converting the various items in the trial balance, you can create a new trial balance. If there is a difference in the new trial balance, you need to transfer it to the Forex variable account. Such differences appear on the balance sheet as assets or liabilities, depending on the debit or credit of the balance. Alternatively, you can transfer the difference in the exchange to your P & L account.

Statement-Various Techniques Statement of changes in Financial Position on cash basis and working Capital basis, Familiarity with Indian Accounting Standard-3.

Cash Flow: Overview

There are generally four types of financial statements in accounting: the balance sheet, the income statement, the cash flow statement, and the cash flow statement. Let's take a closer look at the last two.

In financial accounting, a cash flow statement refers to the change in a company's cash and equivalents from one period to the next. However, the flow of money has two different implications. One is for accounting purposes and the other is for investment purposes.

Cash flow

Cash flows are recorded on the company's cash flow statement. This statement (one of the company's key statements) shows the actual inflows and outflows of cash (or cash-like assets) from its investment activities. This is a mandatory report under generally accepted accounting principles (GAAP)

This is different from the income statement, which records data and transactions that may not be fully realized, such as uncollected income and unpaid income. On the other hand, this information is already entered in the cash flow statement, which gives you a more accurate picture of how much cash your company is generating.

The cash flow statement allows you to classify cash flow sources into three different categories:

1. Cash Flow from Operating Activities: Cash generated from the general or core business of the business is listed in this category.
2. Cash Flows from Investing Activities: This section describes the cash flows spent on investments such as new equipment.
3. Cash Flows from Financing Activities: This category includes all transactions involving the debtor, such as income from new debt and dividends paid to investors.

Specimen of Cash Flow

Cash flow statement for XYZ business

For the year ended 31st December 2020

CASH FLOW FROM OPERATING ACTIVITIES

Cash receipts from customer

Cash paid to supplier

Cash paid to employees

Cash paid for other operating expenses

Cash generated from operations

Dividend received *

Interest received

Interest paid

Tax paid

Net cash flow from operating activities

CASH FLOW FROM INVESTING ACTIVITIES

Proceeds from capital contributed

Proceeds from loan

Payment of loan

Net cash flow from financing activities

CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from capital contributed

Proceeds from loan

Payment of loan

Net cash flow from financing activities

NET INCREASE /DECREASE IN CASH

Cash at the beginning of the period

Cash at the end of period

A company receives an inflow of cash income from selling goods, providing services, selling assets, earning interest on investments, renting, acquiring loans, or issuing new shares. Cash outflows can result from purchases, loan repayments, business expansions, payroll payments, or dividend distributions.

Investors and lenders have liquidity and cash on hand because the Securities and Exchange Commission (SEC) requires all listed companies to use accrual accounting and largely ignores the actual balance of cash on hand. It relies on cash flow statements to evaluate flow management. It's a more reliable tool than the metrics companies use to dress up their earnings, such as interest, taxes, depreciation, and earned before interest (EBITDA)

Key takeaways:

1. The company's cash flow and cash flow statements reflect two different variables over a particular period of time.
2. Cash flow records the inflows and outflows of a company's actual cash (cash and cash equivalents).
3. The flow of money records the movement of cash in and out of the company.
4. Both help provide investors and markets with snapshots of how the company does it on a regular basis.
5. The cash flow statement is great for measuring a company's liquidity profile, while the fund flow statement is great for long-term financial planning.

Cash flow as per accounting standards:

1. Applicability of AS3 income Statement

The applicability of the income statement is defined under the businesses Act 2013. As defined by the law, financial statements include:

I. Record

Ii. Profit and Loss Account / Balance Account

Iii. Income statement

Iv. Statement of changes in shareholders' equity, etc.

v. Annotation

Therefore, the income statement must be prepared by all companies, but the law also specifies certain categories of companies that are exempt from an equivalent.

For eg: One Person Company (OPC), Small Company, and Dormant Company.

• OPC means a corporation with just one member.
• SMEs are private companies with a maximum paid-up capital of Rupees. The utmost sales are 500,000 rupees. 2 rolls.
• A dormant company is an inactive company that's established for future projects or simply to carry assets and has no significant transactions.

2.     Cash and cash equivalents

Cash equivalents are held by a corporation to satisfy its short-term cash commitment on behalf of an investment or other such purpose. For investments that qualify as cash equivalents:

1. The investment must be easily convertible to cash

2. Must be exposed to a really low level of risk regarding changes in its value

Therefore, an investment is taken into account a debt instrument as long as such investment features a short maturity within 3 months from the date of acquisition.

The AS 3 income statement states that movements between items that form a part of cash or cash equivalents should be excluded because they are part of a company's cash management, not business, financing, and investment activities. Cash management consists of investing surplus take advantage cash equivalents.

3.     View income

The income statement must represent the cash flows within the amount during which they're categorized as follows:

A. Sales activities

B. Investment

C. Financing activities

Companies got to prepare and present cash flows from operations, financing, and investment activities during a way that suits their business.

Grouping activities provides information that permits users to assess the impact of such activities on the company's overall financial position and to assess the worth of money and cash equivalents.

A. Sales activities

Cash flow from operating activities comes primarily from activities that generate the company's main revenue. For example:

• Cash received from the sale of products and services
• Cash received in fees, royalties, commissions, and various other sorts of revenue
• Cash paid to suppliers of products and services

B. Investment activities

Cash flows from investing activities represent outflows for cash flows and resources aimed toward generating future income. For example:

• Cash purchased the acquisition of fixed assets
• Cash received from the disposal of fixed assets (including intangible assets)
• Cash paid to accumulate shares, warrants or debt certificates of other companies and equity interests in joint ventures

C. Financing activities

Financing activities are activities that change the composition and size of the owner's capital and therefore the company's debt. For example:

• Cash received from the issuance of shares or other similar securities
• Cash received from the issuance of loans, corporate bonds, bonds, bills, and other short-term or long-term debt
• Repayment of debt

4.     Income from operating activities

Companies should report cash flows from operating activities using:

1. Direct method-if all major classes of money receipt and payment are presented. Or

2. Indirect method – If net or loss is adjusted as follows:

a) Impact of non-cash transactions like depreciation, deferred taxes and provisions.

b) Income or deferral of future or past operating cash income or payments

c) Expenses or income related to income financing or investment

5.     Income from investment and financing activities

An entity must separately record all major classes of money receipts and payments resulting from financial and investment activities, except people who got to be reported on a net basis.

1. Net-based income

Cash flows from any of the subsequent operating, financing or investing activities could also be reported in net form.

• Cash income and payments on behalf of the client if the cash flows reflect the activities of such clients instead of the activities of the corporate itself.
• Revenue and cash payments for products with large amounts, fast sales and short maturities

Cash flows from each of the subsequent activities of a financial company could also be reported in net form.

1. Cash income and payments for receipt and repayment of fixed-maturity deposits
2. Placement and withdrawal of deposits from other financial companies
3. Loans and cash advance payments are provided to Customer / Customer and repayment of such loans and advance payments.

B.    Foreign currency cash flow

Cash flows from transactions in foreign currencies should be recorded in the company's reporting currency using the following methods:

Foreign currency amount * FX rates the exchange rate between the cash flow date report and the foreign currency.

If the result is similar to using the cash flow date rate, you can use a rate that is close to the actual rate.

The impact of exchange rate fluctuations on cash and cash equivalents held in foreign currencies must be reported as a separate and separate part of the adjustment of changes in cash and cash equivalents during the period.

6.     Special items, dividends and profits

Cash flows related to special items should be categorized as originating from operating, financing, or investing activities, as appropriate and clearly disclosed.

Cash flows from receiving and paying dividends and interest must be disclosed separately. For financial companies, cash flows from receiving and paying dividends and interest should be categorized as cash flows from operating activities.

For other companies, cash flows from interest expense should be categorized as cash flows from financing activities, while dividends and interest received should be categorized as cash flows from investing activities.

7.     Tax on income

Income tax cash flows must be disclosed separately and reported as cash flows from operating activities unless they may be explicitly related to investment and financing activities.

8.     Acquisition and disposal of business divisions including subsidiaries

Total cash flows from acquisitions and disposals of business units, including subsidiaries, must be viewed as investment activity and reported separately.

An entity must provide a complete of the subsequent for both acquisitions and disposals of other business units, including subsidiaries, within the subsequent period:

(A) Total purchase or disposal

(B) Purchase or disposal price discharged as cash and cash equivalents

9.     Non-cash transaction

Financing and investment transactions that do not require cash or cash equivalents should not be included in the cash flow statement. These transactions must be presented elsewhere in the financial statements in a way that provides relevant information regarding such financing and investment activities.

10. Disclosure

An entity must disclose the amount of substantial unusable cash and cash equivalents it holds, along with management commentary.

Commitments that may result from discounted bills of exchange and other similar obligations undertaken by an entity are usually disclosed in the financial statements by note, even if the likelihood of loss is low.

Specimen of Cash Flow Statement:

Main differences between AS3 and IndAS7

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Here may be a compilation of the problems with income statements alongside relevant solutions.

Problem 1:

From the overview of the Cash Account of x INC., we have finished using the 31st March2007 direct method of preparing the cash flow statement of the year according to AS-3. We have no cash equivalents.

Summary (cash account ) 31.3.2007

Solution :

Cash flow statement

For the year ended 31st march 2007

Problem 2:

Create a cash flow statement for Suryan Corporation. From: additional information:

Balance sheet

Other information:

(a) During 2006, the sole trader's business was purchased by issuing shares of Rs. 2, 00,000. The assets acquired from him were: goodwill Rs. 20,000, machine Rs. 1, 00,000, 50,000 and debtors Rs. 30,000.

(b) The provision for the tax imposed in 2006 was Rs. 35,000.

(c) Corporate bonds were issued at a 5% premium included in retained earnings.

(d) The depreciation levied on the machine was Rs. 30,000.

Cash flow statement of suryan Ltd.,

For the year 2006

Particular	Rs	Rs
Cash flow from operating activities :
Profit before tax and extraordinary items	55,000
Adjustment for:
Depreciation on machinery	30,000
Operating profit before working capital changes	85,000
Increase in creditors ( 1,00,000-40,000)	60,000
Increase in bills payable (40,000-20,000)	20,000
Increase in stock (excluding stock bought by issue of shares) (80,000-50,000-20,000)	(10,000)
Increase in debtors (excluding debtors acquired by issue of shares) (1,00,000-30,000-30,000)	(40,000)
Cash outflow from operations	1,15,000
Income tax paid
Net cash from operating activities		90,000
II.                 Cash flow from investing activities
Machinery purchased for cash
		2,80,000
III.               Cash flow from financing activities :
Cash proceeds from issue of shares
Cash proceeds from issue of debenture
Net cash flow from financing activities
Net increase in cash and cash equivalets		1,20,000
Add: cash and cash equivalent at the beginning of the year		75,000
Cash and cash equivalent at the end of the year		1,95,000

Working:-  

2.     Provision for tax account

3.     Machinery account

4.     Share capital account

5.      

Problem 3:

Make-out cash flow statement from the following balance sheet of Executive Corporation:

Other information:

(A) Depreciation of Rs. 10,000 and Rs. 20,000 were filled with plants and land and buildings in 2004.

(B) Interim dividend of Rs. 20,000 has been paid in 2004.

(C) Rs. 35,000 income tax paid between 2004

Solution :

Cash flow statement

For the year ended 31st December 2004

1. Plant account

2.     Land and building account

3.     Adjusted profit and loss account

4.     Proposed dividend account

5.     Provision for taxation account

Problem 4:

The bank statement of the business company has increased during the last financial year by Rs.1, 50,000. In the same period it issued shares of Rs. Redeemed bonds of 2, 00,000 and Rs.1, 50,000. It purchased fixed assets for Rs. Charge depreciation of 40,000 and Rs.20, 000. The working capital of the company, other than the bank balance, was increased by Rs. Calculates the company's profit during the year of 1,15,000 transactions.

Solution:

1, 50,000=profit+ 2, 00,000 – 1, 50,000 – 40,000 + 20,000 – 1,15,000

Profit=Rs.2, 35,000

Problem 5:

The chemical company has a turnover of Rs. Cash costs of 50 lakh, Rs (including taxes).Depreciation of 35lakhs and rs.5 if the lax debtor is reduced over the period by Rs.6lakhs, what is the cash from the operation?

Solution:

Cash from Operation = Rs.50 lakh-Rs 35 lakhs+Rs.6 Lakh = rupees.21 lax

There are two ways to convert net income from operating activities into net cash flow:

1. Direct method, and
2. Indirect methods.

Problem 6:

The following information is available from the Exclusive Ltd books. For the year ended 31st March, 2016:

(a) This year's cash turnover was Rs.10, 00,000 and account Rs turnover.12, 00,000.

(b) Accounts payable payments for inventory totaled Rs.7, 80,000.

(c) The collection for accounts receivable was Rs.7, 60,000.

(d) The rent is paid in cash Rs.2, 20,000, excellent rent that has been rs.20, 000.

(e) 4, 00,000 shares of Rs.10 face value were issued for Rs.48, 00,000.

(f) The equipment was purchased for cash Rs.16, 80,000.

(g) Dividends equivalent to Rs.10, 00,000 were declared but still not paid.

(h) Rs.4, 00,000 of the dividends declared the previous year were paid.

(i) Equipment whose book value is Rs. It sold for 1, 60,000 rupees.2, 40,000.

(j) Cash accounts increased by Rs.37, 20,000.

Prepare an income statement using the direct method.

Cash flow statement of exclusive limited for the year ended 31st march , 2016 (direct method)

Problem 7:

Maduri Co., Ltd. Gives you the following information for the year that ended 31st March, 2016:

1. Annual sales totaled Rs.96, 00,000. The company sells goods for cash only.
2. The cost of the goods sold was 60% of sales.
3. Closed stocks were higher than closed stocks by Rs.43, 000.
4. Trade on 31st March, 2016 surpassed those on 31st March, 2015 by Rs.23,000.
5. The taxes paid amounted to Rs.7, 00,000.
6. The depreciation of fixed assets in that year was Rs. For 3, 15,000 rupees, the other costs totaled Rs.21,45,000. Unpaid costs for the 31st March, 2015 and 31st March, 2016 totaled Rs.82,000 yen each,91,000
7. New machine and furniture costing Rs.10,27,500 yen
8. The issue of Rights was made from 50,000 shares of Rs.10 each at a premium of Rs. Received 3 whole monies per share.
9. Dividends to sum Rs. 4, 00,000 were distributed among shareholders.
10. Cash at hand and in the bank as of 31st March, 2015 totaled Rs.2,13,800.

You are required to organize a income statement using the direct method.

Solution

Calculation of cash paid to suppliers and employees

Income from issuance of share capital:

Issue price of one share=Rs. 10 + Rs.3 = Rs.13

Income from the issuance of 50,000 shares=Rs. 13x50, 000 = Rs. 6, 50,000

Cash flow statement of Madhuri Ltd. For the year ended 31st march,2016

Problem 8:

A summary of the caching extracted from the book of happy Co., Ltd.:

You should prepare the company's cash flow statement for the period ended in accordance with Indian Accounting Standards-31st March, 2016-3 (revised).

Solution:

Cash flow statement for the period ending 31st march, 2016

Problem 9:

The following information is available from the books of Standard Company Ltd.:

This is a calculated cash flow business.

Solution:

Statement showing cash flow from operations

Problem 10:

Calculate cash from operations from:

Solution:

Problem 11:

Swastik oils Inc. Offers the following information for the end of the year 31st March, 2016:

Profit and loss account for the year ended 31st march,2016

You must prepare the cash flow statement in accordance with ias-3 for the year ended 31st March, 2016.(Make assumptions if necessary).

Solution:

Statement showing cash generated from operations

Problem 12:

The following data is from Jupiter Ltd. You can get it from the book.

Other information:

1. Income tax liabilities for fiscal year 2014-15 were fixed at Rs.2,54,000 hence Rs refund.1,000 were received from the advance tax paid that year.
2. The book value of furniture sold that year was Rs.5,000.

You need to prepare a cash flow statement for the year that ended 31st March, 2016.

Solution:

1. Cash receipt from the customer:

2.     cash paid to suppliers and employees;

3.     tax payment:

4.     Purchase of land and buildings:

Cash flow statement of jupiter Ltd. For the year ended 31-3-2016 (direct method)

Cash flow satement of jupiter Ltd. For the year ended 31.3.2016

Key takeaways:

1. A holding company is a type of financial institution that owns control of another company, called a subsidiary.
2. The parent company can manage the policies of its subsidiaries and oversee management decisions, but it doesn't perform its day-to-day operations.
3. The holding company is protected from losses incurred by the subsidiary, so if the subsidiary goes bankrupt, its creditors will not be able to chase the holding company.
4. A parent company is a single company that has a dominant stake in one or more other companies.
5. A parent company is formed when a subsidiary is spun off or split, or by an acquisition or merger.
6. The parent company must properly account for its subsidiaries for financial statement and tax purposes.
7. Holdings is the content of an investment portfolio held by an individual or group, such as an investment trust or pension fund.
8. The number and type of holdings in the portfolio contributes to the degree of diversification.
9. Diversification is a risk management strategy that combines different investments within a portfolio. Portfolios built on different types of assets, on average, generate higher long-term returns and reduce the risk of personal holdings or collateral.

References:

1. Monga, J.R. Fundamentals of Corporate Accounting. Mayur Paper Backs, New Delhi.
2. Shukla, M.C., T.S. Grewal, and S.C. Gupta. Advanced Accounts. Vol. – II. S. Chand & Co. New Delhi.
3. Maheshwari, S.N. And S.K. Maheshwari. Corporate Accounting. Vikas Publishing House, New Delhi.
4. Sehgal, Ashok and Deepak Sehgal. Corporate Accounting. Taxman Publications, New Delhi.
5. Gupta, Nirmal. Corporate accounting. Sahitya Bhawan, Agra.
6. Jain, S.P. And K.L. Narang. Corporate Accounting. Kalyani Publishers, New Delhi Copendium of
7. Statements and Standards of Accounting. The Institute of Chartered Accountants of India, New Delhi.
8. Bhushan Kumar Goyal, Fundamentals of Corporate Accounting. International Book House.

Solved examples

Q.1 (Cost of Control / Goodwill)

Balance sheet of S Ltd. As on 31st March 2010 (Liabilities only)

Rs.

On the above date H Ltd. Acquired 30,000 Equity shares in S Ltd. On the above date for Rs. 7,50,000 fixed assets of S Ltd. Were appreciated by Rs. 1,50,000 find out cost of control / Goodwill.

Solution:

Note: Suppose in above case, cost of investment amounted to Rs. 5,00,000 then instead of goodwill, there would be capital Reserve, Rs. 1,00,000.

Q.2 (Minority Interest)

The following is the Balance sheet of S Ltd. As on 31st March, 2010.

H Ltd. Acquired 25,000 shares in S Ltd. On 31st March, 2010 at a cost of Rs. 2,75,000. Fixed assets were revalued at Rs. 3,28,000. Find minority interest.

Solution: Minority interest= 2000/27000 = 2/27

Q.3

The following are summarized Balance Sheets of ‘X’ Ltd. And ‘Y’ Ltd. As on 31st December 2010.

You are required to prepare a consolidated Balance Sheet as on 31st December 2010. Showing in detail necessary adjustments and taking into consideration the following information.

a)      ‘X’ Ltd. Acquired the shares of Y Ltd. On 1.1.2010 when the balance on their profit and Loss account and general reserve were Rs. 75000 and Rs. 80000 respectively.

b)     Stock of Rs. 1,60,000 held by ‘Y’ Ltd. Consists of Rs. 60,000 goods purchased from ‘X’ Ltd. Who has charges profit at 25% on cost.

c)      Included in Debtors of X Ltd. Rs. 30000 due from Y Ltd.

Solution:

Consolidated Balance Sheet of X Ltd. And Y. Ltd. As on 31.12.2010

Notes:

Q.4

H Ltd. Acquired 8,000 shares of Rs. 10 each in K Ltd. On 31st March 2011. The summarized Balance Sheets of the two companies as  on that date were as follows :

You are given the following information:

K Ltd. Made a bonus issue on 31st March 2011 of one share for every two shares held, reducing the capital reserve equivalently, but the transaction is not shown in the above Balance Sheets.

1)     Interest receivable (Rs. 100) in respect of the loan due by H Ltd. To K Ltd. Has not been credited in the account of K Ltd.

2)     The directors decided that the fixed assets of K Ltd. Were overvalued and should be written down by Rs. 5,000.

Prepare the Consolidated Balance Sheet as at 31st March 2011, showing your workings.

Solution:

Consolidated Balance Sheet of K Ltd. And its Subsidiary K Ltd. As at 31st March, 2011

Notes:

Q.5

Following are the balance sheets of H Ltd. And its subsidiary S Ltd., as on 31st December 2010.

1. Profit and loss account of S Ltd. Showed a balance of Rs. 50,000 on 1 January 2010.
2. A divided of 15% was paid in October, 2010 for the year 2009. This dividend was credited to profit and loss account by H Ltd.
3. H. Ltd. Acquired the shares in S Ltd., on 1 July 2010.
4. The bills payable to S. Ltd., were all issued in favour of  H Ltd., which company got the bills discounted.
5. Included in the creditors of S Ltd. Are Rs. 20,000 for goods supplied by H Ltd. Included in the stock of S Ltd. Are goods to the value of Rs. 6,000 which were supplied by H Ltd. At a profit of 33 ⅓% on cost.
6. In arriving at the value of the S Ltd. Shares, the plant and machinery which then stood in the books at Rs. 1,00,000 was revalued at Rs. 1,50,000. The new value was not incorporated in the books. No changes in these assets have been made since that date.

Prepare a Consolidated Balance Sheet of H Ltd. And S Ltd. Show working in detail

Solution:

Consolidated Balance Sheet of H Ltd. And its Subsidiary S Ltd. As at 31st December 2010.

Notes: