Unit 1
HOLDING COMPANY ACCOUNTS
One of the popular firms of business combination is by means of holding company or Parent Company. A holding company is one which directly or indirectly acquires either all or more than half the number of Equity shares in one or more companies so as to secure a controlling interest in such companies, which are then known as subsidiary companies. Holding companies are able to nominate the majority of the directors of subsidiary company and therefore control such companies. Holding company meet directly from such subsidiary company or it may be acquired by majority OR shares in existing company. Such company also considered as subsidiary company in which holding company acquired majority shares.
The Companies Act, 2013 defines a subsidiary company,” A company is a subsidiary of another if and only if –
a) That other company controls the composition of its Board of Directors; or
b) That other –
i) Where the first mentioned company is an existing company in respect of which the holders of Preference shares issued before the commencement of this Act have the same voting rights in all respect as the holders of Equity shares exercises or controls more than half of the total voting power of such company.
ii) Where the first mentioned company is any other company, holds more than half in nominal value of its Equity share capitals. OR
iii) The company is a subsidiary of any company which is that other company’s subsidiary.
Following are the advantages of Holding Company:
1) Subsidiary company maintained their separate identity.
2) The public may not be aware the existence of combination among the various company.
3) Holding company need not to be invest entire amount in the share capital in subsidiary company still enjoy controlling power in such company.
4) It would be possible to carry forward losses for income tax purposes.
5) Each subsidiary company prepares its own accounts and therefore financial position and profitability of each undertaking is known.
6) Holding company may additional acquired or disposed of and the shares in subsidiary company in market whenever if desired.
1) There is a possibility of fraudulent manipulation of accounts.
2) Inter-company transaction may not be at a fair price.
3) Minority shareholder’s interest may not be properly protected.
4) The accounts of various companies may be made upon different dates to, manipulate profit or financial position of Group companies.
5) The shareholders in the holding company may not be aware of true financial position of subsidiary company.
6) Creditors and outsider’s shareholder in the subsidiary company may not be aware of true financial position of subsidiary company.
7) The Subsidiary Companies may be force to appoint person of the choice of holding company such as Auditors, Directors other officers etc. at in dually high remuneration.
8) The Subsidiary Company may be force for purchases or sale of goods, certain assets etc. as per direction of holding company.
As laid down in section (212) of the companies Act, 1956. A holding company requires to attach its balance sheet. The following documents and present the same to its shareholders.
a) A copy of the Balance Sheet of the subsidiary.
b) A copy of the Profit and Loss Account of the subsidiary.
c) A copy of the Report of the Board of Directors of the subsidiary.
d) A copy of the Auditors Report of subsidiary.
e) A statement indicating the extent of holding company’s interest in the subsidiary at the end of the accounting year of the subsidiary.
f) Where the financial year of the subsidiary company does not coincident with the financial year of the holding company. a statement showing the following:
i) Whether there are any changes in holding companies interest in subsidiary company since the close of financial year of the subsidiary company.
ii) Details of material changes which have occurred between the end of the financial year or the subsidiary company an end of the financial year of the holding company.
AS. 21 come into effect in respect of accounting periods commencing on or after 1st April i.e. for year ending 31st March 2002. The A.S. 21 is applicable to all the enterprises that prepare consolidated financial statement. It is mandatory for Listed companies and Banking companies.
As per AS 21, The Consolidated financial statements would include:
i) Profit & Loss A/c
ii) Balance sheet
iii) Cash flow statement
iv) Notes of Accounts except typical notes.
v) Segment reporting
AS 21 also desire various import terms, as well as treatment and same while preparing consolidated financial statement. Consolidated financial statements should be prepared for both domestic as well as foreign subsidiaries.
A holding company is required to present to its shareholders consolidated balance sheet of holding company and its subsidiaries. Consolidated balance sheet is nothing but addicting of up or combining the balance sheet of holding and its subsidiary together. However, assets and liabilities are straight forward, i.e. added line to line and combination of share capital, reserves, and accumulated losses are not directly added in consolidated balance sheet.
Preparation of consolidated balance sheet.
The following points need special attention while preparing consolidated balance sheet.
1) Share of holding company and share of minority (outside shareholders).
2) Date of Balance sheet of holding company and that of various subsidiary companies must be same. If they are not so necessary adjustment must be made before consolidation.
3) Date of Acquisition of control in subsidiary companies.
4) Intercompany owing.
5) Revaluation of fixed assets as on date of acquisition, depreciation, adjustment on revaluation amount etc. which are discussed here in after.
COST OF CONTROL / GOODWILL / CAPITAL RESERVE
The holding company acquires more than 50% of the shares of the subsidiary company. Such shares may be acquired at a market price. This may be at a premium or at discount. This amount is reflected in the balance sheet of holding company of the assets side as investment in the shares of subsidiary company. This is the price paid for shares in net assets of subsidiary company as on date of its acquisition. Net assets of the subsidiary company consist of share capital, accumulated profits and reserve after adjustment, accumulated losses as on the date of acquisition. If the amount paid by the holding company for the shares of subsidiary company is more than its proportionate share in the net asset of the subsidiary company as on the date of acquisition, the difference is considered as goodwill.
If there is excess of proportionate share in net assets of subsidiary company intrinsic of shares acquired and cost of shares acquired by holding company, there will be capital reserve in favour of holding company.
If goodwill already exists in the balance sheet of holding company or both the goodwill thus calculated, will be added up to the existing goodwill. Capital Reserve will be deducted from Goodwill.
In short, net amount resulting from goodwill and capital Reserve will be shown in the consolidated Balance sheet.
MINORITY INTEREST
The claim of outside shareholders in the subsidiary company has to be assessed and shown as liability in the consolidated balance sheet. Minority interest in the net assets of the company is nothing but the proportionate share of aggregation of share capital, reserve surpluses funds etc. proportionate share of all assets should be deducted from the minority interest.
Thus, minority interest is the share of outsider in the following.
1) Share in share capital in subsidiary.
2) Share in reserves (Both pre and post acquisition of subsidiary).
3) Share in accumulated losses should be deducted.
4) Proportionate share of profit or loss on revaluation of assets.
5) Preference share capital of subsidiary company held by outsiders and dividend due on such share capital, if there are profits.
Minority interest means outsiders interest. It is treated as liability and shown in consolidated. Balance sheet as current liability. This amount is basically intrinsic value of shares held by minority.
CAPITAL PROFITS AND REVENUE PROFITS
The holding company may acquire the shares in the subsidiary company either on the balance sheet date or any date earlier than balance sheet date. All the profit earned by the subsidiary company till the date of acquisition of shares by holding company have to be taken as capital profits for the holding company.
Such reserves loose their individual identity and considered as capital profits. In case, the holding company acquired shares on a date other than balance sheet date of subsidiary, the profits of subsidiary company will have to be apportioned between capital profits and Revenue profits from the point of view of the holding company. Thus any profit earned by subsidiary company before the date of acquisition is the capital profit, while any profit earned by subsidiary company after the date of acquisition is Revenue profits. While preparing the consolidated balance sheet share in capital profits should be adjusted with the cost of control and Revenue profits / Reserves should be merged with the balances in the Reserve and surpluses of the holding company.
ELIMINATION OF INVESTMENTS IN SHARES OF SUBSIDIARY COMPANY
Investment in shares in subsidiary company represents the cost paid by the holding company to acquire the shares of the subsidiary company. The investment in shares of the subsidiary company entitles the holding company to share the net assets of the subsidiary company. While preparing consolidated balance sheet all the assets and liabilities of subsidiary company have to be merged with those of the holding company and therefore it is logical to eliminate investments of the holding company in the shares of the subsidiary company. Share in net assets of the outside shareholders should treat as the minority interest it is shown in the balance sheet on the liability side of holding company.
MUTUAL OWING / INTER COMPANY TRANSACTIONS
The holding company and the subsidiary company may have number of intercompany transactions in any one or more of the following matters.
As a result of these intercompany transactions, certain accounts appear in the balance sheet of the holding company as well as the subsidiary company. In the consolidated balance sheet all these common accounts should be eliminated. For e.g.
All the above intercompany transactions have to be eliminated while preparing the consolidated balance sheet. These can be done by deducting intercompany transactions from the respective items on both sides of balance sheet.
UNREALIZED PROFIT
The problem of unrealized profit arises in those cases where the companies of the same group have sold goods to each other at the profits and goods still remain unsold at the end of the year company to whom the goods are sold.
While preparing the consolidated balance sheet, unrealized profit has to be eliminated from the consolidated balance sheet in the following manner.
For e.g.
The sock in trade of S Ltd. includes Rs. 60,000 in respect of goods purchased from H Ltd. These goods have been sold by H Ltd. at a profit of 20% on invoice price.
Therefore, unrealized profit = 60, 000 x 20/100 = 12, 000
Unrealized profit Rs. 12,000 should be deducted from closing stock in the consolidated balance sheet and from Revenue profits i.e. from profit and loss account.
CONTINGENT LIABILITIES
As 29 defines a contingent liability as:
A possible obligation that arises from past events and whose existence will be confirmed only by occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity or a present obligation that arises from the past events but not recognized / provided.
Such contingent liability may be of two types.
a) External contingent liability.
b) Internal contingent liability.
Internal contingent liability relates in respect of transactions between holding and subsidiary company and it will not be shown as foot note in the consolidated balance sheet, as they appear as actual liability in the consolidated balance sheet.
REVALUATION OF ASSETS AND LIABILITIES
The holding company may decide to revalue the assets and liabilities of the subsidiary company on the date of acquisition of share in the subsidiary company. Any profit or loss on such revaluation is a capital profit or loss.
Profit on revaluation of assets of the subsidiary company whether before or after date of acquisition of shares by the holding company, the same must be shared by the holding company, and the minority share holders in proportion to their respective holding. The minority share holders share should be added to the minority interest. But the holding company share should be treated as capital profits and considered in cost of control.
Further readjustment for depreciation on increase in the value of assets should be made in the profit and loss account in the subsidiary company. And same should be deducted from the Revenue profits of the subsidiary company.
PREFERENCE SHARES IN SUBSIDIARY COMPANY
In case the subsidiary company has also Preference share capital, its treatment on consolidation will be as follows:
a) Nominal value of non participating Preference share capital of the subsidiary company is held by the holding company should be adjusted in cost of control against the cost of Preference shares.
b) Preference shares held by outsiders. Paid up value of such Preference shares should be included in Minority interest.
BONUS SHARES
The issue of bonus shares by the subsidiary company will increase the number of shares held by the holding company as well as by the minority share holders without any additional cost. However, ratio of holding will not change. Issue of bonus shares may or may not affect the cost of control depending upon whether such shares are issued out of capital profits or revenue profits.
i) Issue of bonus shares out of pre acquisition profits (capital profits): In case the subsidiary company issues bonus shares out of capital profits the cost of control remains unaffected in the consolidated balance sheet on account of issue of bonus shares. As share capital increases by the amount of bonus and capital profits decreases by the same amount. Hence, there is not effect on cost of control when bonus shares are issued from pre acquisition profits.
ii) Issue of bonus share of post acquisition profits (Revenue profits): In this case, a part of revenue profits will get capitalised resulting decrease in cost of control or increase in capital reserve.
Issue of bonus shares whether out of capital profits or revenue profits will not affect on minority interest. Minority interest will remain unaffected.
TREATMENT OF DIVIDEND
i) Dividend paid
When subsidiary company pays dividend, the holding company will naturally receive its due share. On receipt the holding company will debit bank account. However, account to be credited depends upon whether dividend received out of pre-acquisition profit or out of post acquisition profit. Dividend received by the holding company out of Pre-acquisition profit should be credited to investment account. Only the dividend out of post acquisition profit should be treated as Revenue income and credited to profit and loss account.
ii) Proposed dividend:
In case the subsidiary company has proposed dividend on its shares which is not accounted by the holding company for such dividend due on their investment in subsidiary company profits.
Profit may be then analysed between capital Revenue in the usual manner.
iii) Dividend payable:
In case subsidiary company has declared dividend and the holding company taken credits for such dividend in its account, following treatments should be given.
iv) Intension to propose dividend:
In case subsidiary company has intension to propose dividend, such proposed dividend given in adjustment may be completely ignored while preparing the consolidated balance sheet.
Alternatively, proposed dividend on share capital held by minority may be deducted from minorities’ interest and shown separately liability in the consolidated balance sheet.
PRELIMINARY EXPENSES
The preliminary expenses of subsidiary company may be taken as capital loss or the amount may be added with the amount of preliminary expenses of the holding company.
PROVISION FOR TAXATION
Any provision for taxation provided by the subsidiary company should be taken to the consolidated balance sheet and be shown on the liability side.
PURCHASE OF SHARES IN INSTALLMENT
A holding company may purchase shares of the subsidiary company in installments. In such circumstances division of profit between pre and post acquisition will depend upon the lots in which shares are purchased. However, if small purchases are made over the period of time then date of purchase of shares which results in acquiring in controlling interest may be taken as cut of line for division of profits between capital and Revenue.
SALE OF SHARES
When a holding company disposed off a part of its holding in the subsidiary company and the relationship of holding and subsidiary company continues as it holds majority of shares of subsidiary. Sale of shares by holding company may be treated as follows.
a) Profit or loss on sale of shares should be ascertained and it should be adjusted while ascertaining goodwill or capital reserve. In brief, such loss or gain on sale of share should be considered in cost of control.
b) The minority interest and cost of control should be ascertained on the basis of number of shares held by the holding company and the minority on the date of consolidated balance sheet.
The consolidated profit and loss account of the holding company and its subsidiaries are prepared to show the operating activities of the companies comprising the groups. While preparing the consolidated profit and loss account of the holding company and its subsidiary, the items appearing in the profit and loss account of the holding company and the subsidiary companies have to be aggregated.
But while doing so, the following adjustments have to be made.
1) Prepare profit and loss account in columnar form Amounts relating to intercompany transactions are entered in the adjustment column against the respective items and are subtracted while entering amounts in the total columns.
2) All inter company operating transactions are eliminated such as purchase and sale of goods, interest on loans among the group companies.
3) All inter company profits are adjusted.
4) Dividends received from the subsidiary company by the holding company should be eliminated from both the sides of consolidated profit and loss account.
5) Interest accrued and outstanding on Debenture of the subsidiary company held by the holding company should be accounted by holding and subsidiary company both and then it should be eliminated.
6) Readjustment of Depreciation on Revaluation on fixed Assets at the time of acquisition of shares by the holding company should be adjusted in consolidated balance sheet and respective fixed assets and in the consolidated profit and loss account.
7) The minority interest in the profit of subsidiary company should be transferred minority interest account, in the proportion of total profit after adjustment of revaluation of fixed Assets, but before adjusting unrealized profit on stock.
8) The share of holding company in pre-acquisition profit should be transferred to cost of control, in case shares are acquired during the year.
9) Share of holding company in the past acquisition profits shall be considered as revenue profits.
10) The balance in holding company columns will represent the total profit or loss made or suffered by the group as a whole.
Foreign subsidiaries company’s final A/c should be consolidated along with other subsidiary companies in the usual manner. The trial balance of the subsidiary or balance sheet and profit and loss A/c of the foreign subsidiary is the first converted into home currency.
The rules of conversion are the same as for foreign branches which can be summarized as under.
a) Fixed Assets and fixed liabilities should be converted at the rate of exchange prevailing as on date when such assets were purchased or such liabilities are incurred or the payment was made if they are acquired or raised after acquisitions of shares.
b) Floating assets and liabilities should be converted at the rate of exchange prevailing on the last day of the accounting year.
c) Revenue items or net profit for the year should converted at the average rate of exchange ruling during the period under review.
d) Opening stock should be converted at the rate of exchange at the beginning of the year.
e) Share capital and Reserves of subsidiary company as on date of acquisition, should be converted at the rate of exchange prevailing on date of acquisition.
f) Any remittances for purchases of goods by subsidiary company from holding company or vice-versa should be converted at the actual rates prevailing on the date of purchase or date of receipt of remittances.
g) Fixed assets / Fixed liabilities as on date of acquisition which are carried forward should be converted at the rate of exchange prevailing on date of acquisition of shares; if rate on date of acquisition on fixed assets not given.
After converting the various items of trial balance a new trial balance can be prepared, difference if any in the new trial balance should be transferred to exchange fluctuation account. Such difference may be carried and shown in the Balance sheet either as an asset or as a liability depending on whether balance debit or credit, alternatively difference in exchange can be transferred to profits & loss account.
Q1) (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:
Particulars | Rs | Rs |
Cost of investment in S Ltd |
| 7,50,000 |
Less: Share in share capital (4,00,000 x 3/4) | 3,00,000 |
|
Share in Reserves & Surplus (2,50,000 x 3/4) | 1,87,500 |
|
Share in capital profit (1,50,000 x 3/4) | 1,12,500 |
|
(Appreciation in fixed assets) |
| 6,00,000 |
|
|
|
Goodwill |
| 1,50,000 |
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.
Q2) (Minority Interest)
The following is the Balance sheet of S Ltd. as on 31st March, 2010.
Liabilities | Rs. | Assets | Rs. |
Share capital Equity shares of Rs. 10 each
Profit & Loss A/c
Current liabilities |
2,70,000
3,60,000
85,000 | Fixed Assets Investment
Current Assets Preliminary Expenses | 2,90,000 2,75,000
1,30,000
20,000 |
| 7,15,000 |
| 7,15,000 |
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
Particulars | Rs |
Share in share capital (2,70,000 x 2/27) | 20,000 |
Share in Reserves & Surplus (3,60,000 x 2/27) | 20,000 |
Share in capital profit (3,78,000 x 2/27) | 28,000 |
(Appreciation in fixed assets - 360000-20000+38000) |
|
|
|
Minority interest | 68,000 |
Q3) The following are summarized Balance Sheets of ‘X’ Ltd. and ‘Y’ Ltd. as on 31st December 2010.
Liabilities | X Ltd. | Y Ltd | Assets | X Ltd. | Y Ltd. |
Paid up capital in |
|
| Freehold | 4,50,000 | 1,20,000 |
Shares of Rs. 100 |
|
| premises |
|
|
Each | 10,00,000 | 3,00,000 | Plant & | 3,50,000 | 1,60,000 |
|
|
| Machinery |
|
|
General reserve | 4,00,000 | 1,25,000 | Furniture | 80,000 | 30,000 |
Profit and Loss A/c | 3,00,000 | 1,75,000 | Debtors | 3,00,000 | 1,70,000 |
Sundry Creditors | 1,00,000 | 70,000 | Stock Investment | 3,20,000 | 1,60,000 |
|
|
| In Shares in |
|
|
|
|
| Y Ltd at cost | 2,60,000 | - |
|
|
|
|
|
|
|
|
| Cash balance | 40,000 | 30,000 |
| 18,00,000 | 6,70,000 |
| 18,00,000 | 6,70,000 |
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
Liabilities | Rs. | Assets | Rs. |
Share capital in shares of Rs. 10 each | 10,00,000 | Fixed Assets |
|
|
|
|
|
Reserves & Surplus |
| Freehold premises | 5,70,000 |
Capital Reserve | 43,333 | (4,50,000 + 1,20,000) |
|
General Reserve | 4,30,000 | Plant & Machinery | 5,10,000 |
(4,00,000+30,000) |
| (3,50,000 + 1,60,000) |
|
Profit & Loss A/c | 3,58,667 | Furniture (80,000 +30,000) | 1,10,000 |
(2,92,000+66,667) |
|
|
|
|
| Investment | NIL |
Secured Loans | NIL | Current Assets |
|
Current Liabilities | NIL | Loans & Advances |
|
Provisions |
| Stock (320000 + 160000) |
|
|
| 480000 |
|
Creditors (1,00,000 + 70,000) | 1,70,000 | Less: Unrealised profit 12000 | 4,68,000 |
|
|
|
|
Minority Interest | 2,00,000 | Debtors (300000+ 170000) | 4,70,000 |
|
|
|
|
|
| Cash (40000 + 30000) | 70,000 |
| 21,98,000 |
| 21,98,000 |
Notes:
Particulars | Rs | Rs |
|
|
|
Investment cost |
| 2,60,000 |
Less: i) Share in share capital | 2,00,000 |
|
Less: ii) Propionate Pre-acquisition profit | 1,03,333 | (3,03,333) |
Capital Reserve |
| 43,333 |
|
|
|
2. Minority Interest |
|
|
Share in Share Capital |
| 1,00,000 |
⅓ rd of General Reserve |
| 41,667 |
⅓ rd of Profit & Loss A/c |
| 58,333 |
|
| 2,00,000 |
3. General Reserve |
|
|
Of X Ltd. |
| 4,00,000 |
Of Y Ltd. (125000- Pre-acquisition 8000) | 45,000 |
|
Less: due to minority shareholders (⅓) | (15,000) | 30,000 |
|
| 4,30,000 |
4. Unrealized profit = 20% of 60,000 |
| 12,000 |
|
|
|
5. Profit & Loss Account |
|
|
X Ltd. (300000-unrealised profit) |
| 2,88,000 |
Y Ltd. (175000-Pre-acquisition 75000) | 1,00,000 |
|
Less: ⅓ rd of minority | (33,333) | 66,667 |
|
| 3,54,667 |
Q4) 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:
Particulars |
| H Ltd. Rs. | K Ltd. Rs. |
Liabilities: |
|
|
|
Share Capital: |
|
|
|
30,000 Shares of Rs. 10 each | … … … … | 3,00,000 |
|
10,000 Shares of Rs. 10 each | … … … … | - | 1,00,000 |
Capital Reserve | … … … … | - | 52,000 |
General Reserve | … … … … | 25,000 | 5,000 |
Profit & Loss Account | … … … … | 38,200 | 18,000 |
Loan from I Ltd. | … … … … | 2,100 | - |
Bills payable (including Rs. | … … … … | - | 1,700 |
1,000 to H Ltd.) |
|
|
|
Creditors | … … … … | 17,900 | 5,000 |
|
| 3,83,200 | 1,81,700 |
Assets: |
|
|
|
Fixed Assets |
| 1,50,000 | 1,44,700 |
Investments in K Ltd. at cost | … … … … | 1,70,000 | - |
Stock-in-hand | … … … … | 40,000 | 20,000 |
Loan to H Ltd. | … … … … | - | 2,000 |
Bills Receivable (including Rs. | … … … … | 1,200 | - |
700 from K Ltd.) |
|
|
|
Debtors | … … … … | 20,000 | 10,000 |
Bank | … … … … | 2,000 | 5,000 |
|
| 3,83,200 | 1,81,700 |
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
LIABILITIES | Rs. | Rs. | ASSETS | Rs. | Rs. |
Share Capital |
|
| Fixed Assets |
|
|
Equity Share Capital |
|
| Goodwill (on consolidation) |
| 33,920 |
30,000 Equity shares of Rs. 10 each fully paid |
| 3,00,000 | Other Fixed Assets | 1,50,000
1,39,700 | 2,89,700 |
|
|
| Current Assets, |
|
|
Reserves & Surplus |
|
| Loans & Advances |
|
|
General Reserves | 25,000 |
| Stock | 40,000 |
|
|
|
|
| 20,000 | 60,000 |
P & L A/c H Ltd. | 38,200 | 63,200 | Debtors | 20,000 |
|
Minority Interest |
| 34,020 |
| 10,000 | 30,000 |
Current Liabilities & Provisions |
|
|
|
|
|
Creditors |
|
| Bills Receivable | 1,200 |
|
H Ltd. | 17,900 |
| Less: Mutual Dues | (200) | 1,000 |
K Ltd. | 5,000 | 22,900 |
|
|
|
Bills Payable | 1,700 |
|
|
|
|
Less: Mutual Dues | (200) | 1,500 | Cash & Bank | 2,000 |
|
|
|
|
| 5,000 | 7,000 |
|
|
|
|
|
|
Total |
| 4,21,620 | Total |
| 4,21,620 |
|
|
|
|
|
|
Notes:
Particulars | Rs | Rs |
|
|
|
H Ltd = 12,000/15,000 = 4/5 |
|
|
|
|
|
Minority Interest = 3,000/15,000 = 1/5 |
|
|
|
|
|
|
|
|
2. Analysis of Profit | Capital Profit | Revenue Profit |
P/L as on the date of acquisition 18,000 |
|
|
Add: Interest due 100 | 18,100 |
|
|
|
|
Reserve on the date of acquisition |
|
|
Capital | 52,000 |
|
General | 5,000 |
|
| 75,100 |
|
Less: Bonus Issue 50,000 |
|
|
Loss on Revaluation of Fixed Assets 5,000 | (55,000) |
|
| 20,100 |
|
Holding Company (4/5) | 16,080 |
|
Minority (1/5) | 4,020 |
|
|
|
|
3. Cost of Control | Rs | Rs |
Investment cost |
| 1,70,000 |
Less: i) Share in share capital (including bonus) | 1,20,000 |
|
Less: ii) Capital profit | 16,080 | (1,36,080) |
Capital Reserve |
| 33,920 |
|
|
|
4. Minority Interest |
|
|
Share in Share Capital |
| 30,000 |
Share in capital profit |
| 4.020 |
|
|
|
|
| 34,020 |
Q5) Following are the balance sheets of H Ltd. and its subsidiary S Ltd., as on 31st December 2010.
Liabilities | H Ltd. Rs. | S Ltd. Rs. | Assets | H Ltd. Rs. | S Ltd. Rs. |
Share capital |
|
| Goodwill | 40,000 | 30,000 |
Shares of Rs.10 each | 5,00,000 | 2,00,000 | Land & Buildings | 2,00,000 | 1,30,000 |
|
|
|
|
|
|
General Reserve on |
|
| Plant & Machinery | 1,60,000 | 90,000 |
January 1, 2003 | 1,00,000 | 60,000 |
|
|
|
Profit & Loss Account | 1,40,000 | 90,000 | Stock | 1,00,000 | 90,000 |
Bills payable | - | 40,000 | Debtors | 20,000 | 75,000 |
Creditors | 80,000 | 50,000 | 1,500 Shares in S |
|
|
|
|
| Ltd. at cost | 2,40,000 | - |
|
|
| Cash at Bank | 60,000 | 25,000 |
| 8,20,000 | 4,40,000 |
| 8,20,000 | 4,40,000 |
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.
LIABILITIES | Rs. | Rs. | ASSETS | Rs. | Rs. | |
Share Capital |
|
| Fixed Assets (Net) |
|
| |
Equity Share Capital 50,000 Equity shares of Rs. each, fully paid |
| 5,00,000 | Goodwill H Ltd. S Ltd. |
40,000 30,000 70,000 |
| |
Reserves & surplus |
|
|
|
|
| |
General Reserves | 1,00,000 |
| Less: Capital Reserve (on consolidation) | (60,000) | 10,000 | |
Consolidated P & L A/c | 1,40,375 | 2,40,375 | Land/Bldg./Property H Ltd |
2,00,000 |
| |
Minority Interest |
| 1,00,625 | S Ltd | 1,30,000 | 3,30,000 | |
Current liabilities Provisions |
& |
|
| Machinery ‘H’ ‘S’ Add: Revaluation | 1,60,000 90,000 55,000 |
|
Creditors H Ltd. S Ltd. |
80,000 50,000 |
|
(-) Add Dep | 3,05,500 (2,500) |
3,02,500 | |
| 1,30,000 |
| Stock ‘H’ ‘S’ | 1,00,000 90,000 |
| |
Less: Mutual Dues | (20,000) | 1,10,000 |
(-) st Reserve | 1,90,000 (1,500) |
1,88,500 | |
Bills Payable S Ltd. |
| 40,000 | Debtors ‘H’ ‘S’ | 20,000 75,000 |
| |
|
|
| (-) Mutual Dues | (20,000) | 75,000 | |
|
|
| Cash & Bank |
| 85,000 | |
|
| 9,91,000 |
|
| 9,91,000 | |
Notes:
Particulars | Rs | Rs |
|
|
|
H Ltd = 1,500/2,000 = 3/4 |
|
|
|
|
|
Minority Interest = 500/2,000 = 1/4 |
|
|
|
|
|
2. Time Ratio |
|
|
Shares acquired on 1.7.2010 |
|
|
Pre Acq- 1.1.2011 to 30.6.2010 = 6 months |
|
|
Post Acq- 1.7.2010 to 31.12.2010 = 6 months |
|
|
Time ratio = 1:1 |
|
|
|
|
|
3. Analysis of Profit of S ltd | Capital Profit | Revenue Profit |
General reserve (op. bal) | 60,000 |
|
P/L A/c (op. bal) 50,000 |
|
|
Less: Pre Acq. Div (30,000) | 20,000 |
|
P/L A/c closing. Bal 90,000 |
|
|
Less: Opening bal (20,000) |
|
|
70,000 |
|
|
Profit earned during the year in T.R. | 35,000 | 35,000 |
Increase in F.A. value due to revaluation | 55,000 |
|
Less: Depreciation on above |
| (2,500) |
| 1,70,000 | 32,500 |
Holding Company (3/4) | 1,27,500 | 24,375 |
Minority (1/4) | 42,500 | 8,125 |
|
|
|
4. Cost of Control | Rs | Rs |
Investment cost |
| 2,40,000 |
Less: i) Share in share capital | 1,50,000 |
|
Less: ii) Capital profit | 1,27,500 |
|
Less: iii) Pre acquisition div | 22,500 | 3,00,000 |
Capital Reserve |
| 60,000 |
|
|
|
5. Minority Interest |
|
|
Share in Share Capital |
| 50,000 |
Share in capital profit |
| 42,500 |
Share in revenue profit |
| 8,125 |
|
| 1,10,625 |
6. Consolidated P/L A/c |
|
|
P/L A/c bal in H Ltd |
| 1,40,000 |
Add: Share in revenue profits of S Ltd |
| 24,375 |
|
| 1,64,375 |
Less: Div out of Pre-Acq profits |
|
|
Credited to P/L A/c | 22,500 |
|
Stock reserve | 1,500 | (24,000) |
|
| 1,40,375 |
|
|
|
7. Revaluation of plant & machinery |
|
|
Book value on 1.1.2010 |
| 1,00,000 |
Less: Depn for 6 months |
| 5,000 |
Book value on 1.7.2010 |
| 95,000 |
Revalued at |
| 1,50,000 |
Profit on Revaluation |
| 55,000 |
|
|
|
8. Additional Depreciation |
|
|
On 1,00,000 for 6 months |
| 5,000 |
On 1,50,000 for 6 months |
| 7,500 |
|
| 12,500 |
Less: Already provided |
| 10,000 |
Additional depn to be provided |
| 2,500 |
|
|
|
References
1. Corporate Accounting by B.B.Dam
2. Corporate Accounting by K.R.Das
