Unit -2
Holding company and subsidiary companies
Q1) Define Holding Company and Subsidiary Company.
A1)
In the current phase of economic and business growth, many organizations are growing into large corporations by way of acquisition or mergers. To achieve this objective, formation of holding company is an important tool.
DEFINITIONS:
As per section 2(46) of the Companies Act, 2013, ‘Holding Company’, in relation to one or more other companies, means a company of which such companies are subsidiary companies.
Section 2 (87) of the Companies Act, 2013, defines ‘Subsidiary Company’ as a company in which the holding company –
- controls the composition of the board of directors or
- Exercises or controls more than one half of the total share capital either at its own or together with one or more of its other subsidiary companies.
Q2) What is the purpose of preparing Consolidated Financial Statements?
A2)
Consolidated Financial Statements (CFS) are the financial statements of a group presented as those of a single enterprise, where a group refers to parent and all its subsidiaries.
The Parent Company need to inform the users of its financial statements, about the financial position and results of operations not only of their enterprise itself but also of the group as a whole. For this purpose, Consolidated Financial Statements are prepared by a parent that is holding enterprise; to provide financial information about a parent and its subsidiary or subsidiaries as a single economic entity.
CFS normally includes Consolidated Balance Sheet, Consolidated Statement of Profit and Loss and Notes and Schedules. Consolidated Cash Flow Statement also needs to be prepared, in case the Holding Company prepares its own Cash Flow Statement.
Q3)What is Banking? Define Banking Company.
A3)
Section 5(b) of the Banking Regulation Act, 1949 defines ‘Banking’ as:
- Accepting deposits of money from public for the purpose of lending or investing.
- These deposits are repayable on demand or otherwise, and can be withdrawn by cheque, draft or otherwise.
Definition of Banking Company - Any bank which transacts the business as stated in Section 5(b) of the Act in India is called a Banking Company.
Q4) What is the business of a Banking Company?
A4)
Primary Business:
The main business of aBanking Company are twofold - accept deposits from the public and lending the money to the borrowers.
Subsidiary Business:
1) Managing and selling the property which may have come into its possession in satisfaction of claims.
2) Drawing, Accepting and Discounting bills of exchange, Hindis, promissory notes, debentures and securities.
3) Granting and issuing of letters of credit and traveller’s cheques.
4) Buying and selling in bullion.
5) Buying and selling of foreign exchange including foreign bank notes.
6) Underwriting shares and debentures.
7) Providing Safe Deposit Vaults.
8) Doing all such other things which are incidental for the promotion of banking business.
9) Any other form of business which the Central Government, through Official Gazette may specify.
Q5) What is Insurance Policy?
A5)
- Insurance is a contract, where the ‘Insurer’ covers the protection of losses suffered by the ‘Insured’.
- The Insurance Company is the Insurer and the other party who opts for being protected is called Insured.
- The consideration in return which the Insured gives to Insurer is called ‘Insurance Premium’.
- The contract in which all the terms applicable to and between the Insurer and the Insured are listed is termed as Insurance Policy’.
Q6) Which are the regulatory bodies of an Insurance Company?
A6)
- The Companies conducting the Insurance Business are regulated by Insurance Regulatory and Development Authority of India Act, 1999.
- The Act provides framework for the accounting procedures of Insurance Companies.
- Also, the Insurance Companies need to abide the Accounting Standards laid down by the Institute of Chartered Accountants of India.
Q7) Give a brief on the maintenance of Books of Accounts to be kept by Insurance Company.
A7)
Insurance Company needs to maintain books of accounts like any other company. But, it is compulsory for them to maintain the following Registers –
- Register of Policies: Details of Policy holders like Name, Address, Date of Policy, etc.
- Register of Claims: Name and Address of Claimant, Date of Claims, etc. are included.
- Register of Licensed Insurance: Name of Insurance Agents, Address, License No., Commission Due to them, etc. are listed in this Register.
The three registers mentioned above are Statutory Books, that is, the Law governing the Insurance Companies prescribe maintenance of these books.
Other than Statutory Books, Subsidiary Books like Cash Book, Premium Register, Cash Receipts, etc. are also maintained by the Insurance Companies.
