·na co mpany Accounts

flold , "
: rnplc. if compan
c;a
---
F'or y ' A' is subsid iary f-cc
:.: ..: ' A' l11c 0
n company ' C- he
L -
bsidiory v f com pany .
~idiary may be cal
~; \,so indi rectly Such a su
Chapter 14
suhsiJ iar y.
to prtH1ttafloll of 1
1,eg•I req uir em en t, rebttn1
t lays down spe
Sec . 21 2 of the Co mpanjc3 Ac
ding company
sentation of accounts by a hol
to anach the folio•
pre I. A ho lding company has
1Ubs1diam
sheet in res pect of each of its
Holding Company Ace ouo, (a) A co py of the Balance
(b) A cop y of the Profit &
Sheet of lhe 5'
Loss accoum.
~ (c) A co py of the report of
its board of d
its auditors
Introduction (d) A co py of the report of
producti on have given impetuStohr..:.. (e) A statement of the holding
com pan
Economies of Large scale .. . h be
an d acq ws 1t1 0ns av e come the order ofth ~: " specified in sub-section (3).
combinations. Mergers ylD ~
ate wo :ld . A~ uir-in g co~ tro l!i? g. interest in a ~mpany provi~da (f) The statement referred
to in su ~scct
co~r .~
it s mdependent existence and iden (g) The report referred to
in su~ sec tioo
over its workmg without affectmg
ess combination facilitates creation O
;~~ the holding cc
'Holding company' method of busin 2 If the financiaJ years of
ere st in mu tual well being. Thus c.~ with each other, subsidiary compan
y's B
Jinked group of com pan ies with int
ome a favourate method to ~
~ mentioned above relating to the
same ti
control o~er other companies has bec ~•
the Balance Sheet of the holdin
g conq:
ind ust rial em pire . compani
If th~ financial years of both the
lding Company and Subsidiary Compuy statements ot
(a) M ~g and De finition of Ho
companies~ year's Balance Sheet and other
A hoJdmg company is one wh
ich controls one or more other · However the time span between
the two balaI
means of: six months.
(a) Holding majority shares or Requirements of Schedule VI
(b) ControIJing the compositi
on of Board of directors or The following items relating to
the subsNl
b 'd' . ~ Sheet as pre
(c) Contro lling a holding company with su st 1anes. the holding company's Balance
Th I di di--~
e nofantheCo mpanies. A ct does not defime a holding company m11t On the assets side oftJ,e Bala11ce
Slittt
Sec. 4 (4) Co d •to Id estmer
co mp aru es Ac t say s "A company shall be deeme " (a) Under the heading of ' Inv
holdin g b 'di
of another' if' but OnJY l·r., th at ot er IS Its SU S1 ary ., .' «
h . . etc
mp any . ·preference s ~ debenrures,
Accord '
mg to Sec 4(1) 0 f. the Compam.es Ac t, a company is a subsidiary (b) Under the heading 'Lo
ans and Ac
another company if b. . to subsidiaries.
~) ' ~0 0~ ~ .
ec~« anct SlttJ
The other compan
y controls the composition of
its bo ard of d.rr
, On the liabifities side oftl,e Bal
(b) The other company loan:
(a) . Under the heading ·secured
(I) Holds . . ·ta1«
· Loans and advances from sub
siili
more than half.in nomm value of it' s eq uit y sha re cap i d lo
\u, If it is a co any fonn d b ~ al .J
•
(b) · Under the heading ·unsecure
. r.;--i

mp I 95 6 with bot h eqUlt)' sic

preierence sha h e haeto·re
l st Ap ril Loans and Advances from sub
l':
the otb6
re olders ving the sa me voting rights, ~ liab ilit
comp
. any, exercises or (c) Under the heading ·Current
(iii)
1 _a sub sidiary f controls more than ha lf of its votingPoW d•,,
tis paJII· · subsidiaries.
subs,di:in. , o any co mpany which is that other com ·
- ,.
 . company Accounts 14.2
I ldtng , -i le. if company ' A ' 1s
I0
.
. su b s1.d 1ary o f company' B · and company ' ( .. is
for ~xan pf company' A' , then company •c· becomes subsidiary for company
1·d1!l0 u b .d. b
8 ,\1hs . ~f rectl) . Such a s u s1 1ary may e called s ub-subsidia ry or deemed
. -lq" I ll I
·f' ~ -
,,~,d111('··
'" · •rem en ts relating to presentatio n of accounts .
I reqUI
L~ec 212 of the Companies Act l~ys down specifically the different aspects of
~ · · n of accounts by a holding company.
-entatto h th c. II .
="~~- A holding company has to a~c ~ 1? ?~g documents with its balance
heet in respect o f each of its subs1d1anes.
(a; A copy of th~ Balance Sheet of the :Subsiqiary;
(b) A c9 py of the Profit & 1:-<>ss account.
( ) A copy of the report of its board of directors
(~) A copy of the report of its auditors
(e) A statem:nt of the ~olding compa~y's interest in the subsidiary as
specified m sub-section (3).
(f) The statement referred to in sub-section (5) if any; and
(g) The report referred to in sub-section (6) if any.
2 If the financial years of the holding company and subsidiary coincide
with each other, subsidiary company's Balance Sheet and other documeiits
mentioned above relating to the same financial year should be attached to
the Balance Sheet of the holding company.
If th~ financial years of both the companies do not coincide, the preceding
year's Balance Sheet and other statements-of the subsidiary .must be attached.
However the time span between,th e two balance sheets should not be more than
six months.
Requirements of Schedule VI
The following items relating to the subsidiary company must be disclosed in
the holding company's Balance Sheet as prescribed under-Sche dule VI.
On the assets side of the Balance Sheet .
(a) Under the heading of ' Investmen ts' Investmen ts in equity shares,
preference shares, debentures , etc., of the subsidiary company.
(b) Under the heading 'Loans and Advances' Advances and loans given
to subsidiaries .
011 the liab 1·1· .
, lites side of the Balance Sheet
(a) 0 nd er the heading ' secured loans'
(b) Loans and advances from subsidiarie s
Under the heading ' unsecured loans'
k ) taans and Advances from subsidiarie s
. nd~r ~e heading 'Current liabilities and provisions' amount due fro m
subs1d1aries.
►
Corn,,.. ~
J4.3 ~ Vflte~
l'dated Financial Statements
con90 ~ ' l)aJance Sheet of a Holding company should ~ , v•
~ Howevet. cons
-rncuJars. the legal fin3n .
olidated financial statement a or'
.1 4h\
'~
c1a statemen ts whic h are L_
Io uc st gr~
: ·· . . . to .. let. ·
rn ,d(fition 8tut0ri~'
· ~ authont1es.
IPP;:;~ :s no stat~tory requirement for a holding corn
'd ted Financial Stateme nts. However, the 1nstitu . PIii) 1
t () ~
'

c.onso I, a . AS '
••nt s has
of India . issue d -21 on Con solid ated F' e of Ct,,,'
'fllnci
.. f
aocounu. s into effect in respect o accounting penods co . .
come II Sb.~,
~•
.L.~....
. m ~ ·.~
•N"il 2001. But AS-2 1 1s nots Mandatory and only those COrnn ncing~
._.,r..
1st "f'H , •a1 prep are and _ ··""a
nn-n i1~ consolida ted Fma nc1 tatem ent s can
dard Pre~ ~
t" ...r - -
• • ....... ~
accordance with the st~
AS-Zl Tenns a ~ld1~g _co~pany as ~aren~ Compa~y' which
has one
U d ~~
subsidiaries and a Subsidiary as an enterpnce that 1s contro
subsi.~ ~Y ~
enterprise known as 'parent'. A •~oup' is a parent ~nd all its
should be applied in the preparation and presentation of conso
li<fat:r ~
t. Finar.
Statements for a group of_enterprises under the control of a J>Uen
s
Consolidation ofProfit and Loss account and Balance Sheet implie
ng COD!pa~n,J
clI single Profit and Loss account and_ Balan~ Sheet ofa holdi
~~
subsidiaries.·This is done by agg reg ~g all items of Incomes,
COnsolidatn
Liabilities etc., of the holding company and its subsidiaries. Such
y in~
also known as 'group accounts'. Group accounts are compulsor
ol~~
pertbeCompaniesAct 1956, there is no obligation on the part ofah
to prepare and present 'group accounts' or consolida
ted .financial stateiM
However, different users of accounting information like share
holders, elllpll')l
lenders, potential investors etc., are in need of informati
on about the 6nm
ted accounts~
position and result of operations of the entire group. Consolida
kesit oblig!i
u:baneed. Similarly, international accounting standard: IAS-27ma
for aholding company, ifnot exempted, to present consolida
ted financial stat~
lidated ~
Thus, it is apparent that irrespective of legal requirements, conso
statements are of great practical value and·are usua
lly prepared and preseme(
all the progressive oompanies. ·
(q PREPARATION OF CONSOLIDATED BALANCE11 sHEI1
The ti~llowmg · are the vano · us points to be considered and fo Owed ft1i
prep_~ati_on of consolidated Balance Sheet of a holding
companY~
subsid1anes. .
ucct"'
L Basic pbilosoph.YOrconso1·idati.on - Elimination of investlllell . .·"' s
U . in • a subSJdi..,
sually a holdang company shows the shares acquired , ,·
investmen
s the t1iO d,'
by the hol~ n the assets side of its Balance Sheet. This show
g oompany for the shares acquired in the subsidiatY•But
 ny Acc oun ts --
~➔1cont
~
-~: --: -- - - -idin
:::_:::_.---:--:--~ --::hdat
Pa • •
full -:-
I44
. C onso
isiti; n are abse nt ton aims at prov
,,,, is dg bde,tails a~ou t
/ ht 11cqu . t as a part of t he Bala nce Shee t itself. This one y repla cing '
s5101cn . h · d' 'dual asse ts and liabiliti . y
f t he subs.1d1ar
·" ,n,'est nient acco unt with t e m 1v1
- •- - es o
tho se o f the holding .
,'it 1n'' These asse ts and hab1ltt1es .are club bed with
,,f11p80 Y·. lf to prov ide a com p Iete pict ure.
• snY ,1se pan y:
,,mp d s,,bsidiary com
lh'-(}Wile ity shar es of a sub st'd'1ary,
•N'.
\\'hen a
hold ing com pan y ownb
s all the equ
. .
g 1t,
.
With the asse ts and li'ab·1i·t·
. of inve stme nt acco unt y repl acin 1 1es
• .
. · 110n n belo w·
diJllln8 b 'di·ary is a very simp le mat ter, as show ·
11esu st Bal anc e She et as on 31.3.2017
.11 ,
r,ram.rp,e·
SLtd .
. Assets HLt d. SLtd.
H Ltd.
Jjabilities Rs. Rs. Rs.
Rs.
Sund ry asse ts 5,00,000 2,00,000
~,are capital: 4,00 ,000 1,00 ,00( Investment:
Shares of Rs. IO each
2,00,000 1,00,00( I 0,000. shares of
Sundry liabilities Rs. 10 each in S Ltd. 1,00,000 -
6,00,000 2,00,000
6,00 ,000 2,00 ,00C
ary S Ltd as on 31.3.2017
Consolidated Balance She et of H Ltd . and its subsidi
Assets Rs. Rs.
Rs. Rs.
liabilities
Sundry assets:
S,.orecapital: 5,00,000
H Ltd.
~,000 shares of Rs. I 0 2,00,000 7,00,000
~ch(H Ltd. only) 4,00 ,000 S Ltd.

I
)8/dry liabilities:
HLtd.
SLtd.
2,00 ,000
1,00,000 3,00 ,000
7,00,000
7,00 ,000
replaced by the total
The investment account on the assets side of H Ltd. is
~~-s of S Ltd. on the assets side of the consolidate
d Balance Sheet and its
ilities are shown on the liabilities side .
shown in the holding
co The effect is that the net assets of the subsidiary are
mpany's Balance Sheet in place of the 'Investment' .
· rest
t.\1inon'ty Inte
.
~ u . i~: Usually, a holdi~g company acquires majority equity shares m
ean,~ · · g shares
asubs1d_ esenting the controlling interest. The remainin
m iary, repr
Pui. b~ in the hands of the general public. Suc h holding of the general
b ·d· · ·ty m· t erest ' ·
11.
' 0) I're ic in the su s1 1ary company is called 'Mi non d d hown on the
. a11nen1 . Th . . . rest 1s . pute an 5
:
hab1·11·t· s d • e mm ont y inte to be com · It may
ies I of the consolidated Balance Sheet as a separate item . ' .
be sh e
. .. . ·11 1 rile shan.:
own a5 h the liabilities side or alon g wi
capital f t e last item on popu l111
o the h0 Id'mg company. The form er method .1s mor·c
 14.S
~
Computation: Usually the following items cons .
(c)

Face vaJue of minority equity shares

Face vaJue of minority preference shares ~

Minority share of capital profits ~

Minority share of revenue profits ~

Minority share of bonus shares issued -.

Less: Minority share of capital losses

'°°'
-
. ........

Minority share of revenue losses

-'°°' -
Total minority interest

3. Cost ofcontrol or goodwill

--
majority of the sba1's
(a) Meaning: When holding company acquires
face valueandevc
subsidiary, it may be forced to pay m~re than the
ply equationor,c
book value of such shares . The demand and sup
shares generali
here. The demand for the subsidiary company's
idiary 'pwhc
process of acquiring controlling interest in the subs
trol is the 'peoalt
the market price of such shares. Thus, cost of con
trollingintere
'excess' paid by the holding company to acquire 'con
the subsidiary company.
(b) Treatment: The excess amount paid is usu
ally treated as 'goodwill',
ance Sheet along
shown on the assets side of the consolidated Bal
Sheet. .
any goodwill in the holding company's Balance
I~ ~e price paid by the holding company for shar
es acquitcd'
in the form ofdi
subsidiary is less than 'what is received in return'
share of•O
value of shares purchased and the holding company's
:of its, such difference is a capital gain. Such capital
profit can be;
: any goodwill existing in the Balance Sheet of the ~
of such .. •,
sther •~.iary companies. If the capital profit is in excess shoWII ~
e 1s no good •JI . st be sbed-
reserve' in th .wi. . ~ the Balance sheets, it muBal
e habihties side of the consolidated ance
 ~ 14 .6

;ng c os t o f
~. c,,:
o m
::: ::~a~n A:;c:;
y- - - ou
c:: :-n~t~s
P
w in g is th e Usual me
th o d o f a s c e n a;n
,
., o n·· T h e fu ll o
- - 1 8
~o ,n- pu r a t"
r c a p it a l reserve.
•l
fl o ld) C o
(c c o n tr OI R s.
y th e
r s h a r e s p urchased b ry >0 0(
a id £ o y in th e s u b s id ia
Amount p m p a n >0 0(

>0 0(
h o ld in g c o s h a r e o f c a p it a l lo s s
p a n y 's
H o ld in g c o m :,ooc
A d d: sed :,ooc
lu e o f s h a r e s p u r c h a c a p it a l p r o f it s
Fac e v a sha r e 0 £ s
L e s s: o m p a n y 's e o f B onus share
H o ld in g c h a r :,ooc
in g c o m p a n y 's s r y
Ho ld s u b s id ia
is s u e d b y d p a id X>OC.
y 's s h a r e o f d iv id e n :,ooc
o m p a n
H o ld in g c c a p it a l p r o f it s :,oooc
ou t o f
l reserve l p ro fi t
o r c a p it a n _ e g a ti v e , it is c a p it a
G o o d w il l l. I f i t is
s it iv e , it is g o o d w il any
I f th e B a la n c e i s p o a l r e s e r v e . u s t b e m e r g e d w it h
N o te : d a s c a p it d here m s id ia ry
to b e tr e a te e s e r v e a s c e r ta in e o m p a n y a n d th e s u b
r c a p it a l r ld in g c
g~wiU o S h e e t s o f th e _h o
Th: ce
th e B a l a n
g o o d w il l m it io n
c o m p a n ie s . u is it io n p r o f it s a f te r th e d a te o f a c q u is
ost ac q mpany is it io n
R e v e n u e p r o f it s o r p b y a s u b s id ia iy c o p r o fi ts o r pqst acqu
4. e d evenu e id ia ry
r o f it s e a r n n y a r e c a ll e d r c o u n t o f th e s u b s
M e a n in g : P g co m p a & Lo s s a c id e n d .
th e h o l d i n a p a r t o £ th e P r o f it s o r p r o p o s e d a s d iv
of s h a re s b y ay b e reserv e s h e ld
fi ts . T h e s e p r o f it s m b e e n tr a n s f e r r e d to d in th e r a ti o o f s h a r e
p ro t have d iv id e wn_as
m p a n y o r th e y m i g h p r o f it s h a v e to b e s i d i ~ , g e n e r ~ ly kn<:> ty
co e revenu e in th e s u b ti n g m in o n
tm e n t: T h m in o r it y in c o m p u
Trea the dded fi t
in g c o m pany and in o r it y s h a r e is a ld in g c o m p a n y 's P ro
~Y th~ h o ld The m eh o
m in o r it y r a t i o '. s h a r e is a d d e d to th th d a t e
e
. H o ld in g m p a n y 's e t. p a n y o n d
h o ld in g co a la n c e She Jd · h
Ulte re st . T h e d a t e d B c o m u r e a s e
nsoli d to
s A c c o u n t in the co p u r c h a s e d b y th e 'N h o l' inIgf 5 h a re s a re p
"
1 a s s u n tt :
anct Loo s are •
C p u ta ti o n : 1£ shares e n u e p r o f it s a r e n
t e a r a rf em o n th s n J k r
Yb
of h m e v ed
e d d u r in g th e c u r r e e ;s ow t: rc a c q u ir
t e g iv · n B a la n c e S h e e t s " r
e rofit s e a r n e n u n ~
d11.. ;_ to th th r h as to b e
-~ 1 g th e , c u r r e n t y e a r ', p
i r o f it s p r o p o r ti o n a te I f e s a r y ea , h
be ean n n .l y and the p r e v e n
u n if o e a te d a s u e p r ofif it s .f th e c u r re- nnt o t g iv e n , oc e r
O
the Pure: s h a r e s a r e tr r e
a s e o f a r , e n ti p r o it O f s h a re u
h
s e1 5p ro fi ts .
at th bce g ·
e . rent ye
u u u n g of the cur t d a te o f p u r c · a s eth e r e v e n n_sC o f
r o f it s. If exac e te n n in e ure h ,,
u p f
lr e a tA..1 a s r
n --- even u e " .:::.ee n
to d e o P •#:, ,,, 1()
:,..- .-.· . J;
 , ,\ ccountc. ___ It I·
conirt10 .
1,1J1!'\F,,,,,.,,-- c liabilit ie~
l' ori"~en h'ch lllB' \X'C'omr ho~1httcc; in future 11re -.ho,\n M contingent
(O 1
,~ .J1Ct1(ll, ·... \\ .. c. t(' the Ho I1mcc ,Stl<.'Ct I or c·utmp k. htlli;,
. cn<lor~
cl In
r(1ll'· . 'IL)l11 l' l
1 • •
.., fl.c: t~,tt..J "ith hnnk. mvcstmcnt m part I) pntd <.hare-.. etc
1'1l1tl'- ' dt~Cl)ll l . .
11 J 10r.: :U"d
8 lt·•biltt, involvmg a th1rd party must contm ue to be <;hO\vn a«i
,vi L1cnt • 1
•
ii'\ , Cl,nttnr c: ,liduted Balance Sheet. Howev er, any contingent ltah1li t1e<;
4 th
. ~,tc h' cl1...d·t~t1~\~ompany and its subsidiaries alone must be elimin
I,"' ,I.. hl' tne ated hy
•
, ,,1
,,nf. u,ctJ,etll a~, footnotes to the Balance Sheet.
10
1
,<ll\' ''1 ~ nrealist"d profits in stocks
"'' for u
.•0 0
1 rro"'~' - the consol idated Balance Sheet, the holdin g company or the
I on the dote o1
h vein its stock goods pure hased from the other company wh1ch .
i..:idiarY n,ay fiat So the stock includes the unrealised profit charged by the
~,... d t pro i . •
· ~ s0l 8 solidated Balance Sheet, provision must be made for such
,1 In the con .
dleT- fi
. -alised pro t. · · .
lllll.- two approaches to create such a prov1s 1on.
There: 8
provision for the entire profit included in the stock. This practice
l. ~ figerred by the American Institute of Certified Public Accountants
15 pre
AICPA) and also by the C. A . mstJ.tu
· · te, m . Ind'1a as shown m. AS -21 .
~vidi ng only for the holding company's share of such unrealised profit,
2 n the
basis that the transaction is complete as far as minority shareholders
:e
concerned. The Jorme r metho d is follow ed in this book. ·
The unrealised profit should be reduced from the stock on the asset's side
and from the Profit & Loss account on the liabilities side of the consolidated
Balance Sheet.
15.Abnormal losses
Holding company might have acquired the shares in the subsidiary during the
current year. Any abnormal loss which occurred is usually debited to Profit & Loss
Account and to that extent the current year's profit decreases. It is more appropriate
to adjust the abnormal loss from the pre acquisition or post
acquisition profit in the
current year, depending on the date of occurrence of the abnormal loss.
Steps involved in Preparatio•n of Consolidated
Balance Sheet
(C:t following steps are to be taken for preparing consolidated Balance Sheet
Step 1
Cornplltation o' uold.
For . 'J °' mg- 1.r.11no
•1• • •
r1ty Ratio :
be founpredPanng CBS, Holding - Minority ratio is of utmost importance. It can
(a) The
out as ex l .
P amed below :
be~ ~ of shares of the subsidiary Co. held by the Holding Co. should
ed.
- . C -,
t4JJ
Mmority share ~
(hl n,e number of shares hold by holdera 1, -\
~hould be noted .
s should be co ~ ~ \
(c) lnc ~tio .o f their re~pec~ iv~ ho~d ing
but1on of capital rtiPt,1Cd
This ratto wtll be used m d1stn lllld "•eiiu,"
d r,l'cnuc div ide nd s; Bo nu s shares etc.
an
Sttp 2 • • • D ,I': or Capital Profits.
Asctrtii,ri1tg Pre - acq11,s1t1on rroJ1(s
rve balance appearin &in. the· 1:1
P&L ale balance and any rese ·· · f
. on the da te o f acqms1t10n o shares by the hoJ/aJ~
subsidiary Co '
as ca pital prof its. Th e~ have to be calculated inam ingeo·-
considered d treatment of Vario &n_1nera,~
co nte xt of ca lcu latwn an
above in the Josses or Per-acqms1 · n profit us ' etns ~/
· ·t10
· o fi
its an d s or loSSes_,
head "6 Capital pr
Step3
utation of Post-acquisition profits or Revenue prof,ts:
Comp subsidiary C
profits earned by the
The reserves created and the· taken o.a~
s by the holding Co. are to be
date of acqu isitio n of sh are
. dm . manner as explained aboas~.
rtame a
profits. They have to be asce rious items undertheheadij~·~i
lcu lation an d treatm en t of va
context ofca d 5. Revenue losses ot post i~
st- ac quisitio n pr ofits" an
profits or Po
losses. I
Step4 /
terest:
Computation ofMinority In
Inter est ref ers to the claim of the minority or outside sharro:1
Minority shares capital, reserves, prooo/
of the subs idiary or in the
in the net assets ined in a manner as explainedlh~
Co . It has to be asce rta
of the subsidiary t un der the head '2. Minori~futd
lcu lation and treatm en
the context of c·a
Steps serve:
Goodwill /C os t of Control or Capital Re
Co mp utation of
in ~ 5hr.
ests a huge sum of money
As the holding company inv
any, it is necessary to find ou
t the·Profit or Loss on ;
w
subsidiary comp Balance Sheets. Iftbeho 6
co nsolidate the
made before pro ce eding to
in the shares of subsidiar y; ~
n wh at it has inv ested I' ()Ji
gets less. tha
~ I

or Good wi l · tit,
01 0
~• paid should be
taken as 'Cost of control
has invested in share~ u,
1 th holding Co. gets more than what it
hand, f e
amount received should be
taken as 'Capital Reserve'. It
has to be #
I or g
der the head "3. Cost of contrO
~ = e r as explained above un
d 11• stotk:1((
lc1 1/a tion an d Ii • . ze d profit include ' ~J
Ca . e "'Inallon of unreali I8ted tll"' ii·
The unrealized prOfitI · 1uded in stock should be calcu
1
p,c1
the CBS · he manner exme p!· · cd above under the hea ·
d • 14".
m t fi . ain
un reaJiz ed pro ,rs in stock ".
14 I ' Corporate Aecou .
<"l
-l'h( numher of share~ ho ld by Mmonty
. .
shareholde rs in the Ru~
~~

,hould he no1ed 1
1lr),
(cl n,emrio of their respecti ve ho ldings should be computed.
Thi'i rntio wi ll he used in distributio n of capital and revenue profits .
h , cap1tal
and revenue div,dcnds, Jlo nus s arcs etc .
Slcp l
Asc-~rt•i"i"I Pre - acq11Ldtlon Profits or Capital profits :
P&l n/c balance and any reserve balance appearing in the Balance sheet
<.ubsidiary Co . on the date of acquisition of shares by t~e holding Co. are to:
considered as capital profits. The~ have to be calculated m ~ m~er as explained
above in the context of calculation and treat~~~t of vanous items under the
head "6 Capital profits and losses or Per-acqu1s1taon profits or losses."
Step3
Computation of Post-acquisition profits or Revenue profits :
The reserves created and the profits earned by the subsidiary Co. after the
date of acquisition of shares by the holding Co. are to be taken as Revenue
profits . They have to be ascertained in a manner as explained above in the
context of calculation and treatment of various items under the head 444. Revenue
profits or Post-acquisition profits" and 5. Revenue losses or post acquisition
losses.
Step4
Computation of Minority Interest :
Minority Interest refers to the claim of the minority or outside shareholders
in the net assets of the subsidiary or in the shares capital, reserves, profits etc.,
of the subsidiary Co. It has to be ascertained in a manner as explained above in
the context of calculation and treatment under the head '2. Minority Interest'.
Stq,5
Computation of GoodwUI I Cost of Control or Capital Reserve :
As the holding company invests a huge sum of mo·n ey in the shares of
subsidiary company, it is necessary to find out the Profit or Loss on investment
made before proceeding to consolidate the Balance Sheets. If the holding Co.
gets less_~an what it has invested in the shares of subsidiary; the excess
L"llount pa1d should be taken as ' Cost of control or Goodwill' . On the otber
hanct, if the ~olding Co. gets more than what it has invested in shares, the exce~
amount rece1 ved should be taken as 'Capital Reserve'. It has to be calculated tn
a manner as explained above under the head "3. Cost of control or goodwill",
Step6
Calculation and elimination of unrealized profit included in stock:
The unrea lized profit included in stock should be calculated and treated in
the C ttS in the man ner explained above under the head : 14". Provision for
unreali/,ed profit s in stock".
 j\l'C'Ollll1 ~ 14 J4
(lin\r:H\)

~ ort1pany lkbt>:
Qt'r ofl" 1
"
.
,,,.,,•0 ,tkl" . ,,nrnn) dl.·h1~ hove to be cnnccll cd us explai ned earlier unde r the
.
~ 1r1 -l l . • " of common trnnsoctions or mutual ob li gations or mutual
1tir 111, I 111111nntu)
i ··I,
II"'' Jr,('~~
,oJrtit<' h
,.,, H
,1,, . of ('OOS olidatcd balance~ cct:
:Wr•r11"
,,.
0
" .
fO 11ow,ns
the above mentioned seven steps, all the required information
ARcr . f consolidated Balancesh eet s hou ld be available. · ·
The holding
11011 0
·,r preplU11 • CBS mainly to show all assets and liabilities of Subsidiary
-~rnpanY . h -1 own assets an d 1ia
,, prepare~ · b'I'
1 1hes. s1mi. ·1 ar to h
t e Balance Sheet of a
,( g ,,it I S d ,. b')' . h
(o. a]on ·. rporating the assets an ta 1 1ttes o t e branches. In CBS, the
f
o,ce inco . b l
he8d o d liabilities will appear as given e ow:
as.sets an Capital : In the CBS, only the share capital of the holding Co,
1. Shar~d be shown. The share capital of Subsidiary Cos. Should not be
shou
h wn in the CBS, as 1t · part1y merged wit
· 1::; · h t he mmonty
· · Interest and
;;_ly set-off against the holding co's investments on the shares of the
Subsidiary Co.
Reserves and S urplus: The following are shown under this heading:
l .
(a) Share-Premium of holding company;
(b) Net capital reserve, if any, (after the set-off of the total capital
reserve against the total goodwill)
(c) General reserve of the holding company plus holding company's
share of the Post-acquisition general reserve of the Subsidiary Co.
(d) Other reserves of the holding Co. plus the holding Co.' share of
the other reserves of the Subsidiary Co.
(e) P&L a le (Cr.) balance: Holding Co's P&L credit balance plus
holding Co's share of the post-acquisition profits of the Su~sidiary
Co. minus the holding Co's share of unrealized profit included in
Stock and holding Co's share of capital dividend previously
credited to P&L Ale.
3. Secured Loans: The following items appear under this head:
(a) Debentures issued by the holding Co. to outsiders and debentures
of the subsidiary Co. less Subsidiary Co. 's debentures held by
the holding Co.
(b) Other secured loans of the holding Co. and other secured loans of
the Subsidiary Co. less inter-company
4_ lln secured loans, if any.
U secured L oans : Th . .
e followmg items are shown under this. head:
nsecurect l
Subsict• f
oans o the holding Co., plus unsecured loans o f t he
iary Co. less inter-company secured loans, if any.
 , a Comp any Accounts ..... ..... .....
14 ,~ Corporate Ace .
Jtald,o., ~ - - - - - ~and Ii -........._
5 I 1ahilt1 i,,.f and l'ro,·i sion.f : ab<>VC mentional assets ..
<' 11r1Yn l
Item~ unde r thi s head are as unde r : ~co profo rma of Consolidated 8:•hti~ s arc
ing Co. plus Sund . seJlC solld■ ted Balan ce Sheet or u ,~ 8llce SheetS\lin
no,..1110 C ·
( it) Sund f) credi tors oftJ1 e hold
1
ry cred1 10 ofth Coll R.,, " o, •lid its
Liabilitie.v
o . ess mter -com pany credi tors and e torsrss
.
S ub st.d ,ary C I · d b
. . c IJ/·. R.,
B. II - bills paya ble ofS b .. et-off. s11ort Cop a
(b) 1 s paya ble ol hold mg Co. plus
n by one comp any on anm u hsidiary Co Share:: Capital of Holding Co.
less bills of exch ange draw . ~ ·
lding Co. plus bank overd raft of Sub . _set-off. Reserves and Surp lus:
(c) Bank overd rafts ofho Goe
outst and· s:~llryCo. . capital Reserves of
(d) Outs tandi ng liabi lities of hold ing Co. plus mg ,abilities (i) H oId'mg Co. xxx Add: Q
of Subs idiar y Co. BIS
rity share holde . Add: Share in Pre-acquisition
(e) Prop osed divid end belon ging to Mino rs. (if not Reserves & Profits of
Add :(
alrea dy adde d to mino rity inter est) of•
Subsidiary XXX
(f) Mino rity Inter est.
6. Fixe d Asse ts : XXX
aJ capitaJ reserve a . leJ.s .
(i) Net G0od will, if any (afte r the set off oftot _ gamst Less : Goodwill as per Contra xxx
totaJ good will) . as
XXX
asset s of Subsidiary Co.
(Ii) Fixe d asset s of hold ing Co. plus the fixed (ii) Revenue Reserves of (ii) A
er than investments on
7. Investments : Inve stme nts of hold ing Co. (Oth Holding Co. xxx a:
nture s of the Subsidiary
the equit y share s, Prefe renc e share s and debe Add: Share in Reve nue Add :
Co.) plus the inve stme nts of Subs idiar y Co. Reserves of Subsidiary xxx a
8. Curr ent Asse ts, I,,oans and Adva nces : XXX
ing stock of subsidiary
(1) Clos ing Stoc k of hold ing Co. plus the Clos (iii) P&L ale balance of ltM
Co. less unre alize d profi t in stock . Holding Co. XXX lnve
(11') Stoc k-in trans it Add Share in Revenue
:
ry debto rs of Subsidiary
(rii) Sund ry debto rs of hold ing Co. plus Sund Profits of Subsidiary Co. XXX
set-o ff.
Co. less inter -com pany debt ors and credi tors
y Co. less bills drawn by
(iv) BIR of hold ing Co. plus B/R of subs idiar XXX Adi.
one comp any on anot her set off. Less: Share in unrealised
accru ed incom es of
(v) Accr ued inco mes of hold ing Co. plus Profits XXX
Subs idiar y Co. XXX Cll
prep aid expe nses of
(vi) Prep aid expe nses of hold ing Co. plus Secured Loans : an
Subs idiar y Co.
at bank of Subs idiar y Co. Secured loans of Holding Co • XXX
(vii) Cash at Bank of hold ing Co. plus Cash
in hand of Subs idiar y Co. Add :. Secured loans of
(viii) Cash tn hand of hold ing Co. plus cash
of Subs idiar y Co. less Subsidiary Co. XXX
(rx) Loan s(Dr .) of hold ing Co. plus loan s (Dr.) XXX
inter comp any loan s set off.
9. Misc ellan eous expe nditu re and losse s: P&L
ale (Dr.) balan ce, if 1 anJ; llnsecured Loan s :
again st P&L ale Cre Unsecured loans of
after the set-o ff of the P&L ale debi t Bala nce L
Holding Co. XXX
Bal.a nce or Gene ra Rese rve. Add
Unsecured loans of
Subsidiary Co. XXX

'°"'
 C fTlr:.,:~Y A-- -
ccounLc,
, e n,c11ti("'r ,J a..c.,c
-- - -- -- -- -~ ~ I'
~s and li.1b1lil1f \ arl. <;um mar iscd ir th f II
f Con soli date d DaJa nce Shee t
'"' ...-rtB
~
0
rrc:u0_,.1 Bala ,. in ·
.. , n1t:rl I"
nce :....
~c,ttd•fl"I~ :;,:; ;;_; S heet of--;:-
H o -;:-~-
ldin g.:...::.
Co.
1 :.--- and
.:...:.. lt-i.:.:=..
:.:...:: So~ id,a r.
( ~ / ,r, e.c: :~ ~!... 341 nn .......
Rs Rs A uet, I' ~ p
: Fue d Asse ts :
s•"': c apital of Hold ing Co. xxx (i) Cost o f Con trol
~a,,d surp lus : I Goo dwil l xx.,
fl{5t . Rese rves of Add : Goo dwil l in
1) (flpi ts1 Hold ing Co. XXX BIS of Hold ing Co. xxx
idd . shar e in rre-a cquisition Add : Goo dwill in B/s
Reserves & Prof its of of Subs idiary Co. xxx
SubsidiatY XXX
XXX

XXX Less : Capi tal Rese rve

Goodwi 11 as per Con tra as per Contra XXX
xxx
ws: XXX XXX
(ii) All othe r fixed
(Ii) Revenue Rese rves of
Hold ing Co. XXX as.sets of Holding Co. XXX

Shafe in Rev enue Add : All othe r fixed

4dd: asse ts of Subs idiar y XXX
Reserves of Subs idiar y XXX
XXX XXX

(Iii) p&L ale balance of Inve stme nts:

Holding Co. XXX Inve stme nts of
Hold ingC o.
Add: Share in Reve nue
Profits of Subs idiar y Co. XXX exce pt inve stme nts
in subs idiar y XXX

XXX Add : Inve stme nts of

Less: Share in unre alise d Subs idiar y XXX

Profits XXX
XXX Cur rent Asses, Loa ns
Secured Loans : and Adv anc es:
Secured loans of Hold ing Co. XXX Curr ent Asse ts,
Add: Secured loan s of loan s and adva nces
Subsidiary Co. XXX of Subs idiar y Co. XXX

XXX
Unsecured Loans : XXX

Unsecured loans of
Hold ing Co. XXX
Less : Inter-company
4dd - XXX
Unsecured loan s of Deb ts
Subsidiary Co. XXX
XXX
_'14
.__.:. :.·17
.:. :' . . . - - - - -- -- - - - - - - - - --.::_
Co-. 'l>orate .
C 11rrffl.f Ll11blllrlts "",d
- , -~
L,e sS :
-----
UnreaJisoo Prorrt
Acco lt~t,~~
l'rvw isio,u : in stock
(i) CurTent liabilities & ~
Provisions of Holding Co. XXX Miscellaneous
,4riti : Current liabilities Expend/Jure :
& Provisions of P&L ale ofHolding co.
Subsidiary Co. XXX

XXX

Less : Inter-Company
Liabilities XXX
XXX
(i) Minority Interest XXX

ILLUSTRATIONS
Goodwill given in Balance Sheet
mustration 1
The Balance Sheets of C Ltd. and D Ltd. as at 31st December, 2016 are as
follows:
Liabilities CLtd DLtd Assets C Ltd DLtd
Rs. Rs. Rs. Rs.
Share capital (in Sundry assets 1,32,500 1,.18,200
shares of Rs. 10 each 2,00,000 1,00, Goodwill - 20,00l
General reserve 18;000 20, Shares
\
in
Profit & Loss Ale 24,500 23, D Ltd. at cost 1,40,000.
Creditors 30,000 15,2 -~ ~
2,72,500 1,58,2 2,72,500 ~
In the case of 'D' Ltd., profit for the year ended 31st December 20l: ~s
15
Rs. 12,000 and transfer to reserve is Rs. 5,000. The holding of C Ltd. ·in DLt ·
90% acquired on 30th June 2016.
Draft a consolidated Balance_Sheet of 'C' Ltd. and its subsidiary. Jg
/Madras, 1st M.g,m (ICE) Oct. 2009; B.Com (AF) Nov. 1008; B.Com., Ap. ]~IJIIII
M.u,m.,Ap. 2008; Ap. 2007; M.Com (ICE)Ap.1007; B.Com. (CS) (PYD) Nov. 2()()6; JJ.