A Holding Company is one which controls another company either by means of holding shares in that company or by having power to appoint the whole or majority directors of that company. A Holding Company may have control on more than one company also. A company controlled by a Holding Company is called a Subsidiary Company. The companies becoming subsidiaries continue to remain and function as separate legal entities.
Accounting of Holding & Subsidiary Companies:
As the Holding company and its subsidiary are separate legal entities, they continue to maintain their books of accounts as usual and prepare their final accounts as per legal requirements.
Consolidated Balance Sheet:
A consolidated balance sheet results from the aggregation of the assets and liabilities of the holding company and its subsidiary, after eliminating inter-company transactions, balances, unrealized inter-company profit on transfer of stocks and on other assets held at the date of consolidation and after making several other adjustments as are necessary to enable the Consolidated Balance Sheet to reflect the financial position of the combines as a whole.
Some of the items to be treated and adjusted are:
1) Inter-company debts or advances
2) Inter-company acceptances
3) Unrealized profits on Inter-company transactions
4) Acquisition of property prior to the date of effective control
5) Revaluation of fixed assets of the subsidiary
6) Depreciation on valuation difference
7) In-transit items
8) Pre-acquisition revenue reserves and profits of subsidiary
9) Estimation of revenue profits prior and subsequent to acquisition of shares
10) Issue of bonus shares out of Pre and Post-acquisition profits
11) Dividends from subsidiary
12) Unpaid cumulative preference share dividends
13) Contingent liabilities
14) Calculation of cost of control or goodwill
15) Calculation of minority interest in the subsidiary.
Example: Given below is a simple case of a holding company acquiring all the shares in the subsidiary at par value.
Balance Sheet of H Ltd. as on 01-Jan-2009
Accounts Payable
$200,000
Sundry Assets
$1,000,000
Common stock
$1,000,000
Investments in S Ltd.
(2000 equity shares
At par value $100)
$200,000
__________________________________________________________________
$1,200,000
$1,200,000
__________________________________________________________________
Balance Sheet of S Ltd. as on 01-Jan-2009
Common stock(2000 equity
Sundry Assets
$300,000
Shares of $100 each)
$200,000
Accounts payable
$100,000
__________________________________________________________________
$300,000
$300,000
__________________________________________________________________
Consolidated Balance Sheet of H Ltd. and S Ltd. as on 01-Jan-2009
Common stock
$1,000,000
Sundry Assets
Accounts Payable
H Ltd.
$1,000,000
H Ltd.
$200,000
S Ltd.
$300,000
$1,300,000
S Ltd.
$100,000
$300,000
__________________________________________________________________
$1,300,000
$1,300,000
__________________________________________________________________
Holding & Subsidiary Companies Accounting Tutoring & Assignment Help
at www.theglobaltutors.com
We provide Holding & Subsidiary Companies Accounting Online Tutoring & Assignment Help /Homework Help at www.theglobaltutors.com. If you require One on One online session on Holding & Subsidiary Companies Accounting, please send a mail to
support@theglobaltutors.com
and mention your schedule. We will then arrange for a session according to your time convenience. If you require Assignment Help and Homework Help on Holding & Subsidiary Companies Accounting, please submit your assignments and home works at the “Submit Assignment” section of our website or send a mail to cs@theglobaltutors.com,
with a mention of your deadline. Our panels of tutors are well qualified and experienced to handle any type of query in Holding & Subsidiary Companies Accounting.