Holding & Subsidiary Companies Accounting

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


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