Holding Company Project

8/8/2019 Holding Company Project

1/14

LOGO

Presented By :-

EQUINOXZEESHAN IQMAR AHMEDASHA SHARMAKULSUM AFRIN

MD IFTEKHARTILAK KESARIPRIYANKA ROYPGP/SS/2009-11/FINANCE

Presentation on

Holding & Subsidiary Company


2/14

Holding Company A Brief Introduction

When a company acquires all or majority (50% & above) of the Equity Shares orvoting right of a company, the company acquiring the shares is known as the Holding

company ; the company whose shares have been acquired is known as the Subsidiarycompany of the holding company. The subsidiary company continues to operate as before ,

the only difference being that the holding company now has the majority of shareholding.

The relationship between a holding company and subsidiary company is basically one ofcontrol.

The advantages of acquiring control through this method is two-folds Financialand Managerial. A holding company can control large properties of a subsidiary with a

minimum of investment and it can avail income tax benefits. Managerially , it is possible

to decentralise operation with full responsibility and accountability to the subsidiary.


3/14

Legal Framework -

Section 4 of the Companies Act, 1956 states that a company shall, be deemed to be asubsidiary of another if, but only if

(a) that other 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 theholders of preference shares issues before the commencement of this Act have the same

voting rights in all respect as the holders of equity shares, exercises or controls morethan half of the total voting power of such company;

(ii) where the first-mentioned company is any other company, holds more than half innominal value of its equity share capital ;

(c) where the first-mentioned company is a subsidiary of any company which is that

others subsidiary.


4/14

Important Points to be noted while preparing the financial statement of a Holding Company with itsSubsidiary :-

Though the preparation of Consolidated Balance Sheet is not compulsory in India but it is oftenasked to prepare the same. In this circumstances the followings factors to be taken into

consideration :

1) Note the date of acquisition of shares of Subsidiary Company by a Holding Company. Profit/Lossup to the date of acquisition is called Pre-acquisition Profit/Loss whereas Profit/Loss from the

date of acquisition up to date of Balance Sheet is called Post-acquisition Profit/Loss.

2) As the majority of shares are acquired by Holding Company, the total claim of minorityshareholders is ascertained for which Statement of Calculation of Minority Interest is prepared.

Except Share Capital, Reserves and Surplus and sometimes Debentures(if some part of it held byHolding Company), all other assets and liabilities of Subsidiary Company are shown in Consolidated

Balance Sheet by adding the figures of both Holding and Subsidiary Company of a particular asset or

liability .


5/14

Calculation of the Degree of shareholding

Calculation of Pre-acquisition Profit/Loss

Calculation of Post-acquisition Profit/loss

Statement of Calculation of Minority Interest

Calculation of Goodwill/Capital Reserve

Consolidated Profit &Loss A/c

Calculation of Unrealised Profit on stock

Calculation of Intra-group transaction

Consolidated Balance Sheet of Holding with Subsidiary Company

Steps to be taken into consideration while preparing Consolidated Balance Sheet :


6/14

The following are the Summarised Balance Sheets of Honda ltd. and its subsidiary Toyota ltd. As at 31st March,2008 :-

LIABILITIES Honda Ltd Toyota ltd ASSETS Honda Ltd Toyota ltd

Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs)

Share Capital : Buildings 110,000.00 44,500.00

Share of Rs. 10 each 200,000.00 75,000.00 Machienry 57,500.00 16,000.00

General Reserves 105,000.00 6,500.00 Furniture 30,500.00 9,000.00

Profit & Loss A/c 75,000.00 40,000.00 Stock 51,000.00 34,000.00

Proposed Dividend 20,000.00 7,500.00 Debtors 48,500.00 41,100.00

Sundry Creditors 20,000.00 29,700.00

Investments(5,000) Shares in S

Ltd) 90,000.00-

Cash and Bank 32,500.00 14,100.00

Total 420,000.00 158,700.00 Total 420,000.00 158,700.00

Example on partially owned Subsidiary :


7/14

Prepare a Consolidated Balance Sheet as at 31stMarch,2008 showing in details the necessaryadjustments and taking into consideration the following informations :

(a) HondaLtd acquired shares of ToyotaLtd on 1stApril, 2007 when the balances on the ProfitandLoss A/c and General Reserve of ToyotaLtd were Rs. 33,000 and Rs. 4,500 respectively.

(b) Sundry Creditors of Rs. 20,000 in the books of HondaLtd on 31stMarch,2008 included a

sum of Rs. 12,000 payable to ToyotaLtd for credit purchases on which the latter company madea profit of Rs. 3,000 in 2007-08.

(c) In June, 2007, ToyotaLtd paid a dividend of 12% in respect of 2006-07.

(d) Stock of Rs. 51,000 of HondaLtd included unsold goods purchased from Toyota ltd at a cost

of Rs. 9,000.


8/14

Total number of shares of Toyota ltd : 75000/10 = 7500 Shares

Total number of shares of Honda ltd in Toyota ltd = 5000 Shares

Particulars Honda ltd Toyota ltd

Proportionate of Shareholding

5000/7500 1-2/3rd

2/3rd 1/3rd

66.67% 33.33%

Solution :

Note 1) : Calculation of the Degree of shareholding

It is important to note that holding-subsidiary relationship is established only on 1stApril ,2007 and not

before that. The relationship is maintained till 31st March 2008. Hence we prepare consolidated Balance

Sheet as on 31stMarch, 2008. Here the minority interest in ToyotaLtd. is 1/3rd or 33.33%.


9/14

Calculation of Pre-acquisition Profit/Loss

Particulars Total Honda ltd (2/3rd) Toyota ltd (1/3rd)

General Reserves as on 01/04/07 4,500.00

Profit & Loss A/c as on 01/04/07 33,000.00

less : Dividend paid for 2007 (12% of 75000) (9,000.00)

Pre-acquisation Profit/Loss 28,500.00 19,000.00 9,500.00

Calculation of Post-acquisition Profit/loss

Particulars Total Honda ltd (2/3rd) Toyota ltd (1/3rd)

General Reserves (6500-4500) 2,000.00

Profit & Loss A/c [40,000-(33000-9000)] 16,000.00

Post-acquisation Profit/Loss 18,000.00 12,000.00 6,000.00

Note 2)

Note 3)


10/14

Statement of Calculation of Minority Interest

Particulars Amount(Rs)

Share of Pre-acquisition Profit/Loss (Note 2) 9,500.00

Share of Post-acquisition Profit/Loss (Note 3) 6,000.00

Share of Capital (1/3rd of 75000) 25,000.00

Total 40,500.00

Calculation of Goodwill/Capital Reserve

Particulars Amount(Rs) Amount(Rs)

Cost of Acquisition 90,000.00

less : Face Value of Shares acquired 50,000.00

Pre-acquisition Profit/Loss (Note 2) 19,000.00 69,000.00

Goodwill 21,000.00

Note 4)

Note 5)


11/14

Note 6) Consolidated Profit & Loss A/c of Honda ltd

Particulars Amount(Rs) Amount(Rs)

Profit & loss A/c as on 31st March,2008 75,000.00

Add : Share of Post-acquisition Profit (Note 3) 12,000.00

Dividend Received for 2008 (2/3rd of 7500) 5,000.00

17,000.00

Less : Unrealised Profit On Stock (Note 7) (2,250.00) 14,750.00

Profit transferred to Consolidated Balance Sheet 89,750.00


12/14

Calculation of Unrealised Profit on stock Amount(Rs)

(12000-9000)/12000*9000 2,250.00

Calculation of Intra-group transaction

Particulars Amount(Rs)

Sundry Creditors :

Honda ltd 20,000.00

Toyota Ltd 29,700.00

49,700.00

less : Mutual Indebtness 12,000.00

37,700.00

Sundry Debtors :

Honda ltd 48,500.00

Toyota Ltd 41,100.00

89,600.00

less : Mutual Indebtness 12,000.00

77,600.00

Note 7)

Note 8)


13/14

Consolidated Balance sheet of Honda ltd with Toyota ltd as at 31st March, 2008 :

LIABILITIES ASSETS

Amount(Rs) Amount(Rs) Amount(Rs) Amount(Rs)

Share Capital : Buildings :

Share of Rs. 10 each 200,000.00 Honda ltd 110,000.00General Reserves 105,000.00 Toyota ltd 44,500.00 154,500.00

Profit & Loss A/c (Note 6) 89,750.00 Machienry :

Proposed Dividend : Honda ltd 57,500.00

Honda ltd 20,000.00 Toyota ltd 16,000.00 73,500.00

Toyota ltd 7,500.00 Furniture :

less : Dividend for 2008 (5,000.00) 22,500.00 Honda ltd 30,500.00

already credited in P&L A/C of H ltd Toyota ltd 9,000.00 39,500.00Current Liabilities : Investments Nil

Sundry Creditors (Note 8) 37,700.00 Goodwill (Note 5) 21,000.00

Minority Interest (Note 4) 40,500.00 Current Assets :

Stock :

Honda ltd 51,000.00

Toyota ltd 34,000.00

less : Unrealised Profit on Stock (2,250.00) 82,750.00Debtors (Note 8) 77,600.00

Cash and Bank :

Honda ltd 32,500.00

Toyota ltd 14,100.00 46,600.00

Total 495,450.00 495,450.00


14/14

THANK YOU

Documents

Holding Company Project