ACCOUNTS OF HOLDING COMPANIES – II

Structure

10.0 Objectives
10.1 Introduction
10.2 Difference between Wholly owned and Partly owned Subsidies
10.3 Exemptions from Preparation of Consolidated Financial Statements
10.4 Consolidated Financial Statement
10.4.1 Advantages of Consolidated Financial Statements
10.4.2 Disadvantages of Consolidated Financial Statements
Procedure of Preparing Consolidated Financial Statements
Let Us Sum Up
Key Words
Answers to Check Your Progress
Terminal Questions/Exercises

10.0OBJECTIVES

After studying this unit, you should be able

to:

explain the difference between Partly owned and Wholly owned Subsidiary Companies;
describe the conditions under which companies are not required to prepare the
Consolidated Financial Statements;
 state the advantages of Consolidated Financial Statements;
 describe the disadvantages of Consolidated Financial Statements: and
 explain the Procedure for Preparing the Consolidated Financial Statements
with adjustments.

10.1 INTRODUCTION

In Unit 9, you have learnt about the concept of Holding companies and Subsidiary
companies, types of Holding companies and preparation of Final Accounts of Holding
companies without adjustments. In this unit, you would be able to learn about wholly owned

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and partly owned subsidiary companies, exemptions which are available under which
companies are not required to prepare consolidated financial statements. In this unit, you will
also learn the procedure of preparing Final Accounts of Holding companies with adjustments.

10.2 DIFFERENCE BETWEEN WHOLLY OWNED AND PARTLY OWNED

SUBSIDRIES

S.No. Wholly Owned Subsidiary Companies Partly owned Subsidiary Companies

1. A Company whose all the shares are When the majority of shares of the
owned by the holding company is known subsidries are owned by the holding
as wholly owned subsidiary company. company. It is known as partly owned
subsidiary companies.
2. Under this situation, 100% of voting rights Under this situation, more than 50%
are vested by the Holding Company. and less than 100% of voting rights are
vested by the holding company.
3. Under this situation, there is no case of Here, arises a case of minority interest,
minority interest, just because of the fact which i.e., always less than 50% of
that the whole of the share is owned by the shares.
holding company

10.3 EXEMPTION FROM PREPARATION OF CONSOLIDATED

FINANCIAL STATEMENTS

There are certain conditions under which the companies are not required to maintain or the
preparation of consolidated financial statements. As per companies (accounts) amendments
Rule 2016, they are as follows:

1 it is a wholly-owned subsidiary, or is a partially-owned subsidiary i.e B Ltd. is a

partly owned subsidiary of A of another company and all its other members, including
those not otherwise entitled to vote, having been intimated in writing and for which
the proof of delivery of such intimation is available with the company i.e with B Ltd.
do not object to the company not presenting consolidated financial statements;
2 securities of subsidiary companies i.e (B Ltd.) are not listed or are not in the process
of listing on any stock exchange, whether in India or outside India and

3 its ultimate i.e (A Ltd.) or any intermediate holding company files Consolidated
Financial Statements with the Registrar.

To put more clarification see to the below graphical representation:

Let assume there are 3 Companies i.e A Limited, B Limited and C Limited. There holding in
each other are as
A Ltd holds 80% of equity in B Ltd and B Ltd holds 80% of equity in C Ltd and C
Ltd is subsidiary of B Ltd.

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 Fig. 10.1

10.4 CONSOLIDATED FINANCIAL STATEMENTS

Consolidated financial statements are the statements which are prepared by the holding
company for the group of enterprises controlled and owned by it. These financial
statements present the financial information about the holding company and its
subsidiaries as the separate entities. These statements highlight the following:
(i) Economic resources owned by the group of enterprises.
(ii) The obligations of the group.
(iii) The results achieved by the group with its resources.
The enterprise that presents the consolidated financial statement should present these
statement strictly according to the Accounting Standard 21 ‘Consolidated Financial
Statements’, issued by the Council of the Institute of the Chartered Accountants of India,
which came into effect in respect of the accounting period commencing on or after
1.4.2001. According to this standard, the holding company which presents consolidated
financial statements should present these statements in addition to the separate financial
statements.
10.4.1 Benefits of Consolidated Financial Statements
(1) Unified Source of Document: The consolidated financial statement acts as an
uniform source of document and presents the ultimate picture to the users of the
financial statements. Despite the fact that both the companies maintain the separate
entities but it is desirable that a single balance sheet and the single profit and loss
account is presented for the group as a whole through consolidation of the accounts.

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 (2) Ascertainment of return on Investment in Subsidiary: Return on investment is
measured on the basis of the total share of the holding company in the revenue profits
of the subsidiaries and this information is provided by the consolidated balance sheet.
(3) Measurement of Liquidity: The consolidated financial statement helps in the
measurement of the liquidity of the holding company as well as the enterprises under
its control.
(4) Measurement of Efficiency: The consolidated financial statements help in the
measurement of the efficiency of the holding company as a whole. The statements
help the investors to evaluate the efficiency of the company and take their decisions
accordingly.
(5) Ascertainment of the intrinsic value of the shares: The consolidated financial
statements of the holding company are necessary to ascertain the intrinsic value of the
shares of the company.
10.4.2 Disadvantages of Consolidated Financial Statements

Misleading Information: If the activities of the subsidiary company do not match with the
other companies of the group, it misleads the investors in taking the decisions.
Concealment of Important Information: When the financial statements of the companies in
the group are aggregated, sometimes the important information is concealed from the
investors.

Check Your Progress A

Answer the following questions:-

1. What do you mean by wholly owned Subsidiary Companies?

…………………………………………………………………………………………
………..…………………………………………………………………………………
………………..…………………………………………………………………………

2. What do you mean by Partly Owned Subsidiary Companies?

…………………………………………………………………………………………
………..…………………………………………………………………………………
………………..………………………………………………………………………..

3. State whether the following statements are True or False.

i) In case of exemption, a company whose security is not listed is not exempted
for the preparation of Consolidated Financial Statements.
ii) In case of partly owned subsidiary, minority interest or is more than 50%.
iii) A Company whose 75% shares are owned by the holding company is known
as wholly owned subsidiary company.
iv) It is necessary to ascertain the intrinsic value of the shares in case of
Consolidated Financial Statements prepared by holding company.
v) Return on investment is measured on the basis of the total share of the holding
company in the revenue profits of the subsidiary companies.

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10.5 PROCEDURE OF PREPARING CONSOLDIATED
FINANCIAL STATEMENTS WITH ADJUSTMENT

As the main objective of Consolidated Financial Statements is to show the information of

holding company and subsidiary company under a consolidated form as a single entity.
Following steps are involved in the formation of consolidated financial statements. Let us
discuss these steps in detail.

(a) The cost to the parent of its investment in each subsidiary and the parent’s portion of
equity of each subsidiary, at the date on which investment in each subsidiary is made,
should be eliminated;
(b) Any excess of the cost to the parent of its investment in a subsidiary over the parent’s
portion of equity of the subsidiary, at the date on which investment in the subsidiary is
made, should be described as goodwill to be recognized as an asset in the
consolidated financial statements;
(c) When the cost to the parent of its investment in a subsidiary is less than the parent’s
portion of equity of the subsidiary, at the date on which investment in the subsidiary
is made, the difference should be treated as a capital reserve in the consolidated
financial statements;
(d) Minority interests in the net income of consolidated subsidiaries for the reporting
period should be identified and adjusted against the income of the group in order to
arrive at the net income attributable to the owners of the parent; and
(e) Minority interest in the net assets of consolidated subsidiaries should be identified and
presented in the consolidated balance sheet separately from liabilities and the equity
of the parent’s shareholders. Minority interests in the net assets consist of:
(i) The amount of equity attributable to minorities at the date on which
investment in a subsidiary is made; and
(ii) The minorities’ share of movements in equity since the date the parent-
subsidiary relationship came in existence.

Dividend from Subsidiary Company out of Pre-Acquisition Profit

During the first time, when the holding company receive any kind of dividend out of pre-
acquisition from its subsidiary company. The following journal entries are recorded.

1) Bank A/c Dr.

To Shares in Subsidiary Company
(Being dividend received from Subsidiary Company out of pre-acquisition required)

2) Dividend Received from Subsidiary Company A/c Dr.

To Profit & Loss A/c
(Transfer of dividend from subsidiary company to profit & Loss Account)

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Check Your Progress B

(1) Under the consolidated balance sheet, the minority interest is shown :
(a) As a part of liabilities
(b) Separately from liabilities & the equity of parents shareholders
(c) As a part of equity of the parents shareholders
(d) As a part of assets

(2) Minority of the subsidiary is entitled to:

(a) Subsidiary companies capital profit
(b) Subsidiary companies both capital & revenue profit
(c) Subsidiary companies revenue profit
(d) Subsidiary companies’ liabilities

(3) In consolidation of accounts of holding & subsidiary company.....................is

eliminated in full.
Subsidiary Companies’ current liabilities
Mutual indebtness
Holding & subsidiary companies reserve & surplus
Capital profit

(4) The shares of the outsiders in the net assets of the subsidiary under
consolidated balance sheet must be shown as:
Minority interest
Current liabilities
Capital reserve
Revenue reserve
(5) Tax provision made by the Subsidiary Company will appear in the consolidated
balance sheet as an item of
Current liability
Capital profit
Revenue profit
Long term liabilities
Treatment of Profit on Revaluation of Assets
Profit on revaluation will be added to the Equity share capital, reserves, and P&L A/c
while calculating the amount due for calculation of both goodwill/capital reserve and for
the calculation of the Minority Interest.
Illustration 10.1
The following is the Balance Sheet of R Ltd. and M Ltd. as on 31st March 2021.
Liabilities R Ltd. M Ltd. Assets R Ltd. M Ltd.
(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital Sundry Assets 5,40,000 5,00,000
(Shares of Rs. 10 4,00,000 3,00,000 Investments 2,60,000 -
each) (In 70% shares of M
Ltd.)
Reserves 1,00,000 50,000 Preliminary - 10,000

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 Expenses
Profit and Loss A/c 1,00,000 60,000
Creditors 2,00,000 1,00,000
8,00,000 5,10,000 8,00,000 5,10,000
On 31 March, 2021 the fixed assets of M Ltd. were revalued at Rs. 5, 50,000. Prepare a
st

Consolidated Balance Sheet as on 31st March, 2021.

Solution
Calculation of Goodwill/Capital Reserve
Amount Paid = Rs. 2, 60,000
Less: Amount due
(3, 00,000 + 50,000 + 60,000 + 50,000 – 10,000) × 70/100 = Rs. 3, 15,000
Capital Reserve = Rs. 55,000
Minority Interest = (Equity Share Capital + Reserves + P&L A/c Cr. + Profit on
Revaluation - Fictitious Asset) × Remaining Percentage
Minority Interest = (3, 00,000 + 50,000 + 60,000 + 50,000 – 10,000) × 30/100
= Rs. 1, 35,000

Consolidated Balance Sheet as on 31.03.2021

Liabilities Amount Assets Amount
(Rs.) (Rs.)
Share Capital of Rs. 10 each 4,00,000 Sundry Assets
Minority Interest 1,35,000 R Ltd 5,40,000
Reserves 1,00,000 M Ltd 5,50,000 10,90,000
Profit and Loss A/c 1,00,000
Capital Reserve 55,000
Creditors
R 2,00,000
M 1,00,000 3,00,000
10,90,000 10,90,000

Pre-acquisition & Post-acquisition Profits

The various Illustrations earlier were assuming that the shares of the subsidiary company
were acquired on the date of balance sheet. So, all the profits of the subsidiary given in
the Balance Sheet were treated as pre-profits or the capital profits. However, in the actual
practice, the date of acquisition of shares and the date of Balance Sheet are different. In
such cases, the subsidiary company’s reserves and profits must be divided into pre-profits
(Capital profits) and post-profits (Revenue profits) on the basis of the date of acquisition
of the shares.
Holding company’s share in pre-acquisition profits is treated as the capital profit and
is used for the purpose of calculation of Goodwill/Capital Reserve.
Holding Company’s shares in post-acquisition profits is treated as revenue profit. It is
added to the Profit and Loss A/c of the Holding Company.
Calculation of Pre-acquisition Profits of subsidiary/Capital profits:
Pre-acquisition profits = Opening Balance of Profit and Loss A/c + Opening balance of
General Reserve – Preliminary Expenses.

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 Calculation of Post-acquisition profits/Revenue Profits:
Post acquisition Profits = (Closing Profit and Loss A/c + Closing General Reserve –
Preliminary Expenses) – (Pre-acquisition profits)
Calculation of Goodwill/Capital Reserve in case of pre-acquisition and post-acquisition
profits Goodwill/Capital Reserve = Amount Paid (amount of investment) – Amount Due
Amount Due = (Equity Share Capital + Pre-acquisition Profits) × Acquisition %age
Calculation of Minority Interest
Minority Interest = (Equity Share Capital + Pre-acquisition Profits + Post-acquisition
Profits) × Remaining Percentage

Illustration 10.2
The following is the Balance Sheet of R Ltd. and M Ltd. as on 31st March, 2021.
Liabilities R Ltd. M Ltd. Assets R Ltd. M Ltd.
(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital Sundry Assets 5,40,000 5,50,000
(Shares of Rs. 10 4,00,000 3,00,000 Investments 2,60,000 -
each) (in 70% shares of M
Ltd.)
Reserves 1,00,000 1,00,000 Preliminary - 10,000
Expenses
Profit and Loss A/c 1,00,000 60,000
Creditors 2,00,000 1,00,000
8,00,000 5,60,000 8,00,000 5,60,000

The shares of M Ltd. were acquired on 1st April, 2020 on which date the General Reserve
and P&L A/c was Rs. 30,000 and Rs. 20,000 respectively. Preliminary expenses were not
written off during the year ending 31st March, 2021. Prepare a Consolidated Balance
Sheet as on 31st March, 2021.
Solution
Calculation of Pre-profits Rs.
Opening Profit and Loss A/c: 20,000
Opening General Reserve: 30,000
Less: Preliminary Expenses: (10,000)
Pre-acquisition Profits 40,000
Calculation of Post-profits Rs.
Closing Profit and Loss A/c 60,000
Closing General Reserve A/c 1, 00,000
Less: Preliminary Expenses (10,000)
Less: Pre-acquisition Profits (40,000)
Post-acquisition Profits 1, 10,000
Calculation of Goodwill/Capital Reserve Rs.
Amount paid 2, 60,000
Less: Amount due

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 (Equity Share Capital + Pre-acquisition Profits) × Acq %
(3, 00,000 + 40,000) × 70/100 2, 38,000
Goodwill 22,000
Minority Interest = (Equity Share Capital + Pre-acquisition Profits + Post-
acquisition Profits) × Remaining Percentage
Minority Interest = (3, 00,000 + 40,000 + 1, 10,000) × 30/100 = Rs. 1, 35,000

Consolidated Balance Sheet as on 31.03.2021

Liabilities Amount Assets Amount
(Rs.) (Rs.)
Share Capital of Rs. 10 each 4,00,000 Sundry Assets
Minority Interest 1,35,000 R Ltd 5,40,000
Reserves 1,00,000 M Ltd 5,50,000 10,90,000
Profit and Loss A/c 1,00,000 Goodwill 22,000
Add: 1,10,000 × 70% 77,000 1,77,000
Creditors
R 2,00,000
M 1,00,000 3,00,000
11,12,000 11,12,000

Shares of Subsidiary Company acquired during the year

Sometimes, the holding company acquires the shares of the subsidiary company during
the financial year. For example, if the subsidiary company prepares its financial
statements on 31st March, 2021 and the holding company acquires its shares on 1st July,
2020 then the profits from 1st April, 2020 to 1st July, 2020 will be considered as the part
of pre-acquisition profits and the profits 1st July, 2020 to 31st March, 2021 will be
considered as the post profits.
In this case, the current year profits are divided according to the pre-period and the
post-period.
Treatment
Step 1: Determine the pre period and the post period.
Step 2: Prepare P& L Appropriation A/c and calculate the current year
profits. Step 3: Divide the current year profits into pre-period and the post-
period.
Step 4: Add the current year pre-profits to the pre-acquisition profits and the current
year post-profits will be considered as the Post-Profits.
Step 5: Post Profits × Acq. % = Holding Co. share in Post Profit. This holding
company share in post profits will be added to P&L A/c of Holding Co. in
consolidated Balance Sheet.

Illustration 10.3
On 31st March, 2021 the Balance Sheets of R Ltd. and M Ltd. stood as follows:
Liabilities R Ltd. M Ltd. Assets R Ltd. M Ltd.
(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital Fixed Assets 6,00,000 4,00,000
(Shares of Rs. 10 5,00,000 3,00,000 Investments 4,00,000 -
each) (In 70% shares of M
Ltd.)
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 Reserves 2,00,000 1,00,000 Current Assets 2,00,000 2,80,000
Profit and Loss A/c 3,00,000 2,00,000 Preliminary Expenses - 20,000
Creditors 2,00,000 1,00,000
12,00,000 7,00,000 12,00,000 7,00,000
The shares of M Ltd. were acquired on 1 st July, 2020. On 1st April, 2020 the General
Reserve and P&L A/c was Rs. 40,000 and Rs. 1, 00,000 respectively. Preliminary
expenses were not written off during the year 31stMarch, 2021. Prepare a Consolidated
Balance Sheet as on 31st March, 2021.
Solution
Step 1: Determination of Pre-period and Post-period:
Pre-period = 1st April, 2020 to 1st July, 2020 = 3 months
Post period = 1st July, 2020 to 31st March, 2021 = 9 months
Step 2: Preparation of Profit and Loss Appropriation A/c

Profit and Loss Appropriation A/c for the year ended 31st March, 2021
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Transfer to General Reserve 60,000 By Bal b/d (opening) 1,00,000
(1,00,000 – 40,000)
To bal c/d (closing) 2,00,000 BY Current year profits 1,60,000
(balancing figure)
2,60,000 2,60,000
Current year profits for pre-period = 1, 60,000 × 3/12 = Rs. 40,000
Current year profits for post-period = 1, 60,000 × 9/12 = Rs. 1, 20,000
Calculation of Pre-Profits: Rs.
Opening Profit and Loss A/c 1, 00,000
Opening General Reserve 40,000
Current year profits for pre-period 40,000
Less: Preliminary Expenses 20,000
Pre-acquisition Profits 1, 60,000
Calculation of Post-profits (Rs.)
Post-acquisition profits 1, 20,000
Calculation of Goodwill/Capital Reserve
Amount Paid 4, 00,000
Less: Amount due
(Equity Share Capital + Pre-acquisition Profits) × Acq. %
(3, 00,000 + 1, 60,000) × 70/100 3, 22,000
Goodwill 78,000
Minority Interest = (Equity Share Capital + Pre-acquisition Profits + Post-
acquisition Profits) × Remaining Percentage
Minority Interest = (3, 00,000 + 1, 60,000 + 1, 20,000) × 30/100 = Rs. 1, 74,000

Consolidated Balance Sheet as on 31.3.2021

Liabilities Amount Assets Amount

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 (Rs.) (Rs.)
Share Capital of Rs. 10 each 5,00,000 Fixed Assets
Minority Interest 1,74,000 R Ltd 6,00,000
Reserves 2,00,000 M Ltd 4,00,000 10,00,000
Profit and Loss A/c 3,00,000 Goodwill 78,000
Add: 1,20,000 × 70% 84,000 3,84,000 Current Assets
Creditors R Ltd 2,00,000
R 2,00,000 M Ltd 2,80,000 4,80,000
M 1,00,000 3,00,000
15,58,000 15,58,000

Adjustment for Unrealised Profit included in Stock

Sometimes, the goods sold by one in the group to the another company in the group at
the price more than the cost price and some part of the goods remain in the stock as
unsold and it is the rule that the profit on such unsold goods should not be included in
the consolidated balance sheet. This profit is thus deducted from the stock and the
consolidated profits.
Treatment:
(i) Deduct the profit on unsold goods from the stock in consolidated B.Sheet.
(ii) Deduct the profit on unsold goods from the consolidated profits in the
consolidated Balance Sheet.

Illustration 10.4
On 31st March, 2021 the Balance Sheet of R Ltd. and M Ltd. stood as follows:
Liabilities R Ltd. M Ltd. Assets R Ltd. M Ltd.
(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital Fixed Assets 4,00,000 2,00,000
(Shares of Rs. 10 5,00,000 3,00,000 Investments 4,00,000 -
each) (In 75% shares of M
Ltd.)
Reserves 2,00,000 1,00,000 Stock 1,00,000 3,00,000
Profit and Loss A/c 2,00,000 1,50,000 Other current assets 1,00,000 2,00,000
Creditors 1,00,000 1,50,000
10,00,000 7,00,000 10,00,000 7,00,000
The shares of M Ltd. were acquired on 1st July, 2020. M Ltd. earned a profit of Rs.
50,000 during the year. In January, 2021 the M Ltd. sold to R Ltd. goods costing Rs.
30,000 for Rs. 40,000. On 31st March, 2021 half of these goods were lying as unsold in the
godown of R Ltd. Prepare a Consolidated Balance Sheet as on 31st March, 2021.
Solution
Step 1: Determination of Pre-period and Post-period:
Pre-period = 1st April, 2020 to 1st July, 2020 = 3 months
Post-period = 1st July, 2020 to 31st March, 2021 = 9 months
Step 2: Preparation of Profit and Loss Appropriation A/c
Profit and Loss Appropriation A/c
Particulars Amount Particulars Amount

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 (Rs.) (Rs.)
To bal c/d (closing) 1,50,000 By Balance b/d 1,00,000
(opening)(Balancing figures)
By Current year profits 50,000
1,50,000 1,50,000
Current year profits for pre-period = 50,000 × 3/12 = Rs. 12,500
Current year profits for post-period = 50,000 × 9/12 = Rs.
37,500 Rs.
Calculation of Pre-profits
Opening Profit and Loss A/c 1, 00,000
Opening General Reserve 1, 00,000
Current year profits for pre-period 12,500
Pre-acquisition Profits 2, 12,500
Calculation of Post-profits Rs.
Post-acquisition Profits 37,500
Calculation of Goodwill/Capital Reserve
Amount Paid 4, 00,000
Less: Amount due
(Equity Share Capital + Pre-acquisition Profits) × Acq. %
(3, 00,000 + 2, 12,500) × 75/100 = 3, 84,375
Goodwill 15,625
Minority Interest = (Equity Share
acquisition Profits) × Remaining Percentage Capital + Pre-acquisition Profits + Post-
Minority Interest = (3, 00,000 + 2, 12,500 + 37,500) × 25/100 = Rs. 137,500
Consolidated Balance Sheet as on 31.3.2021

Liabilities Amount Assets Amount

(Rs.) (Rs.)
Share Capital of Rs. 10 each 5,00,000 Fixed Assets
Minority Interest 1,37,500 R Ltd 4,00,000
Reserves 2,00,000 M Ltd 2,00,000 6,00,000
Profit and Loss A/c 2,00,000 Goodwill 15,625
Add: 37,500 × 75% Stock
28,125 R Ltd 1,00,000
Less: Unrealised Profit 2,23,125 M Ltd 3,00,000
(10,000 × 50%) 5,000 Less: Unrealised Profit
Creditors (10,000 × 50%) 5,000 3,95,000
R 1,00,000 2,50,000 Current Assets
M 1,50,000 R Ltd 1,00,000
M Ltd 2,00,000 3,00,000
13,10,625 13,10,625

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 10.6 LET US SUM UP

In this unit, we have learnt about the difference between wholly Owned & Partly Owned
subsidiary companies which is as follow:
Wholly-owned: 100% of the subsidiary’s shares are owned by the parent company. The
parent company has complete control over the subsidiary. Partly (or partially)-owned: the
parent company owns at least 50% but less than 100% of the subsidiary’s shares. The
parent company doesn’t have complete control, but it should have a controlling interest.
There are certain conditions under which a company is exempted to prepare consolidated
financial statement such as i) the company should be a wholly/partly owned subsidiary of
another company ii) such subsidiary company should not be listed or should not under the

process of listing on any stock exchange in India or Outside India iii) such subsidiary company has intimated to its
members in writing and for which the proof of delivery is available with the company iv) No objection has been
received from the members over such intimation v) Holding company of such subsidiary company files consolidated
financial statements with the Registrar of the companies vi) such consolidated financial statement of holding
company should comply with the accounting standards.

Consolidated financial statements combine the financial statements of separate legal entities controlled by a parent
company into one set of financial statements. There are advantages and disadvantages of consolidated financial
statements. Advantages: i) Unified Source of Document, ii) Measurement of liquidity, iii) measurement of
efficiency, iv) Ascertainment of intrinsic value of a shares etc. Disadvantages: i) Misleading Information and ii)
Concealment of Important Information

10.7 KEY WORDS

Wholly Owned Subsidiary: A company whose common stock is completely

(100%) owned by the holding company.

Partly Owned Subsidiary Company: A company where at least 50% of its shares are
owned by another company.

Intrinsic Value of a Share: Intrinsic value is the calculated value of a stock of a company
determined through fundamental analysis. It includes tangible and intangible factors.
Intrinsic value is also called the real value.

Consolidated Balance Sheet: A consolidated balance sheet presents the assets and
liabilities of a parent company and all its subsidiaries on a single document.

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10.8 ANSWERS TO CHECK YOUR PROGRESS

A 3 (i) False (ii) False (iii) False (iv) False (v) True

B 1 (i) b (ii) b (iii) b (iv) a (v) a

10.9 TERMINAL QUESTIONS/EXERCISES

1. Identify the difference between Holding Company and Subsidiary Company?

2. Difference between ‘Wholly Owned’ and ‘Partly Owned Subsidiary companies.
3. Describe the conditions under which a company is exempted to prepare Consolidated
Financial Statement.
4. Explain the steps involved in preparing a Consolidated Financial Statement.
5. What do you mean by Consolidated Financial Statement? Explain the advantages
and disadvantages of preparing Consolidated Financial Statement
Exercises

Revaluation of Assets
1. The following is the Balance Sheet of R Ltd. and M Ltd. as on 31st March, 2021
Liabilities R Ltd. M Ltd. Assets R Ltd. M Ltd.
(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital Sundry 6,00,000 7,90,000
Assets
(Shares of Rs. 10 5,00,000 4,00,000 Investments 5,00,000 -
each) (In 32,000
shares of M
Ltd.)
Reserves 2,00,000 1,50,000 Preliminary - 10,000
Expenses
Profit and Loss A/c 1,00,000 50,000
Creditors 3,00,000 2,00,000
11,00,000 8,00,000 11,00,000 8,00,000
The sundry assets of M Ltd. were revalued at Rs. 8, 50,000. Prepare a Consolidated
Balance Sheet as on 31st March, 2021.
Ans: B/S = Rs. 14, 50,000, Capital Reserve: Rs. 20,000, Minority Interest: Rs. 1, 30,000
Pre-acquisition and Post-acquisition Profits
2. The following is the Balance Sheet of R Ltd. and M Ltd. as on 31st March, 2021
Liabilities R Ltd. M Ltd. Assets R Ltd. M Ltd.
(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital Sundry 8,00,000 9,90,000
Assets
(Shares of Rs. 10 6,00,000 5,00,000 Investments 7,00,000 -

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 each) (In 75%
shares of M
Ltd.)
Reserves 3,00,000 2,00,000 Preliminary - 10,000
Expenses
Profit and Loss 2,00,000 1,00,000
A/c
Creditors 4,00,000 2,00,000
15,00,000 10,00,000 15,00,000 10,00,000
R Ltd. acquired the shares of M Ltd. on 1 April, 2020 when S Ltd. Reserves and Profit
st

and Loss A/c stood at Rs. 1, 00,000 and Rs. 50,000 respectively. Prepare a Consolidated
Balance Sheet as on 31st March, 2021.
Ans. Pre-acquisition Profits: Rs. 1,40,000, Post-acquisition profits: Rs. 1,50,000, B/S:
Rs. 20,10,000, Goodwill: Rs. 2,20,000, Minority Interest: Rs. 1,97,500.
Shares of Subsidiary Company Acquired During the Year
3. The following is the Balance Sheet of R Ltd. and M Ltd. as on 31st March, 2021
Liabilities R Ltd. M Ltd. Assets R Ltd. M Ltd.
(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital Sundry 1,00,000 1,20,000
Assets
(Shares of Rs. 10 2,00,000 1,00,000 Investments 1,00,000 -
each) (In 60%
shares of M
Ltd.)
Reserves 18,000 20,000 Current 44,000 10,000
Assets
Profit and Loss A/c 20,000 4,000
Creditors 6,000 6,000
2,44,000 1,30,000 2,44,000 1,30,000
R Ltd. acquired the shares of M Ltd. on 1 October, 2020. The M Ltd. Reserves and
st

Profit and Loss A/c on 1st April, 2020 stood at Rs. 18,000 and Rs. 2,000 respectively.
Prepare a Consolidated Balance Sheet.
Ans. Pre-acquisition Profits: Rs. 22,000, Post-acquisition profits: Rs. 2,000, B/S: Rs. 3,
00,800, Goodwill: Rs. 26,800, Minority Interest: Rs. 49,600.

Unrealised Profits and Mutual Owings

4. The following is the Balance Sheet of R Ltd. and M Ltd. as on 31st March, 2021

Liabilities R Ltd. M Ltd. Assets R Ltd. M Ltd.

(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital Fixed 22,00,000 4,00,000
Assets
(Shares of Rs. 10 32,00,000 8,00,000 Investments 11,60,000 -
each) (In 70%
shares of M
Ltd.)
Reserves 6,00,000 2,80,000 Stock 4,20,000 7,08,000

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 Profit and Loss A/c 3,60,000 2,20,000 Debtors 9,00,000 5,12,000
Creditors 5,20,000 3,20,000
46,80,000 16,20,000 46,80,000 16,20,000
R Ltd. acquired the shares of M Ltd. on 1st July, 2020. Other information:
1. M Ltd. earned the profit of Rs. 1, 80,000 for the year ended 31st March, 2021.
2. In February, 2004 M Ltd. sold to R Ltd. goods costing Rs. 60,000 for Rs. 80,000. On
31st March 2004 half of these goods were lying as unsold with R Ltd.
3. Creditors of R Ltd. includes Rs. 20,000 due to M ltd. on account of goods
supplied. Prepare a Consolidated Balance Sheet as on 31st March, 2021.
Ans. Pre-acquisition Profits: Rs. 3, 65,000, Post-acquisition profits: Rs. 1, 35,000,
B/S: Rs. 54, 54,500, Goodwill: Rs. 3, 44,500, Minority Interest: Rs. 3, 90,000

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