HOLDING COMPANY CONSISTING OF MORE THAN ONE SUBSIDIARY :
A holding company may have a number of subsidiaries without any mutual holding in between the subsidiaries. The following chart will clearly show the position:
In this case, holding company H Ltd. acquires shares of 3/4th, 4/5th and 5/8th of S1 Ltd., S2 Ltd. and S3 Ltd. respectively and as such the investment account of holding company will show investment in S1 Ltd., S2 Ltd. and S3 Ltd. instead of one in the usual case. The calculation of cost of control, minority interest, elimination mutual indebtedness, unrealised profits on closing stock etc. of each company should be done following the usual principles.
Illustration 6
(More than one subsidiary company)
Sun Ltd. owns 80% of issued capital of Moon Ltd. and 90% of issued capital of Star Ltd. The following are the balances of all the companies as on 31.3.2014.
| Sun Ltd | Moon Ltd | star Ltd | |
| I EQUITIES AND LIABILITIES | |||
| 1 Shareholders’ funds | |||
| (a) Share Capital | |||
| Authorised, Issued subscribed and paid | |||
| up capital | |||
| Equity shares of ` 100 each, fully called up and paid up | 3,20,000 | 20,000 | 25,000 |
| (b) Reserve and surplus | |||
| General Reserve | 68,000 | 6,000 | 12,500 |
| 2 Non-current liabilities | |||
| Current Account | – | 22,000 | 18,000 |
| 3 Current Liabilities | |||
| Current liabilities | 40,000 | 6,000 | 10,000 |
| Proposed Dividend | _20,000_ | ____– ____ | ___2,500__ |
| TOTAL | 4,48,000 | 54,000 | 68,000 |
| II ASSETS | |||
| 1 Non-current Assets | |||
| (a) Fixed Assets | |||
| Fixed Assets | 1,70,000 | 10,000 | 27,000 |
| Less: Provision for Depreciation | 70,000 | 6,000 | 9,000 |
| 1,00,000 | 4,000 | 18000 | |
| (b) Long term Investment | |||
| Shares in Moon Ltd. (at cost) | 15000 | – | – |
| Shares in Star Limited | 25,000 | – | – |
| 2 Current Assets | |||
| Current Assets | 2,68,000 | 50,000 | 50,000 |
| Current Account | |||
| Moon Limited 20,000 – – | |||
| Star Limited | _20,000_ | __ –___ | ___ –____ |
| TOTAL | 4,48,000 | 54,000 | ___68,000__ |
Additional information:
1. At the time of acquiring the shares the subsidiaries had the following Revenue Reserves:
Moon Ltd. Rs.6,000
Star Ltd. Rs.3,000
2. Neither of the subsidiaries has paid any dividend since acquisition of shares.
3. Payment of creditors of Moon Ltd. by Sun Ltd. to the extent of Rs.2,000 has not been considered in the books of Moon Ltd.
4. A remittance of Rs.2,000 by Star Ltd. to Sun Ltd. has not yet been adjusted in the books of Sun Ltd.
5. The Stock of Moon Ltd. includes Rs. 3,000 purchased from Sun Ltd. which made 25% profit on cost. Sun Ltd.’s stock includes Rs.5,000 purchased from Star Ltd.’s which made 20% profit on sales.
Prepare the consolidated Balance Sheet of Sun Ltd. and its subsidiaries — Moon Ltd. and Star Ltd.
Solution:
Working Notes:
A. Sun Ltd. holding in Moon Ltd.
1. Sun Ltd.’s shares in Moon Ltd. 80/100 = 4/5th
and Minority Interest in Moon Ltd. 20/100 = 1/5
2. Pre-acquisition Revenue Reserve in Moon Ltd. (Capital Profits)
`
Revenue Reserve upto the date of acquisition 6,000
Sun Ltd.’s share 4/5 xRs. 6,000 4,800
Minority interest 1/5 x Rs.6,000 1,200
3. Post-acquisition Revenue Reserves in Moon Ltd. (Revenue Profits)
Revenue Reserve since the date of acquisition = Rs.(6,000 – 6,000) Nil
4. Minority Interest in Moon Ltd.
Paid-up value of shares held by outsiders = 20/100 x 20,000 4,000
Add: 1/5 share of Pre-acquisition Revenue Reserve 1,200
Minority Interest 5,200
5. Cost of Control in Moon Ltd.
Intrinsic value of the shares held in Moon Ltd.
Paid-up value of the shares held 80/200 x 20,000 16,000
Add: 4/5th share of pre-acquisition Reserve in Moon Ltd. 4,800
Intrinsic value of shares held 20,800
Less: Price paid for the shares held 15,000
Capital Reserve 5,800
6. Unrealised Profit included in Stock of Moon Ltd.
Cost for Moon Ltd. is the selling price of Sun Ltd.
Let the cost price to Sun Ltd. be Rs.100
Profit Rs.25
Selling price Rs.(100 + 25) =Rs.125
Profit on selling price 25/125 = 1/5th
Unrealised profit 1/5 x Rs.3,000 =Rs.600
B. Sun Ltd. holding in Star Ltd.
1. Sun Ltd.’s shares in Star Ltd. 90/100 = 9/10th
and Minority Interest in Star Ltd. 10/100 = 1/10th
2. Pre-acquisition Revenue Reserve in Star Ltd. (Capital Profits)
Rs.
Revenue Reserve upto the date of acquisition 3,000
Sun Ltd.’s share 9/10 x Rs.3,000 2,700
Minority interest 1/10 x Rs.3,000 300
3,000
3. Post-acquisition Revenue Reserves in Star Ltd. (Revenue Profits)
Rs.
Revenue Reserve as per Balance Sheet 12,500
Add: Proposed Dividend 2,500
15,000
Less: Revenue Reserve as on the date of acquisition 3,000
Post-acquisition Revenue Reserve 12,000
Sun Ltd.’s shares = 9/10 x Rs.12,000 10,800
Minority Interest = 1/10 x Rs.12,000 1,200
12,000
4. Minority Interest in Star Ltd.
Paid-up value of shares held by outsiders = 25,000 x 1/10 2,500
Add: 1/10th share of Pre-acquisition Revenue Reserve 300
Add: 1/10th share of Post-acquisition Revenue Reserve 1,200
4,000
5. Cost of Control in Star Ltd.
Intrinsic value of the shares held in Star Ltd.
Paid-up value of the shares held – 9/10 x Rs. 25,000 22,500
Add: 9/10th share of Pre-acquisition Revenue Reserve in Star Ltd. 2,700
Intrinsic value of shares held 25,200
Less: Price paid for the shares held 25,000
Capital Reserve 200
C. Sun Ltd.
1. Unrealised Profit included in Stock of Sun Ltd.
Sun Ltd. Cost Price is the selling price of Star Ltd.
Unrealised profit = Rs.5 000 x 20/100 =Rs.1,000
2. Revenue Reserves of Sun Ltd.
Revenue Reserve as per Balance Sheet 68,000
Add: 9/10 share of Post-acquisition Revenue Reserve in Star Ltd. 10,800
78,800
Less: Unrealised Profit included in Stock Rs.(600 + 1,000) 1,600
Adjusted Balance 77,200
Consolidated Balance Sheet of Sun Ltd. and its Subsidiaries Moon Ltd. and Star Ltd.
as at 31st March, 2014
Amount(Rs.)
| I EQUITIES AND LIABILITIES | |||
| 1 Shareholders’ funds | |||
| (a) Share Capital | |||
| Authorised, Issued subscribed and paid up capital | |||
| Equity shares of `— each, fully called up and paid up | 3,20,000 | ||
| (b) Reserve and surplus | |||
| Capital Reserve on consolidation | |||
| Moon Ltd. | 5,800 | ||
| Star Ltd. | __200__ | 6,000 | |
| Revenue Reserve | 77,200 | ||
| 2 Non-current liabilities | |||
| Minority Interest | |||
| Moon Limited | 5,200 | ||
| Star Limited | 4,000 | 9,200 | |
| 3 Current Liabilities | |||
| Sun Limited | 40,000 | ||
| Moon Limited | 6000 | ||
| Less payment by Sun limited | 2000 | 4,000 | |
| Star Limited | 10,000 | 54,000 | |
| Suspense Account* | 4,000 | ||
| Proposed dividend | 20,000 | ||
| TOTAL | 4,90,400 | ||
| II ASSETS | |||
| 1 Non-current Assets | |||
| (a) Fixed Assets | |||
| Fixed Assets | |||
| Sun Limited | 1,70,000 | ||
| Moon Limited | 10,000 | ||
| Star Limited | 27,000 | ||
| 2,07,000 | |||
| Less: Provision for depreciation | __85,000 | 1,22,000 | |
| 2 Current Assets | |||
| Sun Limited | 2,68,000 | ||
| Moon Limited | 50,000 | ||
| Star Limited | 50,000 | ||
| 3,68,000 | |||
| Less: Profit included in stock | __1,600 | ||
| 3,66,400 | |||
| Add: Cash in transit | ____2,000 | 3,68,400 | |
| TOTAL | 4,90,400 |
* Unexpected credit by Sun Ltd. to Moon Ltd.
Note: Difference in Current Account has been treated as cash-in-transit.