MINORITY INTEREST :
The claim of outside shareholders in the subsidiary company has to be assessed and shown as a liability in the consolidate balance sheet. In the above Illustration, minority interest consists only the face value of the shares held by them. But it may so happen that the subsidiary company may have some accumulated profits and reserves or accumulated losses. Besides, it may have some profits or losses on account of revaluation of it assets on the date of acquisition of shares by the holding company. While calculating the amount of minority interest, all these items have to be taken into account and proportionate share of all such profits and reserves should be added to the amount of minority interest while proportionate share of all such losses should be deducted from the minority interest, thus, Minority Interest = paid-up value of shares held by minority shareholders + proportionate share of the company’s profits and reserves + proportionate shares of profits on revaluation of assets of the company – proportionate share of company’s losses – proportionate share of loss on revaluation of assets of the company.
The company’s profit and reserves or loss will include both pre-acquisition and post-acquisition profits and reserves or losses.
But, if there are some preference shares of the subsidiary company held by outsiders, the minority interest in respect of the preference share will consist only of the face value of such shares and the dividend due on such shares if there are profits.
Illustration 3
The Balance Sheet of H Ltd. and S Ltd. on 31st March, 2014 are given below:
| I EQUITIES AND LIABILITIES | H Ltd. Amount (Rs.) | S Ltd. Amount (Rs.) |
| 1 Shareholders’ funds | ||
| (a) Share Capital | ||
| Authorised, Issued subscribed and paid | ||
| up capital | ||
| Equity shares of ` 100 each, fully called up | 6,00,000 | 2,00,000 |
| and paid up | ||
| (b) Reserve and surplus | ||
| General Reserve | 60,000 | 25,000 |
| Surplus A/c | 80,000 | 15,000 |
| 2 Current Liabilities | ||
| Trade Payables | 75,000 | 48,000 |
| TOTAL | 8,15,000 | 2,88,000 |
| II ASSETS | ||
| 1 Non-current Assets | ||
| (a) Fixed Assets | ||
| Fixed Assets | 6,55,000 | 2,88,000 |
| (b) Long term Investment | ||
| 1,600, Shares in S Ltd. (at cost) | 1,60,000 | ____-____ |
| TOTAL | 8,15,000 | 2,88,000 |
H Ltd. acquired shares in S Ltd. on 31st March, 2014. Prepare the Consolidated balance sheet of H Ltd. and S Ltd. as on that date.
Solution :
Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd.
as at 31st March, 2012
| I EQUITIES AND LIABILITIES | S Ltd. Amount (Rs.) | |
| 1 Shareholders’ funds | ||
| (a) Share Capital | ||
| Authorised, Issued subscribed and paid up capital | ||
| Equity shares of ` 100 each, fully called up and paid up | 6,00,001 | |
| (b) Reserve and surplus | ||
| General reserve | 60,000 | |
| Capital Reserve: | ||
| 4/5th of 25,000 | 20,000 | |
| 4/5th of 15,000 | 12,000 | 32,000* |
| Surplus Account | 80,000 | |
| 2 Non-current liabilities | ||
| Minority Interest | 48,000 | |
| 3 Current Liabilities | ||
| Trade Payables | ||
| H Limited | 75,000 | |
| S Limited | 48,000 | 1,23,000 |
| TOTAL | 9,43,000 | |
| II ASSETS | ||
| 1 Non-current Assets | ||
| (a) Fixed Assets | ||
| H Limited | 6,55,000 | |
| S Limited | 2,88,000 | 9,43,000 |
| TOTAL | 9,43,000 | |
* Profit in the subsidiary company as on the date of acquisition of control are capital profits. Minority interest in this case has been ascertained in the following manner:
| Rs. | |
| Paid-up value of 400 shares | 40,000 |
| Add : 1/5th shares of profit in S Ltd. 15,000 x 1/5 | 3,000 |
| 1/5 shares general reserve in S Ltd. 25,000 x 1/5 | 5,000 |
| Minority Interest | 48,000 |