CHAPTER-I

INTRODUCTION

The preparation of consolidated financial statement of the group comprising

holding company and all its subsidiaries is mandatory with effect from the year ending 31st

March, 2003. The principles and procedures for preparation of consolidated financial statement

are laid down in the Accounting standard 21 (AS 21) issued by the ICAI. The standard is

applicable to all the enterprises that prepare consolidated financial statements. It is applicable

by virtue of SEBI guidelines to listed companies. The consolidated financial statements shall be

presented in the same format as that of the parent company.

The consolidated financial statements would include the following:

a) Balance sheet;
b) Profit and loss Account;
c) Notes to Accounts;
d) Cash Flow Statement (if the parent company presents its own cash flow statement );
e) Segment Reporting.
Consolidated financial statements are prepared in addition to separate financial statements of

the parent and its subsidiaries. Consolidated statements should be prepared for both domestic as

well as foreign subsidiaries.

HOLDING COMPANY
Holding company is the company which holds either all or majority of the

shares of the other company. These shares are held in order to exercise control over the other

company. The holding company device was mainly used to further the combination movement

in order to eliminate competition and to establish a monopoly or near monopoly state. Such a

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monopoly or near monopoly state can also be established with help of merger schemes like

Amalgamation or Absorption. But the disadvantage of merger scheme is that, the merged

company will have to be liquidated, as a result of which it will lose its separate and independent

existence. This is not the case with holding company device

Holding of shares is to purchase the shares and own them. Thus what is

important here is to purchase the shares of that other company. As the intention here is to

exercise the control over the management of that other company, w hat is essential here is to

have 51% or more voting power. It may be pointed out that some disadvantage also follow with

holding majority of voting power like, fraudulent manipulation of accounts oppression of

majority, shareholders exploiting that other company to the advantage of holding company etc.

SUBSIDIARY COMPANY

The company whose shares are held is called as a subsidiary company. The

subsidiary companies can either be partly owned or wholly owned subsidiaries.

A wholly of partly owned subsidiary is one in which all the shares are owned by

holding company.

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 In case of partly owned subsidiary, only the majority of shares are owned by

holding company. The owners of the remaining shares are called as Minority Shareholders.

Their interest in the Net Assets is called as Minority Interest.

CHAPTER-II

ANALYSE OF RESERVES & SURPLUS OF SUBSIDIARY COMPANY

Analysis of profit of subsidiary company as pre-acquisition profit and post

acquisition profit is done on the basis of date of acquisition of shares by the holding company.

Profits earned by the subsidiary company upto date of acquisition of shares by Holding

company are called as pre-acquisition profits or capital profits. The profit earned by the

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subsidiary company after the acquisition of shares by the holding company is called as Post

acquisition profits or Revenue profits. The loss of the subsidiary company upto the date of

acquisition is treated as a capital loss and subsequent to the acquisition as a Revenue loss.

The reserves to be analysed shall be the reserves as appearing in the Balance

sheet of the subsidiary company as on the date of preparation of consolidated Balance sheet.

Such reserves are subject to adjustments relating to proposed dividends, Bonus / unaccounted

items such as interest payment due to or due from subsidiary company. If the subsidiary has

cumulative preference shares on which dividend has not been provided for or dividend is in

arrears, the same should be provided.

If investments are made during the financial year, the profits should be

apportioned on a reasonable basis i.e. on the basis of time. The assumption being that profits

have accrued evenly during the year.

CAPITAL PROFIT

Return of capital is the distribution of cash that resulted from tax savings on

depreciation, sale of a capital asset or securities, or any other sources unrelated to retained

earnings.

The amount by which an asset's selling price exceeds its initial purchase price.

A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain
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is an investment that hasn't been sold yet but would result in a profit if sold. Capital gain is

often used to mean realized capital gain. For most investments sold at a profit, including mutual

funds, bonds, options, collectibles, homes, and businesses, the IRS is

owed money called capital gains tax. Opposite of capital loss.

REVENUE PROFIT

In business usage, revenue is income received by an organization in the form

of cash or cash equivalents. Sales revenue or revenues is income received from selling goods or

services over a period of time. Tax revenue is income that a government receives from tax

payers.

Line a double-entry bookkeeping system, revenue accounts are general

edger accounts that are summarized periodically under the heading Revenue or Revenues on an

income statement. Revenue account, revenue or turnover is income that a company receives

from its normal business activities, usually from the sale of services to customers. In many

countries, such as the United Kingdom, revenue is referred to as turnover.

REVALUTION OF ASSETS OF SUBSIDIARY COMPANY

When assets of a subsidiary company are revalued and no adjustment entry is

passed, it has to be done at the time of consolidated of accounts. The value of asset may be

increased or decreased. The assets are to appear in the consolidated balance sheet at revalue

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figures. If there is an increase in the book value of an asset the same should be treated as pre-

acquisition profit. The total profit will be apportioned and will be used in calculation of

goodwill / capital reserve and minority interest.

If the revaluation results in a loss, the cost of control on value of goodwill or capital reserve

increased.

DEPRECIATION ADJUSTMENT

When any fixed asset of a subsidiary company has been revalue, but no entry

has been passed should be adjusted, but the not only addition or reduction in the consolidated

profit and loss account has to be adjusted.

If the value of asset is written up to a higher figure than that appears in the

books of the subsidiary company, the charge for depreciation to consolidated profit and loss

account should be increased on the increased value of the asset at the appropriate rate. When

the value of asset has been written down, the charge for depreciation should be reduced

proportionately. The amount of extra depreciation is to be written back and considered as a

revenue profit. This should be added to the profit and loss account of the subsidiary company.

CHAPTER-III
INTER COMPANY DIVIDEND

Holding company owns larger portion of the shares of the subsidiary company.

When dividend is paid out of profit of the subsidiary company the holding company is likely to

receive larger portion of it as a shareholder. Such dividend may be paid out of pre-acquisition

profit or post acquisition profit. The accounting treatment depends on such payment.

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Dividend paid out of pre-acquisition profit by the subsidiary

company

Dividend received from pre-acquisition profit of the subsidiary company, should be treated as

return of capital to the holding company as it transfers to the holding company part of the net

asset in the subsidiary company. In such a situation, the correct effect would be to deduct such

dividend from the cost of investment in the subsidiary company for calculation of Goodwill or

Capital reserve.

Dividend paid out of post acquisition profit by the subsidiary

company

If dividend is received by the holding company from its subsidiary out of post acquisition

profit, it is treated as investment income and credited to profit and loss account of the holding

company.

CHAPTER-IV

COST OF CONTROL

Determine Cost of Control

It is an important aspect of consolidation of accounts to find out either goodwill or capital

reserve at the acquisition of shares in subsidiary company. Following two steps should be taken

to decide cost of control:

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 A. Determine cost of investment:
Cost of investment is calculated as follows:
Amount invested xx
(Cost as per Holding Companies balance sheet)
Less: Dividend received from subsidiary out xx
Of pre-acquisition profit
Cost of preference shares in subsidiary company xx
Adjusted cost of investment xx

B. Determine value of investment:

Holding Company’s share of capital xx
Add: Holding Company’s share of capital profit xx
Value of investment xx

When the value of investment is less than the cost of investment in shares of subsidiary

company, the difference is considered as goodwill. Capital Reserve is the excess of

value of investment over the cost of investment.

CAPITAL RESERVE

Contributions to the capital reserve account can be made from government subsidies, donated

funds, or can be set aside from the firm's or municipality's regular revenue-generating

operations. Once recorded on the reporting entity's balance sheet, these funds are only to be

spent on the capital expenditure projects for which they were initially intended, excluding any

unforeseen circumstances.

GOODWILL

Goodwill is an accounting concept meaning the value of an asset owned that is intangible but

has a quantifiable "prudent value" in a business for example a reputation the firm enjoyed with

its clients. For example, a software company may have net assets (consisting primarily of

miscellaneous equipment, and assuming no debt) valued at $1 million, but the company's

overall value (including brand, customers, intellectual capital) is valued at $10 million.

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Anybody buying that company would book $10 million in total assets acquired, comprising $1

million physical assets, and $9 million in goodwill. In a private company, goodwill has no

predetermined value prior to the acquisition; its magnitude depends on the two other

variables by definition. A publicly traded company, by contrast, is subject to a constant process

of market valuation, so goodwill will always be apparent.

CHAPTER-V

MINORITY INTEREST
When the Holding Company acquires all the shares of the subsidiary company, the latter
company becomes wholly owned subsidiary company. but when the Holding Company
acquires more than 50% but less than 100%. Shares of the subsidiary company the shareholders
who have a Minority share are called as minority shareholders. The interest of such
shareholders is called as Minority Interest. Minority Interest is the proportion of the subsidiary
company’s net asset / shareholders fund, which belongs to the minority shareholders. As per AS
21 minority Interest is that part of the net results of operations and net assets of the subsidiary
attributable to the interest not owned by the parent.

The amount of Minority Interest is shown in the consolidated balance sheet on liability side

separately.

Reserves & surplus of the subsidiary since the date of acquisition of shares upto the date of

preparation of consolidated balance sheet should be identified. It is popularly known as post

acquisition Reserves % surplus.

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As per AS 21 minority Interest consists of share in equity on the date of acquisition and share in

movement in equity since the date of acquisition share of minority should be separately

calculated for pre-acquisition and post acquisition period. From holding company’s point of

view the above distinction assumes greater significance. Share in equity on the date of

acquisition affects Goodwill/cost of control and share in movement in equity since the date of

acquisition affects consolidated Reserves & surplus.

When minority interest is negative it should be adjusted against majority interest. Negative

Minority Interest should not be shown in the consolidated Balance sheet.

CHAPTER-VI

INTER COMPANY TRANSACTIONS

One important step in consolidated of accounts is elimination of mutual indebtedness. It

includes:

a) Value of shares held in subsidiary.

b) Loans to and from subsidiary.
c) Debentures of one company held by another.
d) Interest and dividend due.
e) Inter-company bills of exchange, Sundry Creditors, Sundry Debtors

It should be ensured that the effect of elimination is equal and opposite sides. AS 21 requires

that intra-group balances and intra-group transactions should be eliminated.

UNREALISED INTER COMPANY PROFITS (STOCK

RESERVE)
Sometimes goods sold by one company to another company at a profit have not been resold by

the recipient company at the date of balance sheet but are included in the stock at a price at

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which they are invoiced by the selling company. The general rule is that the profit on the

transaction must not remain in the Consolidated Balance Sheet. This must be deducted from the

stock and from the consolidated profit in the consolidated accounts.

As per AS 21, full amount of unrealized profit is deducted from stock on asset side and also

from profit & loss A/c on liability side of the consolidated balance sheet.

CHAPTER-VII

BALANCE SHEET

A financial statement that summarizes a company's assets, liabilities and shareholders' equity at

a specific point in time. These three balance sheet segments give investors an idea as to what

the company owns and owes, as well as the amount invested by the shareholders.

LIABILITY

Financial accounting, a liability is defined as an obligation of an entity arising

from past transactions or events, the settlement of which may result in the transfer or use

of assets, provision of services or other yielding of economic benefits in the future. A liability is

defined by the following characteristics:

SHAREHOLDERS

The term has several meanings. In its narrow, classical sense, still commonly used

in accounting, share capital comprises the nominal values of all shares issued (that is, the sum

of their "par values"). In a wider sense, if the shares have no par value or the allocation price of

shares is greater than their par value, the shares are said to be at a premium (called share

premium, additional paid-in capital or paid-in capital in excess of par); in that case, the share

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capital can be said to be the sum of the aforementioned "nominal" share capital and the

premium. In the modern law of shares, the "par value" concept has diminished in importance,

and share capital can simply be defined as the sum of capital (cash or other assets) the company

has received from investors for its shares.

RESERVES AND SURPLUS

Reserves and surplus at the end of an accounting period the company may decide to transfer

part of the profits to a reserve and retain the balance in the profit and loss account. The reserve

created out of profits transferred from profit and loss account is called general reserve. The

balance in the profit and loss account is called a surplus and will be shown under this head in

the balance sheet.

SECURED LOAN

If a loan is ‘secured’, it means it is secured against something you own (an ‘asset’) – and

failing to repay the loan could result in the lender taking possession of that asset, and selling it

to cover their losses.

The asset in a secured loan will normally be your home, but it can also be your car or another

item of a high value.

UNSECURED LOAN

An unsecured loan does not require you to secure anything against the loan – the lender relies

on your contractual obligation to pay it back.

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Because there is no security and the risk they are taking is therefore greater, the amount you can

borrow tends to be less, and the repayment period is usually shorter.

CURRENT LIABILITIES

A company's debts or obligations that is due within one year. Current liabilities appear on the

company's balance sheet and include short term debt, accounts payable, accrued

Analysts and creditors will often use the current ratio, (which divides current assets by

liabilities), or the quick ratio, (which divides current assets minus inventories by current

liabilities), to determine whether a company has the ability to pay off its current liabilities.

PROVISION

In financial accounting, provision is a word that creates an ambiguous account title. In U.S.

GAAP, provision means an expense, while in IFRS, International Financial Reporting

Standards, it means a liability. So, in the U.S., Provision for Income Taxes means the same

thing as Income Tax Expense, while under IFRS, Provision for Income Taxes means Liability

for Income Taxes Payable. Another examples is provisions for warranty costs [expense in the

US and liability in IFRS]. Sometimes in IFRS, but not in US GAAP, the term reserve is used

instead of term provision; such a use, however, is inconsistent with the terminology suggested

by International Accounting Standards Board.[citation needed] Reserve, which seems to be one of the

most confusing terms in accounting, has the connotation of a debit balance to non-professionals

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but in accounting always means an account with a credit balance. Reserve for Warranties means

estimated liability for future warranty repairs and replacements, NOT a pool of cash set aside

for the firm to use in making repairs.

CURRENT ASSETS

In financial accounting, assets are economic resources. Anything tangible or intangible that is

capable of being owned or controlled to produce value and that is held to have positive

economic value is considered an asset. Simply stated, assets represent value of ownership that

can be converted into cash (although cash itself is also considered an asset).

Current asset is an asset on the balance sheet which can either be converted to cash or used to

pay current liabilities within 12 months. Typical current assets include cash, cash, short-term

investments, accounts receivable, inventory and the portion of prepaid liabilities which will be

paid within a year.

On a balance sheet, assets will typically be classified into current assets and long-term assets.

FIXED ASSETS

Fixed assets, also known as a non-current asset or as property, plant, and equipment (PP&E), is

a term used in accounting for assets and property which cannot easily be converted into cash.

This can be compared with current assets such as cash or bank accounts, which are described

as liquid assets. In most cases, only tangible assets are referred to as fixed.

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INVESTMENT

Investment has different meanings in finance and economics. Finance investment is putting

money into something with the expectation of gain, that upon thorough analysis, has a high

degree of security for the principal amount, as well as security of return, within an expected

period of time. As such, those shareholders who fail to thoroughly analyze their stock

purchases, such as owners of mutual funds, could well be called gamblers. Indeed, given the

efficient market hypothesis, which implies that a thorough analysis of stock data is irrational,

most rational shareholders are, by definition, not investors, but speculators.

Investment is related to saving or deferring consumption. Investment is involved in many areas

of the economy, such as business management and finance whether for Households, Firms, or

Governments.

LOANS AND ADVANCES

Loans and advances for financing of current assets is a short-term loan for companies needing a

short-term increase in current assets in case of seasonal necessity (Christmas, winter or summer

goods, etc.) or for a separate project requiring the finances for purchasing of stock.

A loan for financing of current assets can also be used for implementation of new projects, e.g.,

launch of a new line of goods where it is necessary to ensure a full spectrum of goods, while

suppliers do not offer deferred payment terms yet. The loan repayment takes place gradually

each month from the positive cash flow generated from the project.

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 CHAPTER-VIII

PROBLEMS WITH SOLUTION

Q.1 The following are the balance sheet of Yukti Ltd. and Shakti Ltd. As on 31st March

2010:

LAIBILI Yukti Shakti ASS Yukti Shakti

Ltd. Rs Ltd. Rs Ltd. Rs Ltd. Rs
TIES ETS

Share Capital Fixed Assets:

Equity shares of Building 6,50,000 4,40,000
Rs.10/- 12,00,000 6,00,000 Machinery 3,90,000 1,40,000
Furniture 60,000 35,000
each Investment 5,00,000
Reserves/Surplus 4,50,000 1,00,000 Current Assets
General Reserve 1,70,000 2,40,000 Stock
Profit/Loss A/C Debtors 1,20,000 1,90,000
Bills 3,80,000 2,60,000
Current Liab. 1,50,000 75,000
Creditors 1,65,000 Receivable 70,000 40,000
Bills Payable 50,000 30,000 Bank Balance 15,000 10,000
Outstanding Exp.
Total 21,85,000 11,15,000 Total 21,85,000 11,15,000

The following further information is available-

1) Yukti Ltd. Acquired 45,000 shares of Shakti Ltd. As on 31st March ,2009
2) Sundry debtors of Yukti Ltd. include Rs.25000 due for Shakti Ltd.
3) Bills receivable of Shakti Ltd. Include Rs 15000 due from Yukti Ltd.

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 4) The Stock of Shakti Ltd. Includes good purchased from Yukti Ltd. Of Rs.
20000 which includes profit charged by Yukti Ltd @ 25% on cost.
5) The position of reserves and surplus of Shakti Ltd. As on 31 stMarch,2009 was as

follows:
General Reserve Rs. 75000
Profit and Loss Account Rs. 150000
You are the required to prepare a Consolidated Balance Sheet of Yukti Ltd. and Shakti Ltd. as

on 31st March 2010 along with necessary working for Minority Interest etc.

SOLUTION:
Proportion of Holding Shares

Yukti’s shares in Shakti ltd. = 45000÷60000*100 = 75%

Shakti ltd. = 15000÷60000 *100 = 25%

ANALYSIS OF RESERVE & SURPLUS OF SUBSIDIAREY

Rs. Rs.
(1-4-2009 to 31-
PARTICULARS
3-2010)
CAPITAL REVENUE

PROFIT PROFIT
General Reserve 75000 25000
Add: P & L A/c 150000 90000
225000 115000
Holding Share (75%)
Minority Interest (25%) 168750 86250
56250 28750

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COST OF CONTROL
Cost of Investment 500000
Less: Share capital (600000*75%) 450000
Less: Capital Profit 168750
CAPITAL RESERVE 118750

MINORITY INTEREST
Share capital (600000*25%) 150000
Add: Capital Profit 56250
Add: Revenue Profit 28750
TOTAL 235000

PROFIT & LOSS A/C

P & L A/c 170000
Add: Revenue Profit 86250
Less: Stock Reserve (20000*20%) 4000
P & L A/c 252250

CONSOLIDATED BALANCE SHEET as on 31-3-2010

LIABILITIES Rs. ASSETS Rs.

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SHARE CAPITAL FIXED ASSETS
120000 Eq. Shares of Rs. 10 each 1200000 Building 1090000
Machinery 530000
RESERVE & SURPLUS Furniture 95000
Capital Reserve 118750 INVESTMENTS
General Reserve 450000 CURRENT ASSETS, LOANS
P & L A/c 252250
Minority Interest 235000 & ADVANCE
Stock 310000 306000
SECURED LOANS Less: Stock reserve 4000
Debtors 640000 615000
UNSECURED LOANS
Less: Set off 25000 95000
CURRENT LIABILITIES & Bills Receivable: 110000 25000
Less: Set off 15000
PROVISIONS Bank
Creditors 225000 200000 MISCELLANEOUS
Less: Set off 25000
Bills Payable 235000 220000 EXPENDITUES
Less: set off 15000 80000 (to the extent not written off)
Outstanding Expenses

Total 2756000 Total 2756000

Q) 2. The balance sheet of Albert Limited and Ballavi Limited as on 31 st March, 2010

Were as follows:

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 Liabilities Albert Ballavi
Ltd.Rs Ltd.Rs
Share capital (Equity Share of Rs. 10/-each) 1000000 250000
General Reserve on1-4-2009 200000 80000
Sundry creditors 200000 100000
Bills payable 50000 30000
Profit and Loss Account on 1-4-2009 60000 60000
Profit for the year ended 31-3-2010 150000 50000

Total 1600000 570000

Assets Albert Ballavi

Ltd. Rs Ltd. Rs
Goodwill 100000 50000
Buildings 200000 100000
Machinery 200000
Stock 500000 100000
Sundry Debtors 200000 70000
Investment 340000 -
Bills receivable 240000 30000
Cash and Bank Balance 30000 20000
50000
Total 1660000 570000

The following information is given:

1) Albert Ltd. Acquired 15,000 Equity Shares of Ballavi Ltd. For Rs.190000 on 1-4-

2009.
2) Sundry Debtors of Albert Ltd. Include Rs. 30000 due from Ballavi Ltd.
3) Bills Receivable of Ballavi Ltd. Include Rs.10000 due from Albert Ltd.
4) The stock of Ballavi Ltd. Include Goods purchased from Albert Ltd. at Rs 10,000

which include profit charged by Albert ltd. @ 25%on cost.

5) Albert Ltd. AND Ballavi Ltd. Have proposed 10%Divident for 2009-2010 but effect

has not been in account.

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 Prepare consolidated balance sheet of albert ltd. and ballavi ltd. as at 31 march2010

with working of minority interest and cost of control.

SOLUTION:
Proportion of Holding Shares

Albert’s shares in Ballavi = 15000÷25000 *100 = 60%

Ballavi = 10000÷25000 *100 = 40%

ANALYSIS OF RESERVE & SURPLUS OF SUBSIDIAREY

Rs. Rs.
(1-4-2009 to
PARTICULARS
31-3-2010)
CAPITAL REVENUE

PROFIT PROFIT
General Reserve 80000 -
Add: P & L A/c 60000 -
Ass: Profit for the yr. - 50000
Less: Proposed Dividend (10%) - 25000
140000 25000

Holding Share (60%)

84000 15000
Minority Interest (40%)
56000 10000

COST OF CONTROL
Cost of Investment 190000
Less: Share capital (250000*60%) 150000
Less: Capital Profit 84000
CAPITAL RESERVE 44000

MINORITY INTEREST
Share capital (250000*40%) 100000
Add: Capital Profit 56000
Add: Revenue Profit 10000
Add: Proposed Dividend (25000*40%) 10000
TOTAL 176000

PROFIT & LOSS A/C

Opening P & L A/c 60000

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 Add: P & L A/c 150000
Add: Revenue Profit 15000
Add: Proposed dividend (25000*60%) 15000
Less: proposed dividend (1000000*10%) 100000
Less: Stock Reserve (10000*20%) 2000
P & L A/c 138000

CONSOLIDATED BALANCE SHEET as on 31-3-2010

LIABILITIES Rs. ASSETS Rs.

SHARE CAPITAL FIXED ASSETS
100000 Eq. Shares of Rs. 10 each 1000000 Goodwill 150000
Building 300000
RESERVE & SURPLUS Machinery 700000
Capital Reserve 44000
General Reserve 200000 INVESTMENTS 50000
P & L A/c 138000
Minority Interest 176000 CURRENT ASSETS, LOANS &
ADVANCE
SECURED LOANS Stock 300000
Less: Stock reserve 2000 298000
UNSECURED LOANS Debtors 410000
Less: set off 30000 380000
CURRENT LIABILITIES & Bills Receivable 60000
Less: Set-off 50000
PROVISIONS 70000
Creditors 300000 270000 10000
Less: Set off 30000 Bank
Bills Payable 80000 70000
Less: set off 10000 100000 MISCELLANEOUS
Proposed Dividend
EXPENDITUES

Total 1998000 Total 1998000

Q) 3) Balance Sheet of A Ltd and B Ltd as on 31 – 3 – 2012 as followed

Liabilities A Ltd B Ltd Assets A Ltd B Ltd

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Share Capital Fixed Assets 1860000 1500000

( Rs 100 ) 2500000 2000000 Investment 540000 300000

General Current Assets 1500000 1800000

Reserve 500000 600000

P & L A/C 300000 360000

Bank Loan 200000 240000

Current

Liabilities 400000 400000

Total 3900000 3600000 Total 3900000 3600000

Additional Information:

On 1-7-2011 A LTD Purchases 14000 share of B LTD at the rate of RS 14 per share.
1. On 1-4-2011 B LTD at a Balance of Reserve of RS 400000 & P & L A/C 200000 .
2. Current Assets of A LTD included RS 60,000 Receivable from B LTD.
3. Prepaid the Consolidated Balance Sheet

SOLUTION:

Proportion of Holding Shares

A share in B ltd. = 14000÷20000 *100 = 70%

B ltd. = 6000÷20000 *100 = 30%

ANALYSIS OF RESERVE & SURPLUS OF SUBSIDIAREY

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 Rs. Rs.
(1-7-20011
PARTICULARS 31-3-2012)

CAPITAL REVENUE

PROFIT PROFIT
General Reserve 400000 150000
Add: P & L A/c 50000 -
200000 -
40000 120000
690000 270000

Holding Share (60%)

483000 189000
Minority Interest (40%)
207000 81000

COST OF CONTROL
Cost of Investment (14000 shares*14) 196000
Less: Share capital (14000*100) 1400000
Less: Capital Profit 483000
CAPITAL RESERVE 1687000

MINORITY INTEREST
Share capital (2000000-1400000) 600000
Add: Capital Profit 207000
Add: Revenue Profit 81000
TOTAL 888000

PROFIT & LOSS A/C

Opening P & L A/c 300000
Add: P & L A/c 189000
P & L A/c 489000

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CONSOLIDATED BALANCE SHEET OF A LTD & B LTD

Liabilities Amount Assets Amount

Share Capital 25,00,000 Fixed Assets 33,60,000

General Reserve 5,00,000 Investment 6,44,000

P & L A/C 4,89,000 Current Assets 32,40,000

Capital Reserve 16,87,000

Bank Loan 4,40,000

Current Liabilities 7,40,000

Minority Interest 8,88,000

Total 72,44,000 Total 72,44,000

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 CHAPTER-IX

SUMMARY

1. Consolidation of accounts is governed by AS 21

2. The date of purchase of shares is the date of acquisition of shares which is very important

in consolidation.
3. Profit upto the date of acquisition is the capital profit
4. Profit from the date of acquisition is the revenue profit
5. Pre-acquisition profits and reserves are taken into account for calculation of cost of

control.
6. Post acquisition profits are not considered in determination of cost of control.
7. Inter-company transactions are eliminated from the consolidated balance sheet.
8. Share capital of subsidiary company and investment in share if subsidiary of company

should be eliminated.
9. Minority interest is shows in consolidated balance sheet on liability side.
10. Cash in transit is shown in consolidated balance sheet on assets side.
11. In the case of revaluation of any asset the change in the value is adjusted to capital profit.
12. Any unrealized profit include in the stock is deducted from stock and P & L a/c in

consolidated balance sheet.

13. Issue of bonus shares by the subsidiary company should be added to the shares held by

holding Company in subsidiary Company Minority interest is also increased by the bonus

shares Issued to them and the capital profit or revenue profit from which bonus issue is

made is reduced.

CHAPTER-X

BIBLIOGRAPHY

BOOK:

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1. Advanced Financial Accounting By L.N Chopde & D.H Choudhari
2. Advanced Financial Accounting By Dr. Varsha M. Ainapure

WEBSIDE:

1. www.investopedia.com/terms/c/consolidatedfinancialstatement.asp#axzz257Aqfjdq

2. www.mca.gov.in/ministry/notificatirs/pdf/AS-21.pdf

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