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Chapter 6

Preparation of consolidated Balance Sheet

When we prepare a consolidated Balance sheet?

Treat the holding and the subsidiary company as one

unit. Therefore eliminate both bills receivables and payable to

the extent of holding company’s share of Bills receivable from

consolidated balance sheet.

The same treatment is applicable for debtors and

creditors on goods sold by holding to subsidiary or vice versa.

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How do you deal in the consolidated Balance sheet?

1. Loan given by holding company to subsidiary?2. Debentures issued by holding to subsidiary?3. Loan given by subsidiary to holding?

Only one answer: In one company balance sheet they are shown as asset and an another company they are shown as liability. If combined(Consolidated) both asset and liability are eliminated. Only outsiders’ liabilities are shown in the consolidated balance sheet

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Explanations

1. Share capital of holding company appears in the

consolidated Balance sheet

2. Minority interest appears as liability in the consolidated B/S

3. Investments of Holding company in subsidiary disappears

in the consolidated Balance Sheet

4.Goodwill estimated appears along with other existing goodwill

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How do you deal contingent liability?

Accepted and discounted

with in the Group

(H to S or vice-versa)

Accepted by outsiders

Will become actual liability

Therefore eliminated either

Side of consolidated B/S

Appear as contingent liability

In the consolidated B/S

Do not disclose separately the proposedDividend in the consolidated B/S Why?

• It is because, the proposed dividend of subsidiary is shown with the minority interest(Minority’s share )and also in the P/L A/c of Holding (Holding company’s share).

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Important observations in consolidated Balance sheet

1.All assets of Holding and subsidiary are added and disclose in the consolidated Balance sheet.

2. All third party liabilities of both the companies are added and disclosed(displayed)

3.From the profits of holding company and holding company’s share of subsidiary’s revenue profits subtract capital profits received in the form form of dividend as such dividend taken to calculate capital reserve(reduced from investments).

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How do you deal Bonus Shares issued by subsidiary?

Issued out of

Pre-acquisition profits

Issued out of

Post-acquisition profits

No effect on

Consolidated

Balance sheet

Note:- Anything is received from subsidiary either in the form of dividend or Bonus

Shares out of Pre-acquisition profits or amounts of pre-acquisition profits

reduces the investment made by holding in subsidiary.

Shares of investments

held by Holding company in subsidiary

Increases due to which cost of

Control reduced