Definition:

A set of consolidated financial statements consists of reports

that show the operations, cash flows, and financial position of a
parent company and all subsidiaries.
In other words, it’s a report that combines all the activities of
a parent company and its subsidiaries on one report.
As per AS 21, The Consolidated financial statements would
include:
i) Profit & Loss A/c
ii) Balance sheet
iii) Cash flow statement
iv) Notes of Accounts except typical notes.
v) Segment reporting
What is a Holding Company?

Holding companies are recognized under the Companies Act, 2013, as the
controlling company that exerts a certain amount of control over subsidiary
companies.

Control Factor

The ‘control’ factor is an important factor in determining the status of a

holding company and the relationship with its subsidiaries. In most case, the
control of the holding company is exerted through shares, where the
controlling company holds at least 51% of the total holdings. A company
becomes its associate when the holdings over 20% (but not beyond 51%).
Holding Company Key Features
Meaning of subsidiary Company
Calculate cost of capital / Goodwill or Capital Reserve

 If holding company purchases shares of subsidiary company at

premium, then the value of premium will be deemed as goodwill or
cost of capital and shows as goodwill on the assets side of
consolidated balance sheet.

But if holding company purchases the shares of subsidiary company at

discount, then this value of discount will be capital reserve and show
in the liability side of consolidated balance sheet.
 Minority Interest
 Minority interest, also referred to as non-controlling interest (NCI), is
the share of ownership in a subsidiary’s equity that is not owned or
controlled by the parent corporation. The parent company has a controlling
interest of 50 to less than 100 percent in the subsidiary and reports financial
results of the subsidiary consolidated with its own financial statements.
 For example, suppose that Company A acquires a controlling interest of 75
percent in Company B. The latter retains the remaining 25 percent of the
company.
 On its financial statements, Company A cannot claim the entire value of
Company B without accounting for the 25 percent that belongs to the
minority shareholders of Company B. Thus, company A must incorporate
the impact of company B’s minority interest on its balance sheet and income
statements.
Minority Interest
 Format of Calculation of M.I

Face Value of Minority Share *******

ADD: (i)Minority Share of Capital Profit *******
(ii) Minority Share of Revenue Profit *******
(iii) Minority Share of Bonus Share ******* ********

LESS: (i)Minority Share of Capital Loss *******

(ii) Minority Share of Revenue Loss ******* ********
*******
Treatment of Pre – Acquisition of profit (Capital Profit)
 Pre – acquisition profit and reserve of subsidiary company will be shown as
capital reserve in consolidated balance sheet but the value of minority
interest’s profit or reserves deducts from it and add in minority interest
value.
 Capital Profit/ Reacquisition Profit:
 Capital Researve
 General Reserve
 Reserve Fund
 Share Premium
 P/L A/C.
 Profit earned during the year( till the date of acquisition)
Format On Capital Profit/ Reacquisition Profit

 General reserve, Capital reserve, P/L A/c and other reserves of Subsidiary
companies on the date of purchase of shares ------------ *******

Less: Bonus Shares issued from capital profit ****

Dividend paid out of capital profit *** ********
****
 ADD: Subsidiary Companies profit during the current
year before purchase of Shares ***
Profit on revaluation of Assets & Liabilities ***
Less: Loss on revaluation of Assets & Liabilities ***
Less: Capital Expenditure given in the Balace Sheet i.e.,
Preliminary Expenses ***
****
 Calculate post acquisition profits/Revenue Profit

 After the date of purchasing the shares of subsidiary company , profit of

subsidiary company will also deem of holding company and it include in the
profit of holding company and we also separate the part of profit of minority
interest and add in minority interest’s value and shown in liability side .
 Elimination of common transactions
 All common transaction between holding company and subsidiary
company will not show in the consolidated balance.

There following common transaction

1. goods sold and goods purchase on credit and the value

of debtor or creditor either subsidiary company or holding company
will not shown in consolidated balance sheet.

2. Value of bill payable or bill receivable of holding company on
subsidiary company will also not shown but if some bills value is
discounted from third party then either of both company’s payable
value shown as liability in the consolidated balance sheet .
Treatment of Unrealized profit

If subsidiary company sells the goods to holding company or holding company

sells the goods to subsidiary company at profit and if such goods will not
sold in third party , then the profit will not realized , so such unrealized
profit will not credited to profit and loss account . At this time a stock
reserve account is opened and all amounts of unrealized profit transfers to
this account and this accounts total amount is deducted from closing
stock of consolidated balance sheet.
 Treatment of Unrealized profit

 Suppose

Closing stock of H 50000

Closing stock of S 50000
_________________________
100000
Less stock reserve
2000
----------------------------------
98000
----------------------------------
If subsidiary company has also other outsider’s shares then
holding company makes reserve up to his shares proportion.
 Treatment of Dividends

 If holding company gets the dividends from subsidiary

company, then this will divide into two parts.
 If subsidiary company declare dividend out of capital profits,
then this will add in capital reserves in consolidated balance
sheet.
 But, if subsidiary company has declared the profit out of
revenue gains, then this dividend will add in general profit and
loss account and will shown in the liability side of consolidated
balance sheet.
Consolidated Balance Sheet As Per Schedule VI
Format- Consolidated Profit and Loss account
 Difference between Balance Sheet and Consolidated balance Sheet
Basis for Balance Sheet Consolidated Balance
Comparison Sheet
Definition Balance Sheet is an important financial Consolidated Balance Sheet
statement of assets, liabilities, and summarizes the financial
capital for a particular period. affairs of parent &
subsidiary company.
Objective The main objective is to showcase an The main objective is to
accurate financial position to external reflect the accurate
stakeholders financial picture of an
organization and its
subsidiary.
Scope The scope of balance sheet is limited The scope of consolidated
and narrow. balance sheet is much
broader.
Equation Assets = Liabilities + Shareholders’ Assets of (Parent +
Equity Subsidiary) = Liabilities
((Parent + Subsidiary) +
Shareholders’ Equity +
Minority Interest
 Difference between Balance Sheet and Consolidated balance Sheet
Basis for Comparison Balance Sheet Consolidated Balance
Sheet

Time consumption Balance sheet doesn’t need Consolidated balance sheet

a lot of time to prepare. takes a lot of time to
prepare.
Key concepts Assets, Liabilities, & Assets, Liabilities,
Shareholders’ Equity. Shareholders’ Equity, &
Minority Interest.
Adjustment Balance sheet only balances Consolidates balance sheet
the asset and the liability balances both parent & its
side of a single company subsidiary company.
since there’s no subsidiary.

Pre-requisite Every company needs to Company that owns more

prepare a balance sheet. than 50% share in any
other company needs to
prepare a consolidated
balance sheet.
 Financial reporting

 Financial reporting refers to the communication of financial

information, like financial statements, to the financial statement
users, like investors and creditors.
 Financial reporting includes the following:
 External financial statements (income statement, statement of
comprehensive income, balance sheet, statement of cash flows,
and statement of stockholders' equity)
 The notes to the financial statements
 Press releases and conference calls regarding quarterly earnings
and related information
 Financial reporting

 Quarterly and annual reports to stockholders

 Financial information posted on a corporation's website
 Financial reports to governmental agencies including quarterly
and annual reports to the Securities and Exchange Commission
(SEC)
 Prospectuses pertaining to the issuance of common stock and
other securities
Consolidated Profit and Loss Account