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Tuesday 12 April 2011

Holding Companies

Index of Main Points:-

1. If there is a Debit balance in Minority Interest first it is adjusted against uncalled capital and balance is adjusted against reserve.
2. In case of Cumulative Preference shares of subsidiary dividend declared must be deducted from P & L a/c of subsidiary.
3. If no dividend is declared in above case then don’t deduct.
4. If dividend is declared for Cumulative Preference shares then deduct from P & L a/c of subsidiary and balance is splited. If not declared then it must be shown outside the Balance sheet.
5. But in the case1
6. CFS deduct in the above case whether declared or not.
7. Preference shares of subsidiary held by the holding company is to be cancelled against investment of Holding company while preparing CFS.
8. If Holding company sells goods below cost then unrealized loss is calculated by taking cost or Net Realizable Value whichever is lower for valuation.
9. If there is difference in accounting policy between Holding and subsidiary then both should be brought under uniform policy before consolidation.
10. If uniform policy cannot be brought then it should be disclosed.
11. The effect of change in Accounting Policy before acquit ion must be taken as pre acquit ion reserve and after post acquit ion reserve.
12. If Holding Company holds Debenture in subsidiary then while preparing CFS it should be cancelled as Inter Company loan.
13. In above case if excess is paid for Debenture holders then the excess is adjusted against consolidated reserve.
14. Pre acquit ion reserve and profit is treated as capital profit
15. Post acquition reserve and profit is treated as revenue reserve and revenue profit respectively.
16. Miscellaneous expenses of subsidiary must be deducted against reserve as Capital or Revenue Reserve.
17. In case of Inter Company transactions if it is down stream then unrealized profit of Holding company must be adjusted against Consolidated P & L a/c.
18. In case of Inter Company transaction if it is upstream it is splited into two as belonging to Holding company and Minority Interest and the former is deducted against Consolidated P & L a/c and Minority Interest is deducted from computation of Total Minority Interest.
19. Post acquit ion dividend received is to be retained in P & L a/c.
20. Pre acquit ion dividend received is to be transferred from Holding company P & L a/c to Cost of Investment.
21. Post acquit ion dividend receivable (Proposed) by Holding company out of subsidiary current year profit is to now credited to Holding company Consolidated P & L a/c.
22. In case of analysis of profit Proposed Dividend must be deducted from current year profit only.
23. If in the above case if there is inadequate profit for dividend, the appropriation should be done 1st out of current year profits and thereafter out of b/f profit.
24. In case Inter Company sale or purchase is carried between two subsidiaries then for consolidated stock it is considered as it is 1st transferred from one subsidiary to Holding – upstream rule apply and then from Holding to 2nd subsidiary – Down stream rule apply.
25. In Inter Company transaction if there is sale of Fixed Asset between Holding and Subsidiary unrealized profit should be removed only to the extent of unamortized portion.
26. In the absence of information regarding rate of depreciation, depreciation must be ignored.
27. In case of acquition and sale of shares, profit on such sale must be included in P & L a/c while calculating reserves for CBS.
28. In the event of current year dividend is greater than the trading profits AND if there is another source of income i.e. Subsidiary dividend then the dividend declared must be deducted only in Apportionment of profits.
29. Inter corporate loans in general refer to borrowings from corporate bodies.
30. In case of reverse working
for stock consolidation = Company A + Company B – Stock reserve
for Debtors and creditors = Company A + Company B – Inter company
consolidation transactions
31. In case of Associate accounting Inter Company transaction should not be cancelled only Holding company interest of unrealized profit is only taken.
32. Losses in associate are taken only up to the liability in share capital.
33. Minority Interest calculation is not applicable in case of associate accounting.
34. In the case where subsidiary company is foreign company then convert the accounts into Indian Currency and remaining are same. For conversion rules applicable are:-
Share capital – Rate on the date of acquition of share.
Reserves – Pre – Rate on the date of acquition
Post – Average rate
Current Assets, Current liabilities – Closing rate
Fixed assets, Investments – Rate on the date of acquition
35. Exchange rate difference which occurs on the above conversion is to be setoff against post acquition Profit / Reserves and the balance is only to be apportioned for consolidation procedure.
36. In case of two or more acquition by Holding Co. (or) acquition and sale, In all the cases date for apportionment etc is the date of 1st acquition and share holding pattern is the final share holding pattern.
37. In case of Associate accounting, to find the carrying amount of Investment of the associate in the consolidated balancesheet the calculation is similar to minority interest. Only difference is to add the goodwill found in COC

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