When one company (holding) controls another (subsidiary), financial statements may be prepared as if the group were one economic entity. This is called consolidation and the resulting statements are Consolidated Financial Statements (CFS).
In basic Corporate Accounting questions, you are expected to understand:
You should be able to:
A holding company is one that has control over another company.
A subsidiary is a company whose control is held by another company (the holding company).
In exams, it’s enough to write: holding = controller; subsidiary = controlled.
Control typically exists when parent holds more than 50% voting power (basic). Because investors, lenders and users want to see group performance and position, CFS is prepared to show:
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When one company (holding) controls another (subsidiary), financial statements may be prepared as if the group were one economic entity. This is called consolidation and the resulting statements are Consolidated Financial Statements (CFS).
In basic Corporate Accounting questions, you are expected to understand:
You should be able to:
A holding company is one that has control over another company.
A subsidiary is a company whose control is held by another company (the holding company).
In exams, it’s enough to write: holding = controller; subsidiary = controlled.
Control typically exists when parent holds more than 50% voting power (basic). Because investors, lenders and users want to see group performance and position, CFS is prepared to show:
Consolidation combines:
Key idea: no double counting.
Profits/reserves of subsidiary are split into:
Simple table:
Minority interest (NCI) is the portion of subsidiary’s net assets and profits not owned by parent.
Basic computation at reporting date (conceptual):
NCI = NCI % × (Share capital of subsidiary + Reserves of subsidiary at reporting date)
(adjusted for pre/post acquisition split where required)
Mini example:
Compute parent’s share of net assets at acquisition:
Parent’s share of net assets = Parent % × (S share capital + pre-acquisition reserves) at acquisition
Then compare with cost of investment:
Common intra-group items must be eliminated to avoid overstating group figures:
In basic level questions, you may only need to mention these adjustments.
Flow (write/draw):
Identify holding% → find NCI% → split reserves (pre/post) → compute goodwill/capital reserve → compute NCI → prepare CFS with eliminations
Quick formula table:
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From this topic
Pre-acquisition vs post-acquisition profits:
Hence, pre-acquisition affects goodwill/capital reserve, post-acquisition affects group reserves.
Parent holding = 80% ⇒ NCI% = 20%.
NCI = 20% × 10,00,000 = ₹2,00,000.
In consolidation, the parent’s investment in subsidiary is compared with the parent’s share of subsidiary’s net assets at acquisition.
Thus, goodwill represents the premium paid for control/benefits, while capital reserve represents a bargain purchase in basic consolidation problems.