Live Course on Drafting of Appeal and Reply of Penalty Notice by CA Sachin Sinha. Register Now!!

Querry on consolidated financial statement

work is worship (Service) (2728 Points)

01 November 2012

Doubt 1

If authorised capital of Subsidiary is 30,000 Shares of 100 each

Issued and Subscribed Share Capital is 24000 shares of 100 each

A holding company initially purchases 9000 shares at 15,00,000

Later subsidiary issues 3 bonus shares for every 5 shares held

Qn : Percentage of share holding by Holding company in subsidiary is calculated based on authorised or issued capital.

Qn: What would be total Issued and Subscribed shares of Subsidiary after bonus issue

Reply
Follow
Share

10 Replies

ABHINANDAN JAIN (CA Student) (886 Points)
Replied 01 November 2012

Holding ratio is to be calculated on Issued cap (not Authorsed Capital)

Holding ratio will be (After effect of Bonus):

9000+5400 / 24000+14400 = 37.5% (since holding is less than 50 %, control doesn't exists)

Total Issued cap of Subsy after Bonus is 38400(i.e. 24000+14400) shares of Rs 100 each

HQn : Percentage of share holding by Holding company in subsidiary is calculated based on authorised or issued capital.

Read more at: /forum/detail

Qn : Percentage of share holding by Holding company in subsidiary is calculated based on authorised or issued capital.

Read more at: /forum/details.asp?mod_id=226087#.UJH3Z2e_RFA

work is worship (Service) (2728 Points)
Replied 01 November 2012

HI Abhinandan

Ru sure on the % of holding as in one prob , it is shown as

9000+5400 = 14400

14400/24000 = 60%

Also i feel you r contradicting your statement when you say it should be on issued capital

so bonus is not issued capital

Pls reply

ABHINANDAN JAIN (CA Student) (886 Points)
Replied 01 November 2012

i think u hv a misconception that Bonus is not a Issued capital..Bonus is always a part of Issued Capital Bonus shares are issued utilising reserves by passing entry; R & S A/c...Dr To Eq Share Capital..

Holding Ratio calculated by me is absolutely correct

But as far as ur Problm is concerned..u see that quest it may so happen that Entry for Bonus already been passed...in that case ur solution is correct....

I hv given my ans assuming entry of Bonus has not yet passed..i.e. 24000 shares is without giving effect of Bonus shares ..i.e excluding bonus shares issued

Your solution is also correct if ques says that Issued cap showing in balance sheet is after adjustment of Bonus Issue.

But In consolidation problems..In 90% of ques..issued cap given in B/sht is without giving effect of Bonus issue...tabhi to achcha problem banta hai..

If problem is silent regarding whether entry has been passed or not..ASSUME entry has not been passed.

1 Like

ABHINANDAN JAIN (CA Student) (886 Points)
Replied 02 November 2012

mail sent check ur mail...

Shobhit (Associate) (75 Points)
Replied 02 November 2012

Originally posted by : ABHINANDAN JAIN
	Holding ratio is to be calculated on Issued cap (not Authorsed Capital) Holding ratio will be (After effect of Bonus): 9000+5400 / 24000+14400 = 37.5% (since holding is less than 50 %, control doesn't exists) Total Issued cap of Subsy after Bonus is 38400(i.e. 24000+14400) shares of Rs 100 each HQn : Percentage of share holding by Holding company in subsidiary is calculated based on authorised or issued capital. Read more at: /forum/detail Qn : Percentage of share holding by Holding company in subsidiary is calculated based on authorised or issued capital. Read more at: /forum/details.asp?mod_id=226087#.UJH3Z2e_RFA

Agree with the above calculation. But would just like to add that in determining control, involvement of directors (of investing co.) in the Board (of investee co.) is also considered.

So if the shareholding is less than 50% but the directors are actively involved in the decision making process which can result into control, even then that company will be called a subsidirary irrespective of the % holding.

But in the given case, in the absence of any such info we go by the shareholding %.

ABHINANDAN JAIN (CA Student) (886 Points)
Replied 02 November 2012

@ Shobhit

I do not know whether u r right or wrong..i want ask that how directors(of holding) can participate in affairs of the subsy company if shareholding is less than 50%.

pls support ur ans with any real life example of any company in which above situation persists...?

Shobhit (Associate) (75 Points)
Replied 02 November 2012

Following is the definition of control as per AS-21:

“Control:

(a)the ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of an enterprise; or

(b)control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities.

'Subsidiary' is an enterprise that is controlled by another enterprise (known as the parent).

So its either shareholding of more than 50% or composition on Board. Hence, in order to be a subsidiary it can be through shareholding or control through Board.

And there might be cases where funds have been received (by the investee co. towards share allotment) but shares haven't been alloted, but given that directors exercise control, it will satisfy the condition (b) and the investee co. will have to be considered as a subsidiary.

You could also refer ASI-24 regarding definition of 'Control'.

1 Like

Kazi Md. Sazzad Ali (Senior Articled Student) (30 Points)
Replied 11 November 2012

Dear I think Abhinandan Jain is correct replied 10 days ago.

1 Like

CA. JAIN (Chartered Accountant) (466 Points)
Replied 13 November 2012

Hello,

% of share holding is cal on issued capital.

Note; Bonus share issued is also a part of issued capital.

Now your question's sol:

U said issued capital is 24000 @ 100

Note; it doesnt mention that its before bonus or after bonus....???

But when we read that a co. which initially invsted on 9000 shres, got bonus @ 3:5 ratio...So in my view, from the word initially, we can interpret that issued capital is given after considering bonus shares, so thats why sol assumed that issued capital is after bonus.

and one more point look at authorised capital, so it;s mean that co. capital cannot be more than 30000.

AND: It's totally depend upon assumption...But as far as logic is concern, abhinandan and me both are same.

1 Like