Tutorial of Subsidiary Company

Today, after buying my new digital pen, I made a small video tutorial of subsidiary company which you can see below. In this tutorial, I tried to make you understand the concept of subsidiary company and its contribution for making of consolidated balance sheet of holding company.



What is Subsidiary Company

Subsidiary company is that company which is controlled by any other company. If any company invested his money to buy other company's shares and has bought 51% or more shares or share capital, then that company can become holding or parent company. The company whose shares are bought, will be subsidiary company.

Explanation with example:

I am showing following example, with this, you can understand what is subsidiary company and what is holding company.

Consolidated balance sheet  of Holding Company Vs Subsidiary Company's Balance Sheet

Subsidiary company's balance sheet's assets and liabilities will become the part of consolidated balance sheet of holding company.

1. All the liabilities of subsidiary company will be added in the consolidated balance sheet of subsidiary company. But Share capital of subsidiary company in holding company will not shown in the consolidated balance sheet in the books of holding company. Because, this share capital automatically adjust with the amount of the investment of holding company in to subsidiary company .

2. Add all the assets of subsidiary company with the assets of holding company. But Investment of holding company in Subsidiary company will not shown in consolidated balance sheet because, investment in subsidiary company will automatically adjust with the amount of share capital of subsidiary company in holding company.

3. Add minority interest in liability side. First of all we should know what minority interest is. Minority interest is the shareholder but there is not holding company’s shareholder. So, when holding company shows consolidated balance sheet, it is the duty of accountant to show minority interest in the liability side of consolidated balance sheet.

We can calculate minority interest with following formula

Total share capital of Subsidiary company = XXXXX

Less Investment of Holding company in to subsidiary company = - XXXX
------------------------------------------------------------------------

Add proportionate share of the subsidiary company‘s profit and
Reserves or increase in the value of assets + XXXX
-----------------------------------------------------------------------------


Less proportionate share of the subsidiary company’s loss and decrease
In the value of total assets of company - XXXXX
------------------------------------------------------------------------------
Value of Minority Interest XXXXX
-------------------------------------------------------------------------------

4. All common transaction between holding company and subsidiary company will not show in the consolidated balance.