How the minority interest are calculated while preparing the balance

How the minority interest are calculated while preparing the balance sheet of Holding company. What is the Cross Holdings.

Ans.

MINORITY INTEREST

When holding company holds more than 50% (but not the whole) shares of a company, then the holders of the rest of the shares are known as ‘Minority’. Such minority shareholders have the right over the assets of Subsidiary Company in proportion to their holdings; they have also their share in liabilities of the Subsidiary Company. For example, if minority shareholders hold 1/5 of all shares, then they have right over 1/5 of assets and liabilities for 1/5 of total liabilities of subsidiary company. The difference between the two is known as Minority’s interest which is shown as liability in Consolidated Balance Sheet. However, all assets and liabilities of Subsidiary Company are shown in the Consolidated Balance Sheet along with those of holding company, Calculation of Minority Interest.

Minority interest is calculated by taking note of the following amounts:

(a) Proportionate share in share capital of Subsidiary Co.,

(b) Proportionate share in reserves and profits of Subsidiary Co.;

Out of the total (a+b+c) of the above, the following amounts are deducted and the balance is known as Minority interest:

(i) Proportionate share in loss on revaluation of fixed assets of Subsidiary Co.

(ii) Proportionate share in trading loss of the Subsidiary Company.

Where the Share Capital of Subsidiary Company includes preference shares too (and holding company has not acquired such shares), then the amount of Preference Share Capital plus dividend payable thereon are also included in minority interest.

What is the Cross Holdings:

CROSS HOLDINGS

Ordinarily a subsidiary company does not take shares in holding company even then if any subsidiary company took shares in the holding company before commencement of the Companies Act, such subsidiary company may continue to hold such shares, but such subsidiary company cannot exercise the right of voting in the general meeting of holding company.

While preparing consolidated balance sheet, such inter-company transactions are eliminated.