📊 MCQs

Accounts of Holding Company (One Subsidiary)

MCQ 1

A company becomes a holding company when it holds more than ____ of the equity share capital of another company.
A) 25%
B) 40%
C) 50%
D) 75%

✅ Answer: C) 50%

MCQ 2

Which of the following is the most important factor to determine pre-acquisition and post-acquisition profits?
A) Date of Balance Sheet
B) Date of Incorporation
C) Date of Acquisition
D) Date of Dividend

✅ Answer: C) Date of Acquisition

MCQ 3

Pre-acquisition profits of a subsidiary company are treated as:
A) Revenue profits
B) Capital profits
C) General reserve
D) Minority interest

✅ Answer: B) Capital profits

MCQ 4

Post-acquisition profits of a subsidiary company are treated as:
A) Capital profits
B) Minority interest
C) Revenue profits
D) Capital reserve

✅ Answer: C) Revenue profits

MCQ 5

Minority Interest represents:
A) Holding company’s share
B) Creditors’ claim
C) Outsiders’ share in subsidiary
D) Government share

✅ Answer: C) Outsiders’ share in subsidiary

MCQ 6

Which of the following items is eliminated while preparing a consolidated balance sheet?
A) Share Capital of Holding Company
B) Minority Interest
C) Inter-company Debtors and Creditors
D) Fixed Assets

✅ Answer: C) Inter-company Debtors and Creditors

MCQ 7

If the cost of investment is more than the holding company’s share in net assets, the difference is treated as:
A) Capital Reserve
B) Revenue Reserve
C) Minority Interest
D) Goodwill

✅ Answer: D) Goodwill

MCQ 8

If the cost of investment is less than the holding company’s share in net assets, the difference is treated as:
A) Goodwill
B) Capital Reserve
C) Revenue Profit
D) General Reserve

✅ Answer: B) Capital Reserve

MCQ 9

Minority Interest is shown on which side of the Consolidated Balance Sheet?
A) Assets side
B) Equity and Liabilities side
C) Profit and Loss Account
D) Notes to Accounts

✅ Answer: B) Equity and Liabilities side

MCQ 10

Minority Interest is:
A) A liability
B) An income
C) Neither liability nor income
D) An expense

✅ Answer: C) Neither liability nor income

📝 SHORT NOTES (REVISION READY)

Short Note 1: Holding Company

A holding company is a company which controls another company either by holding more than 50% of its equity share capital or by controlling the composition of its Board of Directors. Control is the essence of a holding company relationship.

Short Note 2: Subsidiary Company

A subsidiary company is a company whose affairs are controlled by another company known as the holding company. A subsidiary may be direct or indirect.

Short Note 3: Date of Acquisition

The date of acquisition is the date on which the holding company acquires control over the subsidiary company. This date is crucial for dividing profits into pre-acquisition and post-acquisition profits.

Short Note 4: Pre-acquisition Profits

Pre-acquisition profits are profits earned by the subsidiary company before the date of acquisition. These profits are treated as capital profits from the holding company’s point of view.

Short Note 5: Post-acquisition Profits

Post-acquisition profits are profits earned by the subsidiary company after the date of acquisition. These profits are treated as revenue profits and the holding company’s share is added to the consolidated Profit and Loss Account.

Short Note 6: Cost of Control

Cost of control is the difference between the cost of investment made by the holding company and its share in the net assets of the subsidiary company at the date of acquisition. It results in either goodwill or capital reserve.

Short Note 7: Goodwill

Goodwill arises when the cost of investment exceeds the holding company’s share in the net assets of the subsidiary company at the date of acquisition.

Short Note 8: Capital Reserve

Capital reserve arises when the holding company’s share in the net assets of the subsidiary company exceeds the cost of investment.

Short Note 9: Minority Interest

Minority interest represents the share of net assets and profits of the subsidiary company attributable to shareholders other than the holding company.

Short Note 10: Inter-company Transactions

Inter-company transactions are transactions between the holding company and its subsidiary company. These transactions are eliminated while preparing consolidated financial statements.

Short Note 11: Consolidated Balance Sheet

A consolidated balance sheet is a combined balance sheet of a holding company and its subsidiary prepared to show the financial position of the group as a single economic entity.

Short Note 12: Elimination of Inter-company Balances

All inter-company balances such as debtors, creditors, bills, loans and debentures must be eliminated during consolidation as a group cannot owe money to itself.

🧠 FINAL REVISION QUICK LIST (Students ला द्यायला योग्य)

• Control > Ownership
• Date of acquisition = key
• Pre = Capital, Post = Revenue
• Minority = Outsiders
• Cost of control → Goodwill / Capital Reserve
• Inter-company → Eliminate