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Subsidiary/Parent Accounting

How does a Subsidiary Companies' Accounts corrolate across a Parent Company?

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In this scenario Company A is the trading company and is 100% owned by Company B which is a non-trading Holdings Company (only incorporated to reserve the name and hold the assets of Company A). From a Tax perspective, Company B is dormant because it doesn't trade, but how does that convert on the balance sheet? 

If Company A had £50,000 in the bank, would Company B state £50,000 in cash at the bank on it's balance sheet (as it's the sole parent company)?

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By David Ex
21st Aug 2021 14:21

fastflight21 wrote:

If Company A had £50,000 in the bank, would Company B state £50,000 in cash at the bank on it's balance sheet (as it's the sole parent company)?

No

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By paul.benny
21st Aug 2021 14:38

You need to understand the difference between consolidated accounts and parent company accounts.

(Much simplified) consolidated accounts sum the P&L and balance sheet of the parent company and all the subsidiaries, eliminating any intra-group items such as investments in subsidiaries and the share capital of subsids.

Parent company accounts just show the assets and liabilities directly owned by the parent.

Why do you ask?

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Replying to paul.benny:
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By fastflight21
21st Aug 2021 22:17

Hi Paul,

Thank you for getting back to me. So hypothetically if a companies' sole purpose is just to own other subsidary companies (and has no transactions) and the parent company only owned one company (which had £10,000 in cash at hand) then would the parent report £10,000 in cash at hand as well or is it recorded as a fixed/intangiable asset?

In this scenario the Parent Company hasn't made or recieved any inter-company loans, or transactions so the £10,000 is consolidated in theory.

I'm just curious on how that would be recorded on a balance sheet, nothing more.

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Replying to fastflight21:
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By paul.benny
22nd Aug 2021 07:49

Seems like you've still not grasped the difference between parent company and consolidated financial statements.

For most purposes, it makes no difference to parent company financial statements whether it owns 100% of a company or 0.01%. It holds an investment, which it normally reports at cost. That's it, whatever underlying assets and liabilities of the investee company.

Consolidated financial statements show what-this-would-look-like-if-it-were- all-one-company. And that's where the assets and liabilities of subsids are brought in.

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Replying to fastflight21:
By Duggimon
26th Aug 2021 10:10

On the balance sheet the parent would usually show the value of their investment in the subsidiary as "Investment in Subsidiary". This may be done at the share value or might be revalued to the net asset position of the subsidiary, or even valued at some other amount with some other basis.

They don't show assets they don't have though, and if they don't have any cash in the bank they won't show cash at bank.

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By David Ex
21st Aug 2021 21:42

If you are interested in learning the basics of group accounting, there are various resources freely available if you do a Google search.

This, for example:

https://smallbusiness.chron.com/accounting-rules-subsidiaries-67502.html

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By Leywood
22nd Aug 2021 20:29

Student?

Or DIYer?

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Replying to Leywood:
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By tom123
22nd Aug 2021 20:32

The thought of a 'DIY' group of companies is scary..

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Melchett
By thestudyman
23rd Aug 2021 14:18

Even if you are not a student, always found this guide a very good refresher on consolidated accounts and the relationship between parent company and subsidiary accounting.

Cant recommend enough.

https://www.amazon.co.uk/Students-Guide-Group-Accounts-2nd/dp/085732764X

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