MCQ on Accounts of Holding Companies [Multiple Choice Questions and Answers]

MCQ on Accounts of Holding Companies

Corporate Accounting MCQs

In this page, you will get MCQ on Accounts of Holding Companies which are useful for AHSEC and CBSE Class 12, B. Com and Various Professional Exams Like CA/CMA and CS.

We update this page frequently to add new questions. Chapter wise Corporate Accounting MCQs are also included in this post.

Introduction to Holding Companies

As per Section 2(46) “holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies. According to this section, one company can become the holding company of another in any of the following three ways:

1. By holding more than ½ of voting power in the subsidiary company.

2. By controlling the composition of the Board of Directors of the other company so that the holding company is able to appoint or remove the directors of the subsidiary company.

3. By controlling a holding company which controls another subsidiary or subsidiaries. For example, if B Ltd is a Subsidiary of C Ltd & C Ltd is a subsidiary of A Ltd then B Ltd is also deemed to be a subsidiary of A Ltd.

Introduction to Subsidiary Companies

As per Section 2(87) of the Companies Act, 2013, a company is a “subsidiary company” of another company, i.e. “holding company”, if that other company:

a) Holds more than ½ of the voting rights in it, or

b) is a member of it and has the right to appoint or remove a majority of its board of directors, or

c) is a member of it and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it, or if it is a subsidiary of a company that is itself a subsidiary of that other company.

MCQ on Accounts of Holding Companies

Indicate the correct answer:

1. Preparation of consolidated Balance Sheet of Holding Co. and its subsidiary company as per:

a) As 11.

b) AS – 22.

c) AS 21.

d) AS – 23.

Ans: c) AS 21.

2. Which of the following is the holding company?

a) A company who acquires more than 50% share in another company

b) A company who controls the composition of the board of directors of other company

c) A company who controls a company which is holding company of another subsidiary

d) All of the above

Ans: d) All of the above

3. The share of outsiders in the Net Assets in subsidiary company is known as under:

a) Outsider’s liability.

b) Assets.

c) subsidiary company's liability.

d) Minority Interest.

Ans: d) Minority Interest.

4. Minority Interest includes:

a) Share in share capital.

b) Share in Capital profit.

c) Share in Revenue profit.

d) All of the above.

Ans: d) All of the above.

5. Pre-acquisition profit in subsidiary company is considered as:

a) Revenue profit.          

b) Capital profit.

c) Goodwill.                       

d) None of the above.

Ans: b) Capital profit.

6. Pre-acquisition profit in subsidiary company is considered as:

a) Revenue profit.          

b) Capital profit.

c) Goodwill.                       

d) None of the above.

Ans: a) Revenue profit.

7. Claim of holding company in subsidiary is known as:

a) Cost of investment

b) Minority interest

c) Cost of control

d) Capital reserve

Ans: a) Cost of investment

8. Excess of cost of investment over paid up value of the shares is considered as:

a) Goodwill.

b) Capital Reserve.

c) Minority Interest.

d) None of above.

Ans: a) Goodwill.

9. Excess of paid up value of the shares over cost of investment is considered as:

a) Goodwill.

b) Capital Reserve.

c) Minority Interest.

d) None of above.

Ans: b) Capital Reserve.

10. Profit earned before acquisition of share is treated as

a) Capital profit.

b) Revenue profit.

c) General Reserve.

d) Revaluation Loss.

Ans: a) Capital profit.

11. Profit earned after acquisition of share is treated as

a) Capital profit.                               

b) Revenue profit.

c) General Reserve.

d) Revaluation Loss.

Ans: b) Revenue profit.

12. Preparation of consolidated statement as per AS 21 is

a) Optional.

b) Mandatory for listed Companies.

c) Mandatory for Pvt. Ltd.

d) Companies Ltd. partnership firm.

Ans: b) Mandatory for listed Companies.

13. Holding Co. share in capital profits of subsidiary company is adjusted in:

a) Cost of control.

b) Shown on Assets side of Balance sheet.

c) Revenue profit.

d) None of above.

Ans: a) Cost of control.

14. Holding Co. share in revenue profits of subsidiary company is adjusted in:

a) Cost of control.

b) Shown on Assets side of Balance sheet.

c) Profit and loss account.

d) None of above.

Ans: c) Profit and loss account.

15. Unrealised profit on goods sold and included in stock is deducted from:

a) Capital Profit.

b) Revenue Profit.

c) Fixed Assets.

d) Minority interest.

Ans: b) Revenue Profit.

Also Read: Corporate Accounting MCQs Chapterwise

Issue of Shares

Issue and Redemption of Debentures

Bonus and Rights Shares

Buy Back of Shares

Redemption of Preference Shares

Internal Reconstruction

External Reconstruction

Accounts of Holding Companies

Corporate Accounting 500 MCQs

16. Face value debentures of subsidiary co. held by Holding Company is deducted from:

a) Debentures.

b) Cost of control.

c) Minority interest.

d) Debentures in consolidated balance sheet.

Ans: b) Cost of control.

17. On a consolidated balance sheet, if the shares of a company have been bought for more than the balance sheet value then the difference would appear as:

a) Goodwill

b) Capital Reserve

c) Cost of investment

d) Minority Interest

Ans: a) Goodwill

18. Consolidated financial statements are prepared on the principle:

a) In form the companies are one entity; in substance they are separate.

b) In form the companies are separate; in substance they are one.

c) In form and substance the companies are one entity.

d) In form and substance the companies are separate.

Ans: c) In form and substance the companies are one entity.

19. The Time interval between the date of acquisition of shares in subsidiary company and date of Balance Sheet of Holding Company is known as:

a) Pre-acquisition period.

b) Post-acquisition period.

c) Pre-commencement period.

d) Pre-incorporation period.

Ans: b) Post-acquisition period.

20. Pre-acquisition dividend received by Holding company is credited to

a) profit & loss A/c.

b) Capital profit.

c) Investment A/c.

d) None of the above.

Ans: c) Investment A/c.

21. Post Acquisition dividend received by Holding Company is debited to:

a) Bank A/c.

b) profit & loss A/c.

c) Dividend A/c.

d) Investment A/c.

Ans: b) profit & loss A/c.

22. Which Exchange rate will be considered for conversion of share capital of subsidiary company.

a) Opening Rate.

b) closing rate.

c) Average Rate.

d) Rate of which date share acquired (actual).

Ans: d) Rate of which date share acquired (actual).

23. A subsidiary company shall be excluded from consolidation when:

a) Control is intended to be temporary.

b) It operates under severe long-term restrictions which significantly impair its ability to transfer funds to the parent.

c) Always included for consolidation.

d) Both a and b.

Ans: d) Both a and b.

24. Which of the following statement is true?

a) There is no change in the amount of capital reserve before and after issue of bonus share of the issue is made from out of pre-acquisition profit.

b) There is change in the amount of capital reserve before and after issue of bonus share of the issue is made from out of post-acquisition profit.

c) There is change in the amount of capital reserve before and after issue of bonus share of the issue is made from out of pre-acquisition profit.

d) There is no connection between the issue of bonus shares and the calculation of capital reserve.

Ans: a) There is no change in the amount of capital reserve before and after issue of bonus share of the issue is made from out of pre-acquisition profit.

MCQ on Accounts of Holding Companies

State whether the following statements are true or false:

1. Every holding company is required to present a consolidated balance sheet under the Companies Act, 2013.     False

2. Minority interest shown in the consolidated balance sheet is the equity held by the outsiders in the subsidiary company.     True

3. Cost of control is the excess price paid for investment over and above proportionate share of net assets acquired by the holding company.     True

4. There is no need to show intercompany dividends in the consolidated profit and loss account.      True

5. Profit on revaluation of fixed assets is a capital profit and depreciation on such amount is a revenue loss.     True

6. The financial year of holding and subsidiary company must be the same.     False

7. Dividends paid out of pre-acquisition profits must be credited to investment in shares of the subsidiary account.     True

8. Dividends paid out of post-acquisition profits must be credited to profit and loss account.     True

9. For calculating minority interest there is need to distinguish between capital and revenue profits of the subsidiary.     False

10. For calculating cost of control there is no need to distinguish between capital and revenue profits of the subsidiary.     False

11. Only external Contingent liabilities are shown as footnote in the consolidated balance sheet but internal contingent liabilities are not shown in consolidated balance sheet.     True

12. Issue of bonus shares out of pre-acquisition profit or reserves will have no effect on the consolidated balance sheet.     True

13. Issue of bonus share out of post-acquisition profits by the subsidiary company has the effect of increasing the paid up value of shares and reducing the cost of goodwill of the holding company.     True

14. No company can become the subsidiary of another company.     False

15. A company has to acquire more than 50% shares of another company in order to become a holding company.     True

16. No holding company can become the subsidiary of another company.  False