Corporate Accounting Solved Question Paper 2022 [Dibrugarh University BCOM 2nd Sem CBCS Pattern]

Corporate Accounting Solved Question Paper 2022

Dibrugarh University BCOM 2nd Sem CBCS Pattern


2022 (June/July)


Paper: C-203 (Corporate Accounting)

Full Marks: 80

Pass Marks: 32

Time: 3 hours

The figures in the margin indicate full marks for the questions

In this post you will get Corporate Accounting Solved Question Paper 2022 of Dibrugarh University BCOM 2nd Sem CBCS Pattern.

corporate accounting solved question paper 2022

1. (a) Write True or False:       1 x 3=3

(1) Right Shares can be issued only to existing shareholders.

Ans: True

(2) Capital Reserve is created out of Revenue Profit as well as Capital Profit.

Ans: False

(3) For reduction of Share Capital of company, confirmation from the court is not necessary.

Ans: False

(b) Fill in the blanks:       1 x 3=3

(1) Goodwill is the most unrealizable form of assets as it can be disposed of only in the event of the being sold as a:

Ans: Going Concern

(2) Schedule 15 of Bank Profit & Loss Account relates to _______.

Ans: Interest Expended

(3) Post-acquisition profits are treated as _______ profits.

Ans: Capital Profits

(c) Choose the most appropriate answer:       1 x 2=2

(1) Consolidated Balance Sheet is prepared as per

(a) Accounting Standard-14.

(b) Accounting Standard-21.

(c) Accounting Standard-6.

Ans: (b) Accounting Standard-21.

(2) Share Application is a 

(a) Personal Account.

(b) Real Account.

(c) Nominal Account.

Ans: (a) Personal Account.

2. Write short notes on any four of the following:           4 x 4=16

(a) Sinking Fund Method for redemption of debentures.

Ans: Sinking fund is a fund into which a company sets aside money over time, in order to retire its preferred stock, bonds or debentures. Such fund is created mainly for some specific purposes which are:

– To redeem or repay long term liabilities. For example: debentures, long term loans etc.

– To replace wasting assets. For example: mines etc.

– To replace an asset of depreciable nature. For example, fixed assets.

Creation of Sinking fund for redemption of debentures: For redemption of debentures or other long term liabilities, a fixed amount is kept aside yearly as sinking fund for the specific purpose and the same amount is invested in securities etc.  for a specific period so that the sufficient amount is available at the time of redemption of long term liabilities. The amount to be set aside can be determined with the help of Sinking fund table. The amount kept aside should not be debited to Profit and loss account but to Profit and loss appropriation account because the same is an allocation of profit not expenditure.

(b) Internal Reconstruction.

Ans: Internal Reconstruction: Internal reconstruction means a recourse undertaken to make necessary changes in the capital structure of a company without liquidating the existing company. In internal reconstruction neither the existing company is liquidated, nor is a new company incorporated. It is a scheme in which efforts are made to bail out the company from losses and put it in profitable position.

Internal reconstruction of a company is done through the reorganization of its share capital. It is a scheme of reorganization in which all interested parties in the capital structure volunteer to sacrifice. They are the company’s shareholders, debenture holders, creditors etc. Under internal reconstruction, the accumulated trading losses and fictitious assets are written off against the sacrifice made by these interest holders in the form of reduction of paid up value of their interest.

(c) Valuation of Goodwill.

Ans: Goodwill is an intangible asset which indicates the value of the reputation of a firm. It comes into existence due to various favourable factors such as favourable location, efficient management, good quality of product and services etc. It is one factor which distinguishes an old established business from a new business. It can also be defined as the capacity of a business to earn extra income.

Factors affecting the value of Goodwill are: There are several factors which contribute to the goodwill of the business and the important ones are listed below:

a) Skill in Management

b) Location Factor

c) Quality

d) Favourable Contracts

When valuation of goodwill is necessary?

In case of partnership business: In case of a partnership firm, the need for valuation of goodwill may arise under the following circumstances:

a)     When a new partner is admitted,

b)     When a partner retires from the firm

c)      When a partner dies

d)     When there is a change in profit sharing ratioamong partners,

e)     When the firm is sold as a going concern,

f)      When two or more firms amalgamated.

In the case of limited companies

a)     When two or more companies amalgamate,

b)     When one company takes over another,

c)      When a company wants to acquire controllinginterest in another company, and

d)     When government takes over the business.

(d) Non-banking Assets.

Ans: A banking company is not allowed to deal directly/indirectly in the purchase/sale/barter of goods except in connection with its legitimate banking business. But banks can always lead against the security of the assets. The banks may have to take possession of the asset given as security if the loanee fails to repay the loan. In that case, the asset acquired in satisfaction of the claim of the bank will be shown as an asset in the Balance Sheet under the heading ‘Other Fixed Assets’.

Such assets acquired should be disposed of within seven years as a banking company is not allowed to hold such assets for any period exceeding seven years from the date of their acquisition. P/L on sale of such assets is required to be shown separately in the P/L A/c of the banks.

(e) Consolidated Balance Sheet.

Ans: Consolidated financial statements refer to the financial statements which show the summative accounting figure of the holding company along with its subsidiaries. In other words, consolidated financial statements can be addressed as the combined financial statements of a holding company and its subsidiaries. Consolidated financial statements normally include consolidated balance sheet, consolidated statement of profit and loss, and notes, other statements and explanatory material that form an integral part thereof.

Consolidated cash flow statement is presented in case a parent presents its own cash flow statement. The consolidated financial statements are presented, to the extent possible, in the same format as that adopted by the parent for its separate financial statements.

Consolidation of Balance Sheet & Profit & Loss Account means the combining of the separate Balance Sheet & the separate Profit & Loss Accounts of the Holding company & its subsidiary company or companies into Single Balance Sheet & a Single Profit & Loss Account.

The purpose of a Consolidated Balance Sheet & Profit & Loss Account is to show the financial position & Operating results of a group consisting of a holding company & one or more subsidiaries. The consolidated statements are reports of notional accounting entity which subsist on the view that the holding & subsidiary companies are to be treated as one economic unit.

The Financial position & Operating results reported through the consolidated statements are portrayed from the interest of the members of the holding company.

3. (a) Equity Liabilities and Assets of Sunrise Ltd. as on 31st March, 2019 are given below:



I. Equity and Liabilities:

1. Shareholders’ Fund:

(a) Share Capital: 8,00,000 Equity Shares of Rs. 10 each.

(b) Reserve and Surplus:

(i) Securities Premium A/c

(ii) General Reserve

2. Non-Current Liabilities:

Secured Loan: 13% Debentures

3. Current Liabilities












II. Assets:

1. Non-Current Assets: Fixed Assets

2. Current Assets:

(a) Stock-in-Trade

(b) Sundry Debtors

(c) Bank Balance









It was decided at the meeting of shareholders –

(1) to buyback 20% of equity shares @ Rs. 12 per share;

(2) to utilize general reserve for buyback of shares;

(3) to utilize securities premium reserve for premium payable on buyback of shares.

Pass necessary journal entries and draw up the Balance Sheet after the above transactions have been given effect to. 7+7=14



(b) (1) Write the difference between Right Shares and Bonus Shares.        7+7

Ans: Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. The company is under legal obligation to offer first the further issue of the shares to its existing shareholders. But the holders have option either to accept it or to reject or renounce it. That is why this is called “Right Issue”.

Bonus shares: These shares are issued to existing shareholders free of cost out of past accumulated profits. Since Shares are distributed free of charge and therefore are known as Bonus Shares, which are given to existing shareholders pro rata to their holdings. It may be added the bonus shares may be issued to make up the existing partly paid shares as fully paid.

Difference between Bonus Shares and Right shares


Bonus shares

Right shares


Bonus shares are offered free of charge to the existing shareholders.

Right shares are offered at a discounted price for existing shareholders.


Bonus shares are issued to compensate for the prevailing cash limitations.

Rights shares are issued to raise new capital for future investments.

Cash flows

Bonus shares do not result in cash receipt.

Rights shares result in cash receipt for the company.


There is no requirement of minimum subscription in case of bonus issue.

Minimum subscription is necessary in case of right issue.

Fully paid

Bonus share are always fully paid.

Rights shares can be fully paid or partly paid.

(2) State the provisions for redemption of Preference Share provided under Section 55 of the Companies Act, 2013.

Ans: Conditions for redemption of Preference Shares:

Under section 55 of the Companies Act, 2013, a company should have to follow the conditions:

1.      No company limited by shares shall, after the commencement of this Act, issue any preference shares which are irredeemable.

2.      A company limited by shares may, if so authorised by its articles, issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue subject to such conditions as may be prescribed.

3.      No authorization is required in the articles to redeem the preference shares of a company.

4.      The redeemable preference shares must be fully paid up. If there is any partly paid share, it should be converted in to fully paid shares before redemption.

5.      The redeemable preference shareholders should be paid out of undistributed profit/ distributable profit or out of proceeds of fresh issue of shares for the purpose of redemption.

6.      If the shares are redeemed at a premium, it should be should be provided for out of the profits of the company or out of the company’s securities premium account, before such shares are redeemed.

7.      If the shares are redeemed out of undistributed profit, the nominal value of share capital, so redeemed should be transferred to Capital Redemption Reserve (CRR) Account. This is also known as capitalization profit. Transfer to capital redemption reserve account is allowed from these profits. (i.e. Profits otherwise available for dividend)

a)     General reserve

b)     Reserve fund

c)      Dividend equalisation fund

d)     Insurance fund

e)     Workmen’s compensation fund

f)      Workmen’s accident fund

g)     Voluntary debenture redemption account

h)     Voluntary debenture sinking fund

i)       Profit and loss account.

Transfer to capital redemption reserve account is not allowed from these profits. (i.e. Profits otherwise not available for dividend)

a)     Securities premium account

b)     Forfeited shares account

c)      Profit prior to incorporation

d)     Capital reserve

e)     Development rebate reserve

8.      The proceeds from fresh issue of debentures cannot be utilized for redemption.

9.      The amount of capital reserve cannot be used for redemption of preference shares.

10.  CRR may be utilised only for the purpose of issuing fully paid bonus shares to the members.

4. (a) Following is the Trial Balance of TD Co. Ltd. as at 31st March, 2022:


Debit (Rs.)

Credit (Rs.)

Factory premises at cost

Plant & Machinery at cost

Motor, Lorry at cost


Bad Debts written off

Rent, Rates and Taxes


Cash and Bank

Directors’ Fees

Audit Fes

Stock as on 31/03/2022

Rent and Taxes paid in advance

Salaries and Wages


Dividend paid:

On Preference Shares

On Equity Shares (interim)

 Share Capital:

30,000, 7% Preference Shares of Rs. 10 each

60,000 Equity Shares of Rs. 10 each

Surplus A/c

Gross Profit for the year

Provisions for Doubtful Debts

Sundry Creditors

Transfer Fees

Accrued Wages

Staff Benevolent Fund

















































The Provision for Doubtful Debts is to be made up to Rs. 10,200. The Factory Premises, Plant & Machinery and Motor Lorries are to be depreciated by 3%, 15% and 20% respectively. The Authorised Capital of the company is Rs. 10,00,000 divided into shares of Rs. 10 each.  You are required to prepare –

(1) Statement of Profit and Loss for the year ended 31st March, 2022;

(2) a Balance Sheet as at 31st March, 2022 in the prescribed under the Companies Act, 2013. Previous Years’ figures are not required and also ignore taxation. You need not provide corporate dividend tax.              7+7=14



(b) (1) Discuss the classification of bank advances and also write the provisions to be made for various types of advances.          5+5=10

Ans: Types of Loans and Advances provided by a bank

A Bank provides the following types of loans and advances to its customers

a)     Cash Credit: It is an arrangement by which the customer is granted the right to borrow money from time to time upto a certain limit. Cash credit is usually given on hypothecation or pledge of stocks. The bank usually charges a higher banks interest on the actual amount withdrawn than that charged on loan because the bank has to keep the amount allowed as cash credit always ready under the fear that money allowed may be demanded at any time.

b)     Overdraft: This facility is available to a customer who operates a current account with the bank. This facility is granted to customers who have high goodwill & name for honest dealings. In case of bank overdraft, customer is permitted to overdraw money upto a certain level. The facility of overdraft is beneficial to the customer as he has to pay interest only upon the sum overdrawn by him & not upon the maximum limit of the overdraft.

c)      Loan: Loan is advance of a fixed amount to a customer to be withdrawn in lump sum by him. Interest is charged on the total amount of the loan agreed to be paid to a customer whether he uses the full amount of the loan or not. So, customers prefer to take cash credit & pay interest at a little higher rate as they find it inconvenient to use the whole amount of the loan immediately.

d)     Discounting: Discounting of a bill means making the payment of the bill before the maturity date of the bill while making payment of the bill, the bank deducts discount for the unexpired period for the amount of the bill discounted. The bank keeps the bill with it till the maturity date & gets its payment for the customer on the due date.

Non-performing Assets (NPA)

NPA indicates Non-Performing asset, it means assets of a bank which ceases to generate income for the bank. Non-performing assets means a credit facility in respect of which interest/or principal repayment installment is in arrears for more than 90 days. A non-performing asset (NPA) shall be a loan or an advance where;

a)     Interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan,

b)     The account remains ‘out of order’ for a period of more than 90 days, in respect of an Overdraft/Cash Credit (OD/CC),

c)      The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,

d)     Interest and/or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and

e)     Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

Difference between Performing and Non-performing assets:

Performing assets means assets of a bank which generates regular income for the bank. Performing assets includes those loans and advances in respect of which interest and principal are not due for more than 90 days.

NPA indicates Non-Performing asset, it means assets of a bank which ceases to generate income for the bank. Non-performing assets means a credit facility in respect of which interest/or principal repayment installment is in arrears for more than 90 days.

Categories of NPA

A. Standard assets:Standard assets are the ones in which the bank is receiving interest as well as the principal amount of the loan regularly from the customer. Here it is also very important that in this case the arrears of interest and the principal amount of loan does not exceed 90 days at the end of financial year. If asset fails to be in category of standard asset that is amount due more than 90 days, then it is NPA and NPAs are further need to classify in sub categories.

Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained non-performing and the reliability of the dues:

a)     Sub-standard Assets

b)     Doubtful Assets

c)      Loss Assets

B. Sub-standard Assets: Such assets have been classified as NPA for a period not exceeding one year with effect from 31st March, 2005. The earlier period of 18 months has been reduced to 12 months. The current net worth of the borrower/guarantor or the current market value of the security charged under such cases isn’t enough to ensure recovery of the dues to the bank in full.

C. Doubtful Assets: An asset which has remained NPA for a period of one year. In term loans if the installments of the principal have remained overdue for a period of one year should be treated as doubtful.

D. Loss Assets: Where the loss on an asset has been identified by banks/internal auditor or the RBI inspector but the amount hasn’t been written off wholly/partly is known as loss asset.

Provisions required on various types of NPA


% of Provisions

Standard Assets


Doubtful (secure)

upto 1 year

– 1 – 3 years

More than 3 years

Doubtful (unsecure)

Loss Assets









 (2) Write a note on Rebate on Bill discounted.       4

Ans: Discounting of bills means making the payment of the bill before the maturity date of the bill. While making payment of the bill, the bank deducts discount for the unexpired period for the amount of the bill discounted. Such discount is called rebate on bills discounted. It is treated as interest received in advance.

In profit and loss account, closing balance of rebate on bills discounted is deducted and opening balance of rebate on bills discounted is added with the interest and discount for the year. Closing balance of rebate on bills discounted is shown as liability in balance sheet under the heading ‘other liabilities’. At the commencement of next year, a reverse entry is passed for the unexpired discount of the previous year expiring this year and treated as income.

Rebate on bills discounted is calculated with the help of following formula = (Total annual discount x no. of days after the close of the year)/365.

Accounting treatment of Rebate on Bill Discounted

a) At the end of current accounting period:

Discount on Bills A/c                                       Dr.

To Rebate on Bills discounted A/c

b) At the beginning of next accounting period:

Rebate on Bills discounted A/c                      Dr.

To Discount on Bills A/c

c) Transferring balance of interest and discount to Profit and loss Account:

Discount on Bills A/c                                        Dr.

To Profit and Loss A/c

5. (a) Purabi Ltd. proposed to purchases the business carried on by Sunny Ltd. Goodwill for this purpose is agreed to be valued at three years’ purchase of the simple average profits of the past four years. The profits for these years are:


(Rs. )









On a scrutiny of the accounts the following matters are revealed:

(1) On 1st July, 2020 a major repair was made in respect of plant incurring Rs. 50,000 which amount was charged to revenue. The said sum is agreed to be capitalized for goodwill calculation subject to adjustment of depreciation @ 10% p.a. on reducing balance method.

(2) Closing Stock at 2019 was overvalued by Rs. 20,000.

(3) To cover management cost an annual charge of Rs. 30,000 should be made for the purpose of goodwill valuation.

Compute the value of goodwill.                8

Ans: Coming Soon


(b) Explain the various methods of valuation of shares.                8

Ans: Methods of valuation of shares

There are primarily three methods for valuation of shares, namely, Net assets methods which takes into account the net assets employed and earning capacity or yield basis or market method which takes into account the earning capacity of the organisations. Third method of valuation of shares considers both net asset method and earning yield method while calculating value of a share. All these methods are stated below:

1) Net assets method (or Intrinsic value or Break u value method): Under this method value per share is obtained by dividing net value of the company’s assets subtracting therefrom the amount of the outsider’s liabilities and preference shareholders’ claims, with the number of equity shares. Net asset value may be expressed by the following formula:

Net assets value of a shares = (Net value of assets – Outsider’s Liabilities – preference shareholders’ claim)/Number of equity shares.

If goodwill is already given in the question, it is also added with assets while calculating value of a shares.

2) Yield or Earning capacity valuation or income method: In this method the valuation of share is done by comparing expected rate of return of a concern with normal rate of return. If the particular concern is able to give a higher return than the normal yield, its value should be higher. On the other hand, if it gives less return than normal yield, its value will be lower. The following steps are to be followed to find the value of shares:

a)     Ascertaining the future maintainable profits.

b)     Ascertaining the normal rate of return.

c)      Determining the capitalisation factor or the multiplier which is 100 divided by the normal rate of return. If normal rate of return is 10%, multiplier would be 100/10=10.

d)     Ascertaining the capitalised value of maintainable profits. This is ascertained by multiplying the future maintainable profits with the multiplier ascertained under step c.

e)     The yield value of share is ascertained by dividing capitalised value of maintainable profits under step d) with the number of equity shares.

This method is suitable for growing companies and small investors but this method fails to consider net asset of the company.

3) Fair value or dual method: This method is the combination of both the above methods. Fair value of share= intrinsic value+ yield value/2

Since this method takes the average of the values obtained in the net assets basis and earning basis, it makes an attempt to minimise the demerits of both net assets basis and earnings basis methods.

6. (a) Following are the Balance Sheets of Reny Ltd. and Moni Ltd. as at 31st March, 2022:


Reny Ltd.

Rs. (‘000)

Moni Ltd.

Rs. (‘000)

I. Equity and Liabilities

1. Shareholders’ Funds:

(a) Share Capital:

(i) Equity Share Capital (Rs. 10 each)

(ii) 12% Preference Share Capital (Rs. 10 each)

(b) Reserves and Surplus:

(i) General Reserve

(ii) Statutory Reserve

(iii) Surplus

2. Non-Current Liabilities

14% Debentures

3. Current Liabilities


























II. Assets:

1. Non-Current Assets

Fixed Assets

2. Current Assets












On 1st April, 2022, Reny Ltd. takes over Moni Ltd. on the following terms:

(1) Reny Ltd. will issue 10,50,000 Equity Shares of Rs. 10 each at par to the Equity Shareholders of Moni Ltd.

(2) Reny Ltd. will issue 33,000, 12% Preference Shares of Rs. 100 each at par to the Preference Shareholders of Moni Ltd.

(3) Debentures of Moni Ltd. will be converted into equal number of 15% Debentures of the same denomination.

You are informed that statutory reserves of Moni Ltd. are to be maintained for three years.

You are required to give necessary Journal Entries in the books of Reny Ltd. and show the Balance Sheet of Reny Ltd. assuming that amalgamation in the nature of merger.          5+6=11



(b) (1) Explain the various provisions of capital reduction as given in the Companies Act, 2013.                 6

Ans: Conditions for effecting reduction of capital

Following conditions are required to be fulfilled by a company to reduce its share capital –

1. A company constituted with limited liability by shares or guarantee and having share capital is alone entitled to reduce its liability of members.

2. It should have the power under its Articles of Association to do so. If the articles do not contain any provision for reduction of capital, the articles must first be altered so as to give such power.

3. Reduction is regarded as internal restructuring of company; therefore, decision of majority will prevail by way of special resolution.

4. The reduction effected by such resolution must be confirmed by the National Company Law Tribunal (‘Tribunal’)

5. No capital reduction can be undertaken if the company is in arrears in the repayment of any deposits (including interest payable thereon) accepted by it.

6. Reduction takes effect on registration of the documents with the Registrar of Companies.

7. Reduction is different from Diminution of shares which is regarded as cancellation of unsubscribed share capital.

8. Nothing in this section shall apply to buy back of its own securities u/s 68 of the Companies Act, 2013

9. Offenses under this section are compoundable under section 441 of the Companies Act, 2013.

10. After capital reduction, the word “And Reduced” in Balance sheet of the company.

(2) Distinguish between Amalgamation in the nature of Merger and Amalgamation in the nature of purchase.      5

Ans: Difference between Amalgamation in the nature of purchase and Amalgamation in the nature of merger

Basis of Distinction

Amalgamation in the Nature of Merger

Amalgamation in the Nature of Purchase

a)   Transfer of Assets and Liabilities

There is transfer of all assets & liabilities.

There need not be transfer for all assets & liabilities.

b)   Equity Shareholder’s holding 90%

Equity shareholders holding 90% equity shares in transferor company become shareholders of transferee company.

Equity shareholders need not become shareholders of transferee company.


c)    Purchase Consideration


Purchase consideration is discharged wholly by issue of equity shares (except cash for fractional shares)

Purchase consideration need not be discharged wholly by issue of equity shares.

d)   Same Business


The same business of the transferor company is intended to be carried on by the transferee company.

The business of the transferor company need not be intended to be carried on by the transferee company.

e)   Recording of Assets & Liabilities


The assets & liabilities taken over are recorded at their existing carrying amounts except where adjustment is required to ensure uniformity of accounting policies.

The assets & liabilities taken over are recorded at their existing carrying amounts or the basis of their fair values.


f)    Recording of Reserves of Transferor Co.

All reserves are recorded at their existing carrying amounts and in the same form.

Only statutory reserves are recorded at their existing carrying amounts.

g)   Recording of Balance of Profit & Loss A/c of Transferor


The balance of P&L A/c should be aggregated with the corresponding balance of the transferee co. or transferred to the General reserve account.

The balance of P&L A/c losses its identity and is not recorded at all.


 7. (a) From the Ledger Balances at 31st March, 2022, and information given below, you are required to prepare Consolidated Balance Sheet:             9

Cr. Balances

H Ltd.
(Rs. )

S Ltd.
(Rs. )

Dr. Balances

H Ltd.
(Rs. )

S Ltd.

Share Capital:

Rs. 10 fully paid shares














Sundry Assets




14,000 Shares in S Ltd.

Discount on issue of shares

















H Ltd. purchased shares from S Ltd. on 1st October, 2021. On 1st April, 2021, Surplus A/c of S Ltd. stood Rs. 40,000 as Credit Balance and Reserve A/c was Rs. 60,000. Sundry Assets of S Ltd. was overvalued by Rs. 10,000.

Ans: Coming Soon


(b) Write the advantages and disadvantages of Holding Company.         9

Ans: Advantages of Holding Company:  Following are the important advantages of holding company:

a)     Easy Formation: The holding company can be formed very easily. There is no legal formality. Any company may purchase the majority shares from stock exchange and can become holding company.

b)     Large Business:  A holding company can collect the capital and expand the business on large scale.

c)  Foreign Capital: The holding company may also attract the foreign capital for the expansion of a business.

d)     A Stable Combination: The holding company is a very stable form of business organization. Its life is not affected by the disagreement of subsidiary company.

e)     Goodwill: When the goodwill of the holding company is established in the market, it also improves the goodwill of its subsidiary company before the public.

f)      Separate Position: The subsidiary companies can maintain their separate position under this system. They do not lose their identity.

g)     Control on Production: A holding company can check the production and adjusts the supply according the demand. So over production cannot take place.

Disadvantages or Defects of Holding Company: Following are the main defects of the holding company:

a)     Problem of Monopoly: A holding company tries to create monopoly over the market. Monopoly is always against the public interest. It fixes higher prices and consumer suffers a loss.

b)     Unequal Distribution of Wealth: Due to holding companies’ wealth goes in few hands and society is divided into two classes, rich and poor. Rich class enjoys all the amenities of life while poor class faces poverty and hunger.

c)      Costly Management: A holding company spends a lot of money on the officers and offices. All the units are managed by the central authority. So it is costly to maintain the proper control on large number subsidiary companies.

d)     Minority Interest Ignored: The interest of the minority shareholders is ignored and the members of the holding company dispose of every resolution for their own interest.

e)   Misuse of Funds: The director of the company enjoys unlimited powers and they take undue advantages. They misuse the funds also.

f)      Over Capitalization: There is always a danger of over capitalization in the holding companies. It is very harmful for both the companies.

g)   False Reports: Generally, the directors of the company present false reports about the company’s financial position. The true condition of the company nobody knows, and due to this sometimes creditors suffer a loss.

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