a 38 5. Inter Company Transactions: The holding and subsidiary firm may have centered into the following transaction and these common transactions will be eliminated while compiling the consolidated Balance Sheet. a) The holding or the subsidiary firm may have granted loans (short term) to each other. b) They may have sold goods on credit in which case the inter company transactions will be included in debtors and creditors. c) The subsidiary or holding company may have drawn Bills of Exchange on each other in which case the common transaction will be included in Bills Payable/ Bills Receivable. In all the above cases where the companies were treated as separate entities, these transactions would appear on the liabilities side on the Balance Sheet of one and on the assets side of the other's Balance Sheet. However, when the entire group is being treated as a single entity it is undesirable to include common transaction and therefore they will be eliminated in the consolidated Balance Sheet from the liabilities as well as assets side. 6. Contingent Liabilities: A contingent liability appears as a footnote. This is on account of a liability which may or may not arise in the future. While preparing a consolidated Balance Sheet they may be categorized as external current liabilities or internal current liabilities. External liabilities between the holding and subsidiary firm and the outsiders. Internal current liabilities is on account of transactions between the firms belonging to the same group. The external liabilities continue unchanged for the same group while internal liabilities no longer appears as a footnote as it is generally incorporated on the liability side. Illustration: The following are Balance Sheet of H&S Company as on 31-12-2009 (in Rs.) H Share Capital@Rs. 10 20000 Fixed Assets 15000 each Current Assets 35000 25000 General Reserve 10000 5000 Shares in S Ltd. 10000 (8000) P/L balance as 1/1999 5000 4000 12% Debenture 10000 S. creditors Profit for the year 10000 6000 75000 40000 40000 H Limited acquired shares in S Limited on 01-07-2009. S limited has a balance of Rs. 4000/- in General Reserve on 01-01-2009. On the account fire goods costing Rs. 2000 of S Limited were destroyed in March 2009. The loss has been charged to the Profit and Loss Account for the year. Required to prepare a consolidated Balance Sheet, S 10000 30000 20000 10000 5000 75000