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  1. avatar says

    Sir,

    I have questions!

    Why is the share capital of S not included in the consolidated statement? What happens to the share capital of S?

    Why is the investment on S ($10,000) replace as the fair value of assets and liabilities on S?
    I don’t get how the investment of $10,000 could equate to the above mentioned point.

    A really big thank you!

    • Avatar of John Moffat says

      The share capital of the subsidiary will never appear in the Consolidated statement.

      The purpose of the statement is to show the Group as if it was one big company including all the assets and liabilities of the entire Group, The shareholders who control the whole Group are those of the parent company.

      In the example to which you referring, P acquired 100% of the share capital of S on incorporation (i.e. the date the S was formed). You will know from earlier studies that the capital in a business is always equal to the net assets of the business.

      At the date P acquired the shares, the share capital of S was 10,000. Therefore the net assets of S were also 10,000. P paid 10,000 for 100% of the shares, and so the investment equalled the net assets!

      Obviously (as you will see in later examples in this chapter and in the next chapter) more likely is that the Parent acquires the shares at a later date, and that they acquire less than 100%. All of that is dealt with in the later examples in this chapter and in the next chapter.

      However, neither the share capital of the subsidiary not the cost of the investment in the Subsidiary will ever appear in the Consolidated statement (for the reasons above).

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