loan in consideration

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    gutsychyk
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    in one question it goes like this P takes over 50% of S’s loan liablity
    but thats not treated as consideration , its been treated as contra
    in another one, P gives loan to S for every 100 shares it has acquired. then its treated as consideration.
    WHY? AND WHATS the difference?


    Avatar of sajjad110
    sajjad110
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    according to f4 .. what does a consideration actually means…
    it means that thr shud b some thing like payment .. to bind a contract right
    so in f7 aswell …
    if parent is asquiring the subs. co..then its upon parent co. to make consideration ..
    as u asked ..that ‘P gives loan to S for every 100 shares it has acquired. then its treated as consideration.’
    here … it means .. for acquiring s co. shares p co. is making some loans..
    which u can take as consideration..


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    mustafa672004
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    case one : if p going to acquire s these are included by the following typs

    1- cash payment
    2- share exchange means p gives its own shares at market price to shareholders of sub
    3- deferred cash means p going to pay that cash after period of time say two years time (this should be adjusted to present value(be mindful that you have to unwind the discount means calculating the interest to be added to original amount at the end of the year and it will affect as well as on group retained earning )
    4- contingent consideration
    5 loan theses mean that p issue loan to sub against their investment
    double entry in p records is as follow:

    Dr. investment
    CR. LOAN

    BUT if p acquired 50% or 100% of sub loan that means that p paid to the lender of sub the amount of loan ie now p became the new lender to sub
    assume that sub has 2000 loan in its records and p acquired 100% of that loan

    double entry
    P RECORDS

    DR . INVESTMENT (LOAN GIVEN TO SUB)
    CR CASH

    SUB RECORDS

    NO CHANGING OCCUR IN SUB SINCE SUB SHOULD PAY 2000 AS IT WAS BUT THE DIFFERENCE HERE THAT SUB SHOULD PAY 2000 TO PARENT NOT TO OLD LENDER WHO HAS RECEIVED HIS MONEY FROM PARENT

    so take care that if the loan acquired so it consider from p to sub and that amount should eliminate while consolidation

    if loan issued by p to sub so it should be including cost of investment (consideration ) while calculating goodwill

    hopefully it helps
    thanks,

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