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1) Referring to note 4,
The double entry for bargain purchase is Dr net assets 960, Cr bank 950, Cr Retained earnings 10.
How should we know that we should only record the bargain purchase in retained earnings and not the 2 other entries as stated above?
2) As regards to Note 6,
When calculating the profit on disposal of asset, how do we know that they did not include the $ 0.3m transaction cost in the selling price of $15.6m?Thank you
1) Actually the journal is
Dr Net Assets 960
Cr Bank 700
Cr NCI 250
Cr Retained earnings 10When you consolidate, you add the assets and the liabilities of the parent and sub line by line, so that has the effect of adding the net assets.
The $700m cash was paid and has already been reflected in the individual statement of Joey and is shown in the SFP under cost of investments. So you don’t record the cash paid again, you remove it by crediting cost of investments when arriving at the group financial statements from the individual ones.
The NCI would be recorded and then increased/decreased by the NCI share of change in net assets.
The $10m goes to retained earnings.
2) It says “the property was sold for $15.6m.” In the absence of any other information you should take statements like this at face value. You are calculating the net selling price yourself so you need to deduct selling costs yourself from the selling price you have been provided. The company has not recorded this transaction so it hasn’t been included.
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