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On 1 October 20X2, Paradigm acquired 75% of Strata’s equity shares by means of a share exchange of two new shares in Paradigm for every five acquired shares in Strata. In addition, Paradigm issued to the shareholders of Strata a $100 10% loan note for every 1,000 shares it acquired in Strata. Paradigm has not recorded any of the purchase consideration, although it does have other 10% loan notes already in issue. The market value of Paradigm’s shares at 1 October 20X2 was $2 each.
Sir, my question why they have not accounted for a finance cost $ 75 by acquiring the subdiary in 10% loan notes ???
Finance cost=(((0.75*20m shares*100)/1000)*10%*1/2)
Finance cost $ 75
Does the finance expense in the subsidiary not cancel against the finance income in the parent?
But Sir, the loan is between the parent company and shareholders of subdiary. It is not between the parent and subsidiary.
Where am i missing the point
This is a past exam question. Can you find the exam year and session for me please and I’ll look at the source! Whilst you’re doing that, I’ll be answering questions from other students
Thanks Aloyce
What makes you think they haven’t accounted for it? Is there anything in the question that tells you that the interest has not been paid?
If Paradigm has debited finance costs and credited cash, and then the finance cost has been in turn debited to its statement of profit or loss and arrived at the figure of $7,400 for the year, how does that suggest that Paradigm has not dealt with it correctly?
Sir, could you check the below statement
“Paradigm has not recorded any of the purchase consideration, although it does have other 10% loan notes already in issue.”Thats what makes me think, they have not accounted interest because they didn’t even recognize the original obligation/liability.
I totally agree also with your assumption, though mine also i THINK its valid too.
Am i wright Or i have just overlooked the question
No, it says that they haven’t recorded the entries to record the purchase consideration.
It doesn’t say anything about the interest!
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