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On 1st Jan,2012, X acquired 90% of the equity share capital of Y in a share exchange in which X issued two new shares for every three shares it acquired in Y Additionally , on 31st Dec 2012, X Ltd. will pay the shareholders Of Y $1.76 per share acquired. X cost of capital is 10% per annum.
At the date of acquisition , shares in X and Y had a stock market value of $6.50 and $2.50 each respectively .Equity as at 1st Oct,2011 X Y
Equity shares of $1 each 30000 10000
Retained Earnings 54000 35000Reporting date in 30th September 2012. Calculate consideration transferred and unwinding of discount and what would there likely treatment ?
This is all illustrated within the course notes! I believe you’ll firn an example fully explained at the end of chapter 8 (?) – at least, if it’s not chapter 8, it’s the chapter immediately before the chapter called “Comprehensive example”
I got this question from BPP ..It was a full question of preparing consolidated statements …I Just couldn’t understand this particular point And the explanation for calculating consideration transferred has not been given !!
From the numbers that are in the question this seems like a past exam question to me!
We buy 90% of 10,000 shares so we buy 9,000. We issue our own shares on the basis of 2 for every 3 acquired so we issue 6,000 shares and they are worth $6.50 each..
Beware the double entry 6,000 shares @ $6.50 will
Debit Cost of Acquisition 39,000
Credit Share Capital. 6,000
Credit Share Premium. 33,000The deferred cash is calculated as 9,000 (shares acquired) x $1.76 / 1.10 = 9,000 x $1.60 = $14,400
The double entry will be
Debit Cost of Acquisition. 14,400
Credit Deferred Liability. 14,400Incidentally, I believe that I have recorded a lecture for this question – possibly not, but I do seem to recognise it
Yes , this is a past paper Question ….Thank you so much Sir . You have been a great help for me .
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