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 35000
Reporting date in 30th September 2012. Calculate consideration transferred and unwinding of discount and what would there likely treatment ?
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Consideration Transferred
11y ago#1This 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 !!
11y ago#3From 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. 33,000
The 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. 14,400
Incidentally, 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 .
11y ago#5You're welcome
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