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Hi,
Can you please clarify if you made a mistake in the video, “Group SFP – Share for share exchange”?
When recording the journal entries, why were these entries made, Dr Investment $6M and Cr Capital $2M and Cr Share premium $ 4M.
I understood the why we credit the share capital at $ 2M (issued 2M share at $1 par value), Share premium is just the balancing figure.
But why Dr investment at $6M? P acquired 80% of the 10M shares in S. So the investment amount should have been $8M instead.
Correct journal entries should then be;
Dr Invest $8M
Cr Share cap $2M
Cr Share premium $6MRight?
Hi,
I think that i understood it.
The workings that you did is correct.
In the example of Share exchange, you have calculated the value of P’s shares, which is $6M. The reason why you debited the investment by that amount is because that’s the consideration amount.
The question did not include the consideration amount, it only specified the type of consideration made, and if that question would have included the consideration amount, it would be something like that, “P acquires 80% of 10M Ord $1 shares at a consideration of $6M where payment is made by offering a share exchange…”
The question is only mentioning the different types of consideration that P is giving to the Subsidiary. P did acquire 80% of the 10M Ord $1 shares BUT at any moment did they mention the consideration amount. This is the purpose of the question,for us to calculate the consideration.
I sincerely hope that i got this right. Else i might confuse this during the exams.
Please confirm my understanding.
Hi,
Yes, your understanding is correct. You just need to read each question very carefully.
Thanks
Hi,
Thanks a lot.
Now i feel a little relieved.
Continue the great work with the videos, they are very easy to understand and you have a unique way of not making the subject boring.
Thanks again.
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