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Good evening,
I have a question regarding a consolidated balance sheet.I would be very grateful if you could help me out.I haven’t been able to insert an image of very basic example of this,so I will describe the situation instead.A parent company invested £15,000 in the subsidiary company.I understand that for the parent,the journal entry for this should be DB Investments, CR Bank (£15,000).However,I believe that from the subsidiary’s POV,the journal entry should be DB Bank,CR ordinary Share Capital (£15,000).So then why does the subsidiary only have £10,000 of share capital?Surely it should have a minimum of £15,000 due to the investment from the parent company?No cancellations have occurred as of yet-this is just the beginning of a very basic question on consolidating balance sheets.
Thank you in advance.
Welcome to the Opentuition forums. I think this is because the subsidiary’s shareholders benefit from transaction. The subsidiary’s shareholders agree to sell their shares to the parent so the parent can take control of subsidiary. In other words the subsidiary itself (the legal corporate personality) has no double entry to make. Think this will be the case in most acquisitions. Think the above reasoning is correct. Hopefully, someone will confirm or dispute my assertion. Hope this helps.
Thank you for your response.I’ll repost this on the ask the tutor forum just to double check.
I will link to the ask the tutor response for anyone coming across this thread.
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