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chapter 22 example 1
Sir, you said the investment cost in a subsidiary is not included because it has been included in the assets and liabilities owed by subsidiary.
so in example 2: we had retained earnings of $8,000 plus shares of $20,000. are you saying these amounts ($28,000) where used to pay debts, and borrowed assets by subsidiary?
Not at all!
The net assets of the subsidiary at the date of acquisition are equal to the share capital + reserves at the date of acquisition. They are always equal, for any company.
So in this example. P paid $28,000 for net assets of $28,000.
1) I see, so when they say p acquired 100% shares in S, it means it bought all the ordinary share’s in s plus the retained earnings at date of acquisition? so its no wonder we deduct the retained earnings in subsidiary S on consolidation because it has already been included in parent company on acquisition date?
2)the fair value of non current asset more than the carry value has nothing to do with the 100% shares bought by parent company on acquisition, its no wonder we add it to non current assets during consolidation?
I have no problem with goodwill and the rest, I just don’t know why you add the fair value of non current asset on acquisition and deduct the retained earnings on acquisition
1. Part of the reason for paying the amount they paid is because they were buying the pre-acquisition retained earnings.
2. If the assets were worth more that what was on the SOFP at the date of acquisition, then in the consolidated statements we add it to the value of the assets to show a ‘fair value’. Part of the reason they paid more for the shares was because the assets were worth more, so it is subtracted when calculating the goodwill.
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