Consolidation

** investment in S $55000 ordinary share capital of P $ 100000 ordinary share capital of S $50000 preference share capital of S $10000

Which question is it? Exam reference needed or, at least, the name of the question

upminster and barking may be its an example Question it was in notes of sir hamid raza a renowned F7 tutor of pakistan i am unable to contact him so asking u

When we are preparing working W2 Goodwill (Used to be called Cost of Control Account) think what the entries are actually reflecting. The debit (in this case $55,000) is the other side of Credit Cash - that's straight forward. The credit entries are for share capital and retained earnings. But that's not really what they are, is it. We use capital and earnings as being representative if net assets, don't we. So, instead of share capital and retained earnings in the credit side of the Cost of Control Account, imagine that we credit instead the fair values of the assets acquired so Dr TNCA and credit the Cost of Control Account That's it for the assets Now do the liabilities - what value was the liabilities acquired? (ignore the payables and the overdraft and accruals) We acquired the preference shares. Ah, but we didn't did we! We already held $3,000 of those preference shares so we only acquired $7,000 Ok - in your imagination debit the account with $10,000 but then credit it with that $3,000 we already owned. Now, that $10,000 is already included within our figure for net assets as represented by share capital and retained earnings so there's no need to go through the mental gymnastics of notionally debiting the $10,000. That's already accounted for as part of the $50,000 shares + $12,000 retained earnings. But we still have to make that $3,000 adjustment Is that better?