- October 19, 2015 at 3:20 pm #277553
P acquired 80% of S ordinary share capital, several years ago when balance on Retained Earnings was $ 12000
and draft financial statements were shown of which relevant here is:-
Investment in S 55,000
Ordinary share capital 100,000 50,000
Preference share capital – 10,000
additional information given at end is:-
P purchased 30% of the preference shares for $3500 some years ago. The impairment of goodwill amounts to $2400.
I solved it and the answer for goodwill was $5900 from which to minus $2400 of impairment
but the answer mentioned is 0 because they have not Dr. Cost of investment with the amount of preference shares i.e $3500 but the Cost of investment is Cr, with the share capital of preference shares i.e 3000
kindly guide meOctober 19, 2015 at 4:06 pm #277567
** investment in S $55000
ordinary share capital of P $ 100000
ordinary share capital of S $50000
preference share capital of S $10000October 19, 2015 at 4:13 pm #277571MikeLittleKeymaster
- Topics: 26
- Replies: 22706
Which question is it? Exam reference needed or, at least, the name of the questionOctober 22, 2015 at 6:46 pm #278461
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 uOctober 23, 2015 at 8:05 am #278508MikeLittleKeymaster
- Topics: 26
- Replies: 22706
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?
- You must be logged in to reply to this topic.