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I couldn’t reply to the question i posted earlier as the thread was closed.
Earlier my question was –
How is the expense on acquisition of a subsidiary accounted for?And during consolidation how is this reflected?
And your answer was –
In the parent’s own records we have, as appropriate:
Dr Investment in subsidiary
Cr Cash, share capital, share premium, long term debtOn consolidation … there is no record of the cost of acquisition!
The investment recorded by the parent is, on consolidation, replaced by the net assets of the acquired subsidiary + goodwill
OK?
I have another question, So during acquisition
Entry in the parent co will be like this
1. DR Investment in sub (including the expense on acquisition)
CR cash( During Consolidation the entry will be )
2. Dr Assets
Dr Goodwill
CR Liabilities
CR equity
CR Investment in subsidiary (Here we dont include the expenses on acquisition is it?, If so, then the investment account will have a balance being equal to the expenses incurred on acquisition, this is assuming that we capitalize the transaction cost in the first journal entry . On the other hand if we are not supposed to capitalize the expense then how will that expense be accounted for?“On the other hand if we are not supposed to capitalize the expense then how will that expense be accounted for?”
We are no longer allowed to capitalise that expense so, on the occasion of incurring that expense we …
Dr Administrative Expenses
Cr Cashand those Administrative Expenses get written off to statement of profit and loss as a period expense
Your journal entry doesn’t make sense
On consolidation we add across assets and liabilities (P + S)
We ignore the line item “Investment in Subsidiary”
And we see a new line item appearing “Goodwill on Acquisition of Subsidiary”
These matters are not double entry with debits and credits … they are simple addition exercises
OK?
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