Consolidation

This topic has 3 replies, 2 voices, and was last updated 7 years ago by P2-D2.

Viewing 4 posts - 1 through 4 (of 4 total)

Author

Posts
August 1, 2018 at 2:41 pm #465543
mahoysam
Participant
- Topics: 37
- Replies: 140
Q1: If a company purchases a subsidiary that has a negative equity, what is the accounting entry, in other words, how is this investment recorded in the parent’s stand alone financials, is it the same:
Dr Investment, Cr cash ? – This does not make much sense since you are buying negative equity.

Q2: if the subsidiary incurs more losses in the second year, again, what is the accounting entry in the stand alone financials?

Thanks
August 1, 2018 at 8:18 pm #465617
P2-D2
Keymaster
- Topics: 4
- Replies: 7235
Hi,

What do you mean by acquiring negative equity please?

If the subsidiary makes a loss then the parent records its share of the post acquisition losses in the same way it records the post acquisition profits.

Thanks
August 2, 2018 at 8:34 am #465711
mahoysam
Participant
- Topics: 37
- Replies: 140
Hello,

I mean acquiring an entity that has negative equity on the balance sheet. Many entities have a lot of accumulated losses which turns their equity negative.

Kind Regards
August 3, 2018 at 12:59 pm #465973
P2-D2
Keymaster
- Topics: 4
- Replies: 7235
Hi,

If that is the case then you would have negative net assets in the net assets working and this would then give a bargain purchase, which is credited to retained earnings in the year of acquisition, instead of goodwill.

Thanks
Author

Posts

Viewing 4 posts - 1 through 4 (of 4 total)

The topic ‘Consolidation’ is closed to new replies.