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Hello,
I have a question regarding the nature of contributions from the Ultimate Controlling Party.
If 100% of the shares in X Company is owned by Y Company and Y Company is totally owned by Z Company (Z is the Ultimate Controlling Party of X, not a shareholder), what will be the proper treatment for the cash received by X from Z?
Can we recognize the amount as an additional paid in capital? Or is it just a gain through profit or loss or gain through other comprehensive income due to the fact that Ultimate Controlling Party is not a direct shareholder?Suppose that the contribution transferred is not a libility – it is just a gift and does not include any future economic outflows.
Thanks in advance,
EleneZ owns / controls Y and …
… Y owns / controls X …
… and you want to know the double entry when cash is paid by Z to Y
Ok, first things first – this is what is known as a vertical group where we have a parent, a subsidiary and a sub-subsidiary
And the good news is that this is not in your syllabus until you arrive at the P2 doorstep
However, I feel that I need to correct a fundamental mis-conception that you appear to be under
When Z buys shares in another company, those shares are previously held by people like you and me and along comes Z, buys our shares and the shares of hundreds of other people and then announces to the World that Z now owns / controls >50% of the X share capital
You see, Z does not pay the money to X – it pays money to the people who used to hold X shares and who were happy to sell those shares to Z
It IS possible that, after control is achieved by Z (or Y) X decides to issue more shares
The double entry in X records is very simply:
Dr Cash
Cr Share Capital
Cr Share Premium (if applicable)and the double entry in Z records will be:
Dr Investment in X
Cr CashDoes that clear it up for you?
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