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Hello everybody,
I do not understand one example in the Emilie Woolf study text 2011, page 365,
It is said that the directly attributable expenses to the acquisition shall reduce the net assets of the Parent and reduce also its retained earnings.
What would be this accounting entry.
IFRS 3 states that such expenses shall be expensed in the period they have incurred, i.e. Dt Expense/ Cr payable; then Dt payable/ Cr RE.Can anyone explain to me the example of Emilie Woolf text and what the etries would be.
Thank you
I don’t know the question but as net assets are equal to equity(which include retained earnings) it seems correct that if retained earnings decrease so the net assets must decrease as well. Expenses mean decrease in cash, bank or increase in payables – each of it = decrease of net assets, and on the other hand decrease in profit = retained earnings…
“IFRS 3 states that such expenses shall be expensed in the period they have incurred, i.e. Dt Expense/ Cr payable; then Dt payable/ Cr RE.”
I believe that you may have misread this. The first debit and credit make sense ie Debit Expenses ( and therefore reduce profits / retained earnings ) and Credit Payables. Then we need to settle the liability in payables so Debit Payables and Credit Cash
The point here is that directly attributable costs of the acquisition USED TO BE treated as part of the cost of the investment and were capitalised. But that has now changed and those acquisition expenses ( eg legal feel or accountancy fees ) must now be treated as an expense and NOT CAPITALISED
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