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Hello Mike
i am confused when to work backwards and forwards during when we have to deal with a rights issue in Question 2. How do we know whether or not the shares from rights issue are already included or not in the trail balance figure? my guess is that when we have suspense account given then it means that the figure in trail balance does not include rights issue shares and we have to add it to work forwards. if suspense account isnt given then we presume its included and work back wards to find the b/d balance. is that the case?
also how to deal with contingent asset and liabilities of subsidiaries when calculating goodwill and making consolidation accounts. i dont understand why we recognize this in the calculation of goodwill when in individual financial statements we just disclose it.
That’s a reasonable rule of thumb for working forwards or backwards with a rights issue when you don’t know whether it has already been included within the share capital figure in the trial balance.
I have to admit that I have never felt the need to use that rule because the examiner invariably tells us that either “the share issue has been properly accounted for in the above figures” or alternatively “only the cash element has been so far recorded with the corresponding credit being included within the suspense account / administrative expenses / cost of sales / or wherever” he wants to tell you where the credit entry has gone
But, yes, ok, if you see a suspense account, the credit entries for the share capital and the share premium have not been correctly dealt with
Contingencies on acquisition of a subsidiary! Yes, this is a good one. The treatment of contingencies in the situation of fair values on the acquisition of a subsidiary are an exception to the probability rule. Even though the prospect of the contingency never actually crystallising is remote, nevertheless we should include it within the fair values of the consideration paid / net assets acquired
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