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Hi,
Please kindly look at the question below, I know how to deal with the share exchange, however I’m not sure on how to go about the loan note acquired, will it be included in the cost of investment? PLS HELP. ThanksOn 1 October 2009, Pedal acquired 75% of the equity share capital of Spoke in a share exchange of two shares in Pedal for three shares in Spoke. The issue of shares has not yet been recorded by Pedal. At the date of acquisition shares in Pedal had a market value of $6 each. Pedal also acquired 50% of Spoke’s 10% loan note at the acquisition date.
I have picked out the figures from the two statements that I think relates to my question
Income statements for the year ended 31 March 2010
Pedal Spoke
Investment income 200 nil
Finance cost (600) (800)Statements of financial position as at 31 March 2010
Noncurrent assets
Investments 4000 –Noncurrent liabilities
10% loan notes 6000 8000- Topics: 0
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I am not sure but logically i think you just account for that 75% acquisation coz thats the portion of acquiring equity ,the 10% loan stock have nothing to do with % of holding of pedal but is rather a NVL and treat as such .Give me your views and we could try solving it together .
the loan note is very simple. When consolidating add together the loan notes of the parent and subsidiary in the SFP. Subtract 0.5x(the balance of the 10% loan note). We subtract this as it is Intra group trading and hence must be eliminated from the SFP.
There is another situation when the exam states that the parent gave e.g. £100 bonds/loan notes to the shareholders of the subsidiary. In this instance we account for it as part of the cost.
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