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Hi DEar tutor, i just need to be paid attention the below question whether i understood it correctly or not
Thanks in advanceHedra
Under SofP
Non-current asset section
Investments-245
Under non-current liability of both company 50Note.
Immediate cash pay 195
Salvador accepted a % 50 million 8% loan from Hedra at the date of its acquistionDebit cash-195
credit investment-195investment(245-195=50
the rest 50 million is the loan’s investment 50 is not it?
is this correct?
debit liability-50
credit investment-50Under non current liabilty
50-50=0 intra group trading?
I think i understood it correctly?“Debit cash-195
credit investment-195”Please think carefully about this entry! I suggest that this is probably not correct
The only way that this could be correct is if an entity that held an investment at cost of $195 now sold it for $195 and, if that’s the case, the entity needs seriously to review its investment policy!
“is this correct?
debit liability-50
credit investment-50”I cannot for the life of me work out the narrative that could fit this journal entry – unless … how about this?
The entity owed money and held an investment and the lender agreed to take that investment as part payment of the debt that was owed. That would do it!
Ah! Is this you putting journal entries to a consolidation adjustment?
It’s not necessary!
When you come to the Investment line, it’s simply $245 – $50 = $195 and when you come to the Loan line, it’s simply $50 – $50 = $Nil
Do NOT put these into journals – they won’t be journalised in real life … they are simply additions / subtractions from a line in the preparation of the financial statements
“Under non current liabilty
50-50=0 intra group trading?”What has intra-group trading got to do with the cancellation of an intra-group loan loan
OK?
I understood any loan note investment and immediate cash pay has to be deducted from Investment automatically such as the example above 245-195-50
It’s not an automatic exercise – if the Loan Note asset is shown separately and not included within the investment figure, then no deduction is necessary
Besides, if this is what you were trying to achieve with:
“is this correct?
debit liability-50
credit investment-50”then it’s still wrong and should be:
Dr Loan Note asset 50 (not debit liability)
Cr Investment 50Easy though it might appear, there is no way that you can reduce this exercise to automatic status!
“I understood any loan note investment and immediate cash pay has to be deducted from Investment automatically”
will not always be applicable
Sorry 🙁
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