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Hello,
I have a question about issuing loan note when parent acquire subsidiary. The answer is that, the interest incurred will not be included when calculating retain earnings of parents.
I confused about this case and look forward to seeing your response.I’m sorry to say but your question is not clear enough
Is the parent lending money (when issuing the loan note) to the subsidiary or …
… is the loan note a part of the acquisition consideration and the parent is issuing this ‘promise to pay’ to the people that were formerly shareholders in the subsidiary
Better still, do you have a specific question in mind that I can read and clear my own mind?
I mean, the loan note is a part of the acquisition consideration.
Detail “P issued to the shareholders of S a $100 10% loan note for every 1000 shares it acquired in S”OK, that’s cleared up one query that I had
Unfortunately, I am unable to clear up your confusion because you have now passed your confusion on to me!
I have no idea why the loan interest should not be shown as an expense in the statement of profit or loss (and therefore also the retained earnings) of the parent
My only explanation would be that the acquisition was on the last day of the parent’s financial year so no interest had yet accrued
Do you have a question name where you have found this?
The question is “On 1 October 20X2, Paradigm acquired 75% of Strata’s equity shares by means of a share exchange of two new shares in Paradigm for every five acquired shares in Strata. In addition, Paradigm issued to the shareholders of Strata a $100 10% loan note for every 1,000 shares it acquired in Strata. Paradigm has not recorded any of the purchase consideration, although it does have other 10% loan notes already in issue.
And the working of RE not include the interest of loan note.
You can see detail in Mock exam 2, BPP Kit F7 2016-2017.You can watch my videoed answer on:
https://opentuition.com/acca/f7/acca-f7-revision-kit/
What makes you think that the loan note interest is not correctly accounted for in the figures in the question?
There’s nothing in the question to suggest that that loan interest has not been paid and correctly accounted for!
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