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Hi In this question, Paradigm issued to the shareholders of Strata a $100 10% loan note for every 1,000 shares it acquired in Strata. So FV of consideration is 1500 Which is added to Non Current Liabilities. Could you tell me why that is? How can investment be treated as liability? And its not a deferred payment either.
Also the same adjustment in Dec 2010 question, premier issued a $100 6% loan note for every 500 shares acquired in Sanford which is 800 has been deducted from investments under Non Current Assets.
I can’t understand why those two adjustments have been treated so differently and what am I supposed to do with if such question appears in the exam.
I hope its not too much trouble for you.
Thanks .
“How can investment be treated as liability?”
You need to think double entry! If I arrange to buy an investment asset but don’t pay for it immediately, then it’s an investment and it’s a liability
The liability is shown as such and the investment element is included in the calculation of Goodwill in working W2
“which is 800 has been deducted from investments under Non Current Assets.”
The asset side of the double entry should have been entered into the cost of control account (aka Goodwill account) so has been deducted from “Investments” and included in the Goodwill calculation in working W2
OK?
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