P acquired 75% of S on 1 July 2005 when the balance on S’s retained earnings was $1,150. P paid $3,500 for its investment in the share capital of S. At the same time, P invested in 60% of S’s 8% loan stock.
While calculating the Goodwill, why only the cash consideration is considered and not the investment in loan stock?
Correct approach:
Parent holding (investment) at Fair Value
Cash paid $3500
Incorrect approach:
Parent holding (investment) at Fair Value
Cash Paid $3500
Investment in Loan stock (60% of 500) = $300
Why the loan stock is not considered while calculating the parent holding (investment) at Fair Value (to determine the value of goodwill)?
Extract from SoFP as at 30 June 2008
Non Current Liabilities P S
8% loan stock $4000 $500
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12y ago#1Isn't it because the parent bought the loan stock from the company whereas the investment in the shares was by paying the former shareholders
The cost of acquiring control, of acquiring the shares in the subsidiary, was the investment. Think about this .... pretend that the loan stock investment was two weeks (months, years, decades) AFTER the investment in the shares
Does that help?
If not, post again
Sorry for replying late
Pretending helps :)......Thank You!
12y ago#3I find "pretending" often helps me, too
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