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Hi, pls what is the implication of a Holding company acquiring 50% of the loan of a Subsidiary on the day of acquisition. I understand that the loan amount would reduce by 50% in the CSFP, where does the other leg go? Is it ’embedded’ in the the net assets acquired such that it does not require any further adjustment?
No, the cancellation is ( in P’s books ) reduce the asset of “Loan to Subsid” and in S books reduce the liability of “Loan from parent”
There is no ‘loan to or from’ in the question apart from the $2,000 10% loan notes appearing in S books. which was reduced to $1000 in the solution. There’s just one figure for Current Assets and another for Current liabilities none of which was adjusted with the $1000. In the opening paragraph it said “on the same day, H acquired 50% of S 10% loan notes at par”. Hillision
Hi – if you look again at the question, there’s an amount of 2,000 10% loan notes in the S balance sheet, and the investment figure in the parent is 11,280 ie it includes the 1,000 loan note acquisition of 1,000. Cost of shares was only 10,280 according to the opening paragraph. So, cancel 1,000 investment against 1,000 of the 2,000 loan liability in the subsid
Yes, thank you i have seen it but the question now is why is it not part of the cost of acquision? Somehow, i left it out and got the answer but i dont think i did it whole heartedly.
It COULD be included in the cost of acquisition – and would be but for the fact that we bought it at par. If we had paid a premium for the loan note, that premium would certainly have have been part of the cost of acquisition. Because we paid par value, it has no affect
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