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Dear Mike
Is there difference between situation where subsidiary already has loan notes issued before acquisition and situation where subsidiary issues loan notes after acquisition. If there is difference what effect does it have on calculation of goodwill and retained earnings.
None really. If it has loan notes in issue before, that’s part of the “Fair value of Subsidiary net assets at date of acquisition”
If it issues loan notes after acquisition, the only affect this would have on the consolidation is if the parent were to buy some of those loan notes. ie, the parent would lend money to the subsidiary and the subsidiary would issue a loan note to the parent to acknowledge the debt.
After that comes cancellation of the notes held by the parent against the total of the subsidiary’s loan note borrowing leaving just the element of loan borrowed from outsiders
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