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hello Mike
am i right in concluding the following treatment of loan notes issue when making consolidating accounts?
If loan notes are part of purchase consideration then first we have to add this in purchase consideration to calculate goodwill. next we check whether P has recorded them or not. if recorded then we deduct this amount from investments sitting in non current assets prior to consolidation. if not recorded then add this loan amount when consolidating. am i right?
No! You’re getting confused between loan notes issued and an investment in loan notes!
If the acquirer issues loan notes as part of the purchase consideration, they issue them to the people who used to own the shares in the victim company. There’s NO concept of cancellation, whether or not these loan notes have been recorded.
Where the parent lends money to its new subsidiary immediately after acquisition by buying the loan notes issued by the subsidiary, that’s the time when cancellation comes in! Cancel the value of the loan notes held by the parent against that same value of loan notes shown as a long-term liability in the subsidiary.
Ok?
hi mike
thanks for your reply
i understand your point. but this is not about cancellation with a loan with subsidiary i am referring to. i am actually referring to the example in peacemaker 2009 where on the face of the question, the investment figure for non current assets is 345m. however in the solution we deducted the 268m amount from this (58m was loan note as part of purchase consideration).
what would be our approach if the parent hasnt recorded this 58m?
To what are you referring when you say “the 268m”?
I can’t be expected to interpret anything – you have to give me full information!
hello mike
sorry for the confusion
the 268m is the purchase consideration. cash payment of 210m plus 58m of loan notes. they are recorded within the total figure of 345m in investments under non current assets (under parents own statement of financial position).
in the solution (i.e when we made consolidation account) we deducted this but we didnt cancel it with anything
As stated earlier, against what do you want to cancel? This is NOT an intra-group item. Cancellation here is a non-concept
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