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I would like to know what would be the effect of a share issue at a :
a) the beginning of the year
b) the end of a year
c) at acquiring of a subsidiaryWhat be will be treatment in case either the PARENT or SUBSIDIARY issue shares in the Consolidated SFP AND Consolidated P&L and Consolidated Statement of Cash Flows ?
Thanks
I’m not sure what it is you’re asking here “at the beginning / end of the year”
The share capital at the end of the year will show an increase when compared with the previous year
A share issue on an acquisition is reflected in the working W2 Goodwill but could very well not have been reflected yet by the parent – they’ve merely handed out pieces of paper so no cash transaction so no double entry
In the consolidated profit or loss account ……. what is there to show? Nothing!
In the consolidated cash flow, did the company issue shares for cash to new investors or was it a paper swap with the former shareholders of the subsidiary just recently taken over?
Issue for cash? Show the proceeds of the issue in financing activities
Issue in a share for share exchange and therefore no cash? No entry in the cash flow statement
Ok?
My question was that often in the scenario they state that the parent has issued no new shares since it has acquired S .
Now if P issues shares what will be the treatment in CSFP ?
And for knowledge purposes what would be the entries if S issued shares to P on being acquired ? Will a change be shown in net assets of S or what ?
Could you explain by what you mean by the paragraph 3 you wrote ?
Paragraph 3 first. When a transaction takes place, cash is most frequently involved, either immediately or one step further down the line in the process
For example, a cash purchase is debit purchases and credit cash
If the goods are bought on credit, the entry is debit purchases and credit payables. Next month, the debt is settle by debit payables and credit cash. So cash is involved in maybe 96% – 98% of all transactions
When a company issues shares to the former shareholders of a subsidiary that is being taken over, the former shareholders hand over the share certificates representing their holdings in the victim company and, in exchange, the new parent company could issue some of its own shares to those former shareholders
How much cash has changed hands. Right! None!!
Now, what if the parent issues shares after the takeover? Nothing spectacular! Debit cash, credit share capital and credit share premium if applicable
If S issues shares after acquisition, unless P decides not to take up the rights in a rights issue, there is no change in the relative holdings between the parent and the nci
If it’s a bonus issue, the relative percentages will be totally unaffected
In a rights issue the net assets of the subsidiary will increase by the amount of the subscription money received
In a bonus issue, the net assets remain unchanged since mooney changes hands in a bonus issue
Ok?
Ok. So summing up the rights issue how will it be reflected in the Net Assets of S?By a %age?. And how will it be reflected in P Equity in the SFP at reporting date?
Can a example be illustrated so all the above issues are covered and I can understand fully.
Thanks a lot !
IF the parent company (and it’s a big IF in upper case letters) takes advantage of the rights as do also the nci, then the double entry for the subsidiary is debit cash and credit share capital / share premium if appropriate. So percentage holdings do not change
IF (again in upper case) the parent chooses not to exercise their rights, then we could be faced with a partial disposal (a deemed disposal) that will affect our percentage holding and COULD lead to a subsidiary becoming instead an associate
From that date on equity accounting would apply but also we would have to calculate the profit in the parent AND in the group of the deemed disposal
Ok? Better?
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