Intro - Consolidation

Question 1

What are the accounting entries for when an entity buys shares in another entity, paying cash?

Answer 1

Dr - investment

Cr - cash

Question 2

What is the accounting entry when an entity buys shares in another entity not with cash but rather with a share exchange?

Answer 2

Dr - investments

Cr - share cap (nominal amount)

Cr - share premium

Question 3

What would an entity need to have to class an investment in another company as their being an associate?

Answer 3

Significant influence and share holding 20-50%

Question 4

How is significant influence normally evidenced?

Answer 4

One or more of

Board representation

Participation in policy making

Material transactions between investors and entity

Interchange of management personnel

Provision of essential technical information

Question 5

How should associates be accounted for?

Answer 5

Using equity accounting

Question 6

How does equity accounting work when accounting for associates?

Answer 6

There is a separate line in the sfp within non current assets to reflect the investment made in the associate. As such is kept separate to any other investment made.
Additionally the spl has a figure reflecting the realised gains it is entitled to from the associate

Question 7

What is a subsidiary?

Answer 7

Where the investor has acquired more than 50% of the voting rights in another business and as such can exercise CONTROL over the business

Question 8

How can you recognise a subsidiary?

Answer 8

Investor has power over the investee

Exposure or rights to variable returns from its involvement with the investee

Can use it’s power to affect the amount in the investors returns

Question 9

How do you account for subsidiaries?

Answer 9

Using acquisition accounting