2 when there is a dividend payable by the subsidiary

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2. When there is a dividend payable by the subsidiary at acquisition date, under what conditions should the existence of this dividend be taken into consideration in preparing the pre- acquisition entries? Discuss: - the difference between ex div and cum div acquisitions - the effects on the acquisition journal entry in the records of the parent under each circumstance. Assume for example that A Ltd acquires all the issued shares of B Ltd for $500 000 when at acquisition date B Ltd has recorded a dividend payable of $10,000. - the effects on the acquisition analysis - the differences in the pre-acquisition entries at acquisition date if the acquisition is cum div versus ex div. [ the cum div entry will need to eliminate the dividend receivable raised by the parent and the dividend payable raised by the subsidiary] 3. Is it necessary to distinguish pre-acquisition dividends from post-acquisition dividends? Discuss: - the definition of acquisition date - the meaning of pre-acquisition and post-acquisition equity - according to para 38A of AASB 127 an entity shall recognise a dividend from a subsidiary in profit or loss ie as revenue – regardless of whether it is paid from pre- or post-acquisition equity
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4. If the subsidiary has recorded goodwill in its records at acquisition date, how does this affect the preparation of the pre-acquisition entries? Discuss: - the difference between internally generated and acquired goodwill, and how the goodwill can be internally generated to the subsidiary but acquired by the parent - the effects on the worksheet in relation to the goodwill eg if the subsidiary has recorded goodwill of $50 and the parent acquires all the shares in a subsidiary for $4,050 when the equity of the subsidiary is $3 950 Parent Subsidiary Dr Cr Group Goodwill 0 50 100 150 In calculating the net fair value of the identifiable assets and liabilities acquired, there must be an adjustment for the unidentifiable asset, goodwill, to calculate the goodwill acquired by the group. The goodwill acquired, but not recorded, is recognised in the business combination valuation entries. The pre-acquisition entries will eliminate the BCVR as pre-acquisition equity. On consolidation, the adjustment columns in the worksheet contain the adjustment necessary so that the group goodwill is shown in the consolidated balance sheet. This amount is the total of the goodwill recognised by the subsidiary at acquisition date and the goodwill recognised on consolidation. This equals the total goodwill acquired by the parent in its acquisition of the subsidiary. 5. Explain how the existence of an excess affects the pre-acquisition entries, both in the year of acquisition and in subsequent years. Explain the meaning of and accounting for an excess as per AASB 3 Year of acquisition : Excess is shown in the pre-acquisition entry as a gain.
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