Acca financial Accounting (FA) Study Text ac ca (FA)

Chapter 21 

KAPLAN PUBLISHING

 

417 

Including the fair value of consideration paid in consolidation workings  

1 

Confirm the basis of the share exchange between the parent entity (P) and 

the subsidiary entity (S) shareholders who have agreed to sell their equity 

shares e.g. the proportion of the subsidiary entity’s issued share capital 

that has been acquired by the parent, along with the relevant ratio or 

proportion to calculate the number of equity shares that the parent should 

issue, along with the fair value of a share.in the parent. 

2 

Calculate the fair value of consideration paid based upon the share 

exchange for use in the goodwill calculation in W3 as follows: 

S issued share capital × %age acquired by P × ratio × FV of P share 

3 

Check to see if P has accounted for the issue of shares and the cost of the 

investment in S in its own statement of financial position. If not, you will 

need to do this as follows: 

 

Debit: Cost of investment (fair value of shares issued) 

$m 

 

Credit: Issued share capital (nominal value of shares issued) $m 

 

Credit: Share premium (premium on shares issued) 

$m 

4 

Ensure that the increase in issued equity share capital and share premium 

is also reflected in the consolidated statement of financial position. 

Remember that, in addition to a share exchange, the parent may also make an 

immediate payment of cash as part of the agreement to purchase a controlling 

interest in another entity.