Company A takes 50% in B.
Under aquisition method, the Bal Sheet of A will have cash outgo (50% of B’s equity). So the total current assets will be (CA of A + CA of B - cashoutgo)
Current Liab = CL of A + CL of B.
But Schweser has not considered reduction in Current Assets in one of the practice problems.
Not sure whats the best way to look at it. Please help thanks.
Did the cash go to the shareholders, or to the company?
Preacquisition BS Particulars Company P Company S CA 48,000 16,000 Other Assets 32,000 8,000 Total 80,000 24,000 CL 40,000 14,000 Common Stock 28,000 6,000 Retained Earnings 12,000 4,000 Total 80,000 24,000 Post acquisition BS Company P Particulars Acquisition Equity CA 59,000 43,000 Investment in S - 5,000 Other Assets 40,000 32,000 Total 99,000 80,000 CL 54,000 40,000 Minority Interest 5,000 - Common Stock 28,000 28,000 Retained Earnings 12,000 12,000 Total 99,000 80,000
thanks sir. For all practical purposes, it cash remains in the company. In the above table post acquisition CA/CL is not what the answer for the given problem is.
above is table is my understanding of the cncept, it may be wrong. Please advise.
sorry the table is not readable in this form…hopefully this works…
Particulars Acquisition CA 59,000 Insvestment in S - Other Assets 40,000 Total 99,000 CL 54,000 Minority Interest 5,000 Common Stock 28,000 Retained Earnings 12,000 Total 99,000
just one more question…minority interest is taken as equity for D/E computations in few ques…outside CFA examples it is suggested not to consider it as equity…what rule to keep in mind for exam…