Parent Cash $400 Inventory $500 Other Current Assets $100 Subsidiary Cash $100 Inventory $300 Other Current Assets $200 Parent acquired 50% of the equity of subsidiary for $500 in cash. What is the current asset after consolidation under each method (Equity,Consolidation and proportionate consolidation)
I would really appreciate if someone try to answer this
Ok ill try Current assets under equity method: same as for parent alone, since under the equity method, the value of the investment is a non current asset. So, equity method CA = 400 + 500 + 100 Proportionate consolidation: take 1/2 of each item and add to parent. Cash = 400 + 50 Inventory = 500 + 150 Other current = 100 + 100 Full consolidation: take all of sub’s items and add to parent: Cash = 400 + 100 Inventory = 500 + 200 Other current = 100 + 200 hope that helps. cheers.
Thanks Zoya!!
I was going to try it, but wasn’t sure (and still so) how the parent buys it for $500 cash wen it only had $400 in cash…no indication of loan, etc.
maybe it was a gift!
Similar question appeared in 2009 Mock exam … parent had less cash than cash purchase price. Additional question: Under equity method, cash paid out from parent and hence parent CA has to be reduced… isn’t it?
I would imagine that if there was insufficient cash, the parent issued either stock, or a combination of stock and cash. Purchase prices - in reality - are rarely “all cash” transactions.
I try as well: Equity Method Cash: 400 - 500 (???) Inventory: 500 Other Current Assets: 100 Proportionate Consolidation Cash: 400 + 50 - 500 Inventory: 500 + 150 Other Current Assets: 100 + 100 Consolidation Cash: 400 + 100 - 500 Inventory: 500 + 300 Other Current Assets: 100 + 200 We account for the cash we paid for the subsidiary in each of the 3 methods, right? i.e. current assets (i.e. cash) must go down by the price we paid for the subsidiary irrespective of method used? Correct?
this is from this year mock AM Merick case, it was specified if numbers were before/after the acquisition