Short Note 1

Scenario 1: Cost of Investment

1) The cost of investment is the price acquired. Normally by cash, issuing shares and issuing note payable.Journal entries:Dr Cost of investment Cr Share capital, Cr Share Premium, Cr Note Payable

On 1 January 2011, P Bhd acquires a 100% interest in S Bhd paying RM700,000 in cash and balance by issuing 400,000 P Bhd’s RM1 ordinary shares with a market value of RM3.00 each. Compute cost of investment and the journal entries?

Answer:

RMCash 700,000Share capital 400,000 x RM1 400,000Share premium 400,000 x RM2 800,000Cost of investment 1,900,000

Dr CrRM RM

Investment in S Bhd 1,900,000Cash 700,000Share capital 400,000Share premium 800,000

2) Cost incurred for the acquisition is to expensed.Dr Acquisition expenses Cr Cash

3) Cost incurred in issuing the new shares .Dr Share premium Cr Cash (if paid) Cr Accounts /Other Payable (if unpaid)

4) Net identifiable assets of the subsidiaries to be valued at fair value. Dr/Cr Assets or Cr/Dr Liabilities Cr Revaluation Reserves

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