🎥+✏️ Downstream Sales and Upstream Sales🟢

Responses

1. 

   Olessya Diyunova 24 August 2024

   Hello, I have a question regarding a situation where we do not have an excess fair value over the book value of net assets, but instead, we have negative goodwill. I understand that in such cases, we may need to record a gain.
   Could you please clarify what kind of journal entries should be made in this scenario? Additionally, I’m interested in understanding how this situation would impact the balance of the investment on our financial statements.
   Thank you, Olessya

   1. 

      Maroun, CPA 27 August 2024

      Hello Olessya,

      In a business combination, if the purchase price is less than the fair value of the acquired net assets, a gain is recognized on the consolidated income statement. This is known as a bargain purchase gain.

      It’s important to note that there is no change in the journal entries recorded in the parent’s books. The parent company would still record the acquisition by debiting the Investment in Subsidiary account and crediting Cash (or another asset account, depending on what was given up in exchange for the subsidiary).

      During the consolidation process, the Investment in Subsidiary account is always eliminated. This means that the investment recorded on the parent’s books is offset against the subsidiary’s equity, so it does not appear on the consolidated balance sheet. Instead, the identifiable net assets of the subsidiary are adjusted to their fair values, and the bargain purchase gain is credited to balance the journal entry.

      I hope this helps! Please keep practicing and let me know if you have additional questions.