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A very stupid question sorry, if an entity is acquiring a financial asset (let's say 10% equity interest in Entity Lambda) for cash of $100. But the fair value of the entity Lambda is let's say $6,000. So the fair value of the 10% shares, pro rata is $600.
Should the entity immediately book, upon acquisition, Dr Financial asset (equity interest in Entity Lambda): $600;
Cr: Cash: 100
Cr: Immediate gain: $500.
Or, Dr: Financial asset: $100
Cr: Cash: 100.
I'd rather say the first journal, because otherwise, the entity would need to revalue the financial asset and book a gain on revaluation of $500. But I guess the point is, if they book the financial asset at $100, the gain on revaluation could be unrealised gain, whereas, they book the financial asset for $600 and recognsie a gain on acquisition of $500 which is realized gain?
Thank you.
Should the entity immediately book, upon acquisition, Dr Financial asset (equity interest in Entity Lambda): $600;
Cr: Cash: 100
Cr: Immediate gain: $500.
Or, Dr: Financial asset: $100
Cr: Cash: 100.
I'd rather say the first journal, because otherwise, the entity would need to revalue the financial asset and book a gain on revaluation of $500. But I guess the point is, if they book the financial asset at $100, the gain on revaluation could be unrealised gain, whereas, they book the financial asset for $600 and recognsie a gain on acquisition of $500 which is realized gain?
Thank you.