In the course of business operation, enterprises usually purchase part of the equity of subsidiaries from time to time to protect their own rights and interests according to the actual situation. How to make accounting entries when purchasing minority shares in subsidiaries?
Accounting entries for purchase of minority interests in subsidiaries
Debit: disposal of fixed assets
Credit: fixed assets
Debit: long-term equity investment
Credit: disposal of fixed assets
Non operating income
Consolidated financial statements:
Debit: capital reserve
Credit: long-term equity investment
What are long-term equity investment and capital reserve?
Long term equity investment refers to the acquisition of the shares of the invested entity through investment. The equity investment of an enterprise in other entities is generally regarded as long-term holding, as well as the control of the invested entity through equity investment, or the significant influence on the invested entity, or the establishment of a close relationship with the invested entity to diversify business risks.
The purpose of long-term equity investment is to hold shares of the investee for a long time, become a shareholder of the investee, and control or exert significant influence on the investee through the shares held, or to improve and consolidate trade relations, or hold long-term equity investment that is not easy to realize.
Capital reserve refers to the part of capital contribution received by an enterprise from an investor in excess of its share in the registered capital (or share capital), as well as other capital reserves.
Capital reserve includes capital premium (or capital stock premium) and other capital reserves.
The capital premium refers to the amount that the investor pays to the enterprise more than its share in the registered capital of the enterprise.
Capital stock premium refers to the amount by which the amount actually received by a joint stock limited company when issuing shares at a premium exceeds the total par value of the shares.
Capital reserve - capital/equity premium is a kind of reserve capital of an enterprise, which can be converted into registered capital according to legal procedures.
Other capital reserves refer to other changes in owner's equity other than capital premium (or capital stock premium), net profit and loss, other comprehensive income and profit distribution.
Accounting treatment for purchase of minority shares in subsidiaries
After an enterprise obtains control over a subsidiary and forms a business combination, it shall be divided into individual financial statements and consolidated financial statements of the parent company, and then processed:
1. In individual financial statements
For the long-term equity investment newly obtained from the minority shareholders of the subsidiary in the parent company's individual financial statements, the entry value of the long-term equity investment shall be determined in accordance with the Accounting Standards for Business Enterprises No. 2 - Long term Equity Investment. That is, the long-term equity investment is recognized according to the actual payment price or fair value.
2. In the consolidated financial statements
When the parent company purchases the equity of the subsidiary owned by minority shareholders of the subsidiary, in the consolidated financial statements, the difference between the long-term equity investment newly acquired due to the purchase of minority equity and the share of net assets of the subsidiary calculated continuously from the purchase date or the merger date according to the newly increased shareholding ratio should be adjusted to the capital reserve (capital premium or equity premium), If the capital reserve is insufficient to offset, the retained earnings shall be adjusted.
How to make accounting entries for company equity acquisition?
Accounting entries for equity acquisition:
According to the equity transfer agreement, accounting entries:
Debit: Paid in capital - original shareholder.
Credit: Paid in capital - new shareholder.
The equity transfer payment may not be through the company account. If through company accounts, accounting entries:
(1) When new shareholders pay
Debit: cash on hand and bank deposit.
Credit: other payables - collection of equity transfer funds.
(2) Paid to original shareholders:
Debit: other payables - collection of equity transfer funds.
Credit: cash on hand, bank deposit.
Equity acquisition refers to the acquisition of all or part of the equity of the target company's shareholders. The result of holding acquisition is that Company A holds enough shares to control the absolute advantages of other companies, which does not affect the continued existence of Company B. Its organizational form remains unchanged, and it still has an independent legal personality in law. The commodity bar code held by Company B is still held by Company B, and there is no change due to the change of shareholders or the number of shares held by shareholders. The holder of commodity bar code has not changed, and the right to use it has certainly not been transferred. Buying equity means that an enterprise transfers the equity investment of another enterprise to a third enterprise. We can regard the relationship between the first enterprise and the third enterprise as a friend or brother. For equity restructuring, the first enterprise is like selling equity, and the third enterprise is like buying equity.
The risk of equity acquisition is mainly the loss that may be caused by tax disputes, tort, etc., and the compensation that may be caused by providing guarantee for the debts of others. It is difficult to estimate the possibility of contingent liabilities in the whole acquisition process. In addition, the problem of creditor's rights is sometimes difficult to grasp. It is impossible to judge whether it can be recovered or how many bad debts may occur. Therefore, the risk of acquiring equity is high and there will be no contingent liabilities in the purchase and sale of acquired assets. Only pay attention to the inventory of each asset in the acquisition to make it consistent with the contract. Both parties to the acquisition of assets have the legal liability to continue after the completion of the transaction, and the acquiring company is not required to bear the debts of the acquired company (except for the overall acquisition). Generally speaking, the assets of an enterprise are sold in whole or in part. If the acquired enterprise sells all its assets, the enterprise cannot operate and has to be dissolved.
How to write accounting entries for the treatment of purchasing minority shares in subsidiaries
Individual accounting treatment of parent company. Since the long-term equity investment of the parent company has been accounted for by the cost method before the purchase of minority equity of the subsidiary, no adjustment is required, and the cost method can still be used when the minority equity of the subsidiary is purchased. Accounting treatment of the parent company The parent company adopts the cost method for accounting, and the accounting treatment is as follows:
Debit: long-term equity investment.
Credit: bank deposit.
At the end of the period, the parent company adopts the cost method for accounting, and the accounting treatment is as follows:
Debit: long-term equity investment.
Credit: bank deposit.
As the long-term equity investment of the parent company is accounted by the cost method, individual statements are not adjusted.
How to purchase equity entries between subsidiaries under the same control
1. The entry of equity purchase between subsidiaries under the same control is:
Debit: long-term equity investment
Credit: bank deposit
2. Long term equity investment refers to obtaining the shares of the invested entity through investment. An enterprise's equity investment in other entities is usually regarded as long-term holding, and it can control the invested entity through equity investment, or exert significant influence on the invested entity, or establish close relationship with the invested entity to diversify business risks.
3. Long term equity investment shall be determined at the cost of acquisition. The cost of obtaining a long-term equity investment refers to the total price paid when obtaining a long-term equity investment, or the fair value of giving up non cash assets, or the fair value of obtaining a long-term equity investment, including taxes, fees and other related expenses, excluding the evaluation, audit, consultation and other expenses incurred to obtain a long-term equity investment. Acquisition cost of long-term equity investment.
