Page 336 - SBR Integrated Workbook STUDENT S18-J19

Chapter 21

3.2 Changes in group structure

Acquisition of a subsidiary

In the consolidated statement of cash flows the entity must record the actual cash
flow for the purchase of the subsidiary net of any cash held by the subsidiary that is
now controlled by the group.

Worked example

Sparkling buys 70% of the equity shares of Still for $500,000 in cash. At the
acquisition date, Still had cash and cash equivalents of $25,000.

Although Sparkling paid $500,000 for the shares, it also gained control of Still's
cash of $25,000. In the consolidated statement of cash flows, this would be
presented as follows:

$000
Cash flows from investing activities

Acquisition of subsidiary, net of cash acquired
($500,000 – $25,000) (475)

The assets and liabilities of the acquired subsidiary must be included in any workings
to calculate the cash movement for an item during the year.

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