Coroprate accounting - Essay Example

This is due to X being the holder of 60% of Y’s share capital despite not taking part in management. This is because corporate ownership can exist without an investor taking part in the day-to-day management of another company. This can also be backed by the concept of corporate governance. Corporate governance principles dictate that ownership and management must be separated and no party should be allowed to participate in both (O’Bryan 133). This is why in virtually all public corporations the directors and the shareholders are different people.

On the date of acquisition, Carol ltd. will recognize the contingent liability at its fair value, that is, $20,000. This means that it will be credited at Carol ltd. books at $20,000. When the liability eventuates after acquisition, it will be removed from the books of accounts by debiting the contingent liability account. This will be matched with accredit entry in the bank (cash) account, which depicts a decrease in assets as