Paul acquired 24m $1shares (80%) of the ordinary shares of Sarah by offering a share for share exchange of two shares for every three shares acquired in Sarah. Paul made cash payment of 2m and promised to pay $1 per share after 3years.

Both Paul and Sarahs shares have a nominal value of $1 and a current market value of $ 2 and $ 1.5 respectively. The cost of capital is 10% and the value of $1 receivable in 3years time can be taken as $ 0.75

1. Calculate the cost of investment and show the journals to record it in Pauls books
2. Show how the discount would be unwound