1. Profile photo of abigail says

    Good day,

    Question 6, says we should solve for retained earnings, you only solved that of the parent company.
    The question should have been we should solve the retained earning for the parent company.
    Am free to correction, so feel free to correct me.

    • Profile photo of John Moffat says

      I assume you mean test question 6 at the end of the chapter? (because example 6 in the lectures is not about retained earnings)

      If you do, then the answer at the back of the notes is correct.

      The retained earnings of the parent company do not change.

      The retained earnings in the Consolidated Statement of financial position are those of the parent company, plus the parent company’s share of the post-acquisition profits of the subsidiary.

  2. Profile photo of icey says

    Your lectures are amazing im never left with any questions :) but i got stuck on the NCI working the fair value at date of acquisition isn’t given How is it 5000 ? My concept isn’t clear :/

  3. Profile photo of kevin says

    Any help on ths question?
    S sold a machine wth a NBV of $100,000 to H at a transfer price of $120,00 at the year start.Group policy dictates that the machine is depreciated over its remaining life of 5yrs.calculate the unrealised profit on sale of the machine.

  4. avatar says

    pls what could have happened to my android phone? I have been watching ur lectures on my browser for the past 3weeks, but suddenly this week, I couldn’t even enter d website on d same browser. I could only enter via opera mini, but the videos are not showing on operamini. I have checked ur technical page and downloaded another browser but no solution. pls heeeeellllllppppp me.

  5. Profile photo of Bakhtawer says

    I’m appearing for F3 earlier than my friends, self studied for it.I did many chapters in A levels so I did not have much new things to deal with.But all those I had , you made them easier for me.Thank you so much Mr.Moffat ! :) Good on you!

    • Profile photo of John Moffat says

      Because they are two completely different things.

      The fair value adjustment at the date of acquisition is simply to get a fairer measure of the goodwill.

      The unrealised profit occurs because one company has previously sold to the other company at a profit and some of the goods remain in inventory. The individual companies are entitled to their profits in full – it is only in the consolidated accounts that we wish to show only the profit actually realised by the group. Prior to the date of acquisition there was no consolidating and so there was no such thing as unrealised profit.

  6. Profile photo of 6shahir says

    My Sir taught me to do consolidation in about five steps.
    First determine the % of ownership
    FInd the fair value of net adjustments
    Group retained earnings
    My questions for u.. is that under the second step it contains both acquisition and on reporting date.. Where should we minus the unrealized profit.. ???
    We calculate the post acquisition retained earning under the second step…

  7. avatar says

    I am trying to get right. the balance sheet and p & l acct extract of ajah plc revealed the following details
    Bal sheet date as at 31 December, 2008———————————$000
    ord share of $1 each==================================800
    10% pref share of $1 each—————————————————–200
    retained profit ———————————————————————500
    P&l account for the year ended Dec 31 2008
    Turn over ————————————————————————-2,000
    profit after tax———————————————————————-682
    Retained profit for the year—————————————————–360
    Calculate the non controlling intrest as it will appear in the consolidated
    profit and loss account of lekki, ….if ,it has 75% intrest in the equity of ajah plc
    in addition, lekki also had 40% intrest in the 10% preference shares

    • Profile photo of John Moffat says

      The profit attributable to the non-controlling interest is 25% x 360 = $90.

      (Remember that we stopped calling the statements the Balance Sheet and the Profit and Loss Account several years ago. It is the Statement of financial position and the Statement of profit or loss.)

  8. avatar says

    Hello ..johnmoffat.I have a query abt this exercise below. I dun understand the scenario.Can you help me ?

    Ex: Wet co owns 70% share in Dry co. On 1 july 20×5 the book value of the NCA( a non depreciating asset) of dry was $8000 while their fair value was established at $6200. On 30 june 20×6 the R.E of wet co was $9500 and of dry co was $2800.

    Ques: In preparing the comsoliadated SOFP of wet co at 31 dec 20X4, what the adjustment would be needed to NCA for the asset transferred?

    Ans said: decrease by $1800 !

    Can u explain why they decrease $1800?

    • Profile photo of John Moffat says

      If you listen around 4 minutes in, then I do explain.
      Since P acquired its holding on the date of incorporation, the value of the NCI at the date of incorporation must simply be their part of the share capita;. i.e. 25% x 20,000 = 5,000.

  9. avatar says

    one more question regarding NCI

    X acquired 95% of ordinary shares on Y at 20×0 31 december.
    retained earnings : of Y

    revaluation reserve @ 20×1 = 100

    NCI fair valuve at the date of acquisition was 45000$

    what is the amount of NCI reported ?

    • Profile photo of John Moffat says

      I am assuming that you want the NCI as at 31 December 20X1. You have not said what the balance on the revaluation reserve was at the date of acquisition. If I assume that the balance then was zero, then the NCI is:

      45000 + (5% x (800000 – 700000)) + (5% x 100000) = 55,000.

      (If the balance on the revaluation reserve at the date of acquisition was 100000, then that last part of the above disappears :-) )
      (And I do assume that the revaluation reserve is 100000 and not 100 as you have typed!)

      • avatar says

        sorry my mistake it is 100,000
        and your answer is correct. in my revision kit the answer was also 55k but the method they used was really wrong (printing mistake)

        well why did you subtracted last years retained earnings with this years retained earning and not simply take new retained earnings x 5% ?

      • Profile photo of John Moffat says

        It is because we know what the NCI was worth at the date of acquisition (45,000) and the only reason it will have increased is because of profits made since the date of acquisition.

      • avatar says

        in calculating NCI what other reserves do we take in account ?

        and do we always subtract starting years value with closing years value on reserves nd retain earnings and then multiply it with NCI % ?

      • Profile photo of John Moffat says

        You would take into account all reserves.

        And it is always the change in the reserves since the date of acquisition that you are after ( multiplied by the NCI % )

      • avatar says

        Hello sir, I was studying with bpp text and I realized that they didn’t adjust revaluation value in one of there examples. P co acquire S co, but S co revaluation value of 4000 on date of acquisition, and later has 7000 on balance sheet. However, only 7000 was added to consolidate balance sheet. Is this OK?

  10. avatar says

    i have 2 question relating to un-realized profits
    1. X sold goods to y at a price of 40,000$
    the profit markup was 40% on sales price. at the end of year 25% of these goods are still held in inventory of Y. calculate unrealized profit ?

    2.During the year X solds goods to Y for 20,000$. the price included markup of $12000 profit. at the end of the year 50% of these goods still remained in the inventory. calculate un-realized profit.

    please sir help me solve this no matter what method i used i am not getting the correct answer :/

    • Profile photo of John Moffat says

      Question 1:
      The goods still in inventory are 25% x $40000 = 10000.
      X sold these to Y at profit of 40%, so the unrealised profit is 40$ x 10000 = $4000
      (I don’t know where you found this question or whether you have typed it correctly. However they should not have called it a mark-up when it specifically says that the profit is 40% of sales price. Markups are %’s of cost)

      Question 2

      50% of the goods are still in inventory and therefore 50% of the profit is unrealised. 50% of 12000 is $6000.

  11. Profile photo of Javeria says

    Venus Co acquired 75% of Mercury Co’s 100,000 $1 ordinary share capital on 1 November 2011. The consideration consisted of $2 cash per share and 1 share in Venus Co for every 1 share acquired in Mercury Co.
    Venus Co shares have a nominal value of $1 and a fair value of $1.75. The fair value of the non-controlling interest was $82,000 and the fair value of net assets acquired was $215,500.

    What should be recorded as goodwill on acquisition of Venus Co in the consolidated financial statements?

      • avatar says

        But then why in the calculation of Goodwill (which was zero) do we take the fair value of NCI as 20000 rather than 5000? Because in the test question 1 we are multiplying the percentage holding of the NCI with the subsidiary’s share capital? :(

      • Profile photo of Khalid says

        Hey Sally. I cant really understand your question. Could you clarify?

        However, from what I understand, you are in doubt regarding the NCI calculation? As for goodwill, we dont need to calculate that in Example 7 since, as the question states, the acquisition was at cost. ( The SFP in the question states “Investment in S, at Cost”.)

        As for the calculation of NCI, according to IFRS 3 (Business Combinations) , it maybe measure as either

        1. A proportion of the net assets of the subsidiary
        2. At Fair Value -> the market price of the subsidiarys shares are an appropriate basis for the valuation of the NCI.

        therefore, in example 7 we see that the share capital of S is 20,000, and the Non-Controlling Interest percentage is 25% (Since rest of the 75% now belongs with P, who control the company).

        25% of 20,000 is 5000 and that is the value of the non controlling interest at the date of acquisition.

        Hope this helps.

      • avatar says

        Thankyou so much!

        What I meant is, in example 7, we started with the calculation as:
        Consideration: 15000
        “Fair value of NCI at the date of acquisition: 20000”
        Total worth of the business: 35000

        But in “test question 1” we do the calculation as,
        Consideration: 21600
        “Fair value at NCI at the date of acquisition: 2400 (10% x 24000)
        Total worth: 24000

        So my question is, why do we do the “fair value of NCI” bit differently, even tho I know the goodwill will be zero??
        I hope I made sense this time.

      • Profile photo of Khalid says

        You said “we are multiplying the percentage holding of the NCI with the subsidiary’s share capital?”.

        Let me clarify.

        The Parent company now owns 75% of the subsidiary right? But not 100%. The NCI portion represents what the new owners of the acquired company OWE BACK to the previous owners of the company. The percentage of the subsidiary’s shares still with the previous owners is 25% <- This is the MAGIC NUMBER 😛


        NCI @ Acquisition (in ex. 7 , calculated using FV of shares @ acquisiton) : 20,000 x 25% = 5000
        NCI's share of subsidiary's POST ACQUISITION PROFITS : (15000-1200)x25% = 3450
        Non-Controlling Interest 8450

        See all those " x 25%"s ? That would be the calculation of what the parent company owes back to the old owners who still hold the subsidiary's shares.

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