1. 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 :/

    • Avatar 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.

  2. Avatar 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? :(

      • Avatar 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.

      • Avatar 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 :P


        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.

  3. avatar says

    Please help as per Kaplan NCI is calculated as follows:

    Faire value of NCI + % of Subsidary x Post aquisition profit

    As per this formula there is no F.V of NCI hence as per kaplan it should be 3450..(15000-1200)*25%

    Please clarify this for me.

    Also i wonder for question 3 answer should be B

    • Avatar of John Moffat says

      You will be given the fair value of the NCI at the date of acquisition, unless it was acquired on the date of incorporation (i.e. the date that the company was formed).
      If it was acquired on the date of incorporation then the fair value of the NCI is automatically the value of the shares held by the NCI. (This should also explain why the answer to question 3 is A)

  4. avatar says

    hello sir I need to ask a question concerning the mock exams question (36) and (48) asked for the consolidated retain earnings of the group and i got both wrong because i added line by line. I notice both answers refer to the consolidated retain earnings of the controlling interest, am i suppose to always assume thatthis is what they are asking even if it is not written, for i am comfortable with all of the calculations just don’t want to make stupid mistakes. Also can you explain question 47 i don’t know how to get the purchases figure. please keep up the good work and thanks a million

  5. avatar says

    Hi sir I need help here. There is a part of question from BPP as follows
    During the year ended 31 October 20X5 Black (parent) sold goods which originally cost 12million to Bury. Black invoiced Bury at cost plus 40%. Bury still has 30% of these goods in inventory at 31 Oct 20X5.
    May I know how to calculate the unrealised profit?

    • Avatar of John Moffat says

      If they originally cost 12M and there are 30% of them still in inventory, then the original cost was 30% of 12M = 4M.

      However, Black will have invoiced Bury for these goods at cost + 40% and so Bury will be showing them in inventory and the cost to them. Since Black added 40% to the original cost, then unrealised profit will be 40% x 4M = 1.6M

      • avatar says

        Sir is there calculation error in 30% of 12M=4M.. or you have rounded off the figure…???
        Because 30% of 12M= 3.6M

        Does that make a difference??

    • avatar says

      Well if you go through the notes provided on this website… you’ll come to know the formula or format kind of thing for calculation of goodwill arising on consolidation..

      •One way to find it is….
      FV of consideration at date of acquisition
      (Plus) FV of non controlling interest at date of acquisition

      Now you’ll get the ‘total worth’ of the subsidiary ..

      (Less) FV of net assets at date of acquisition:
      Share capital of subsidiary
      Retained earnings(pre-acquisitioned)

      Now diff would be the goodwill on consolidation …

      But if you look in previous example you’ll find an example in which there was a consideration for acquisition was 8000 …and we have checked it that it was equal to the share capital of 8000…

      In this example we have given a consideration of 21600(consideration given to acquire our share in subsidiary)… checking this we’ll find that share capital is 24000 which is more than the consideration paid… it means that this share capital consists of both our and others share in subsidiary ….
      As subtracting our share from this will thus give the others share i.e 24000-21600=2400 (The FV of NCI)

  6. avatar says

    question 1
    does anyone know why in calculation of the goodwill we add a fv (10% of 24000) = 2400 if we are calculating a goodwill in an example where P bought S on the date when S started to exist…

  7. avatar says

    Example 7:

    If question is silent, i should be using proportional value of NCI percentage multiply total of fair value of Subsidiary Net Assets at date of acquisition. ie
    FV of SNA @ DOA
    Share capital $20,000
    Retained Earnings NIL
    Total = $15,000 x 25% = $5,000so, i would get
    Cost of investment $15,000
    FV of NCI $5,000 (per workings above)
    Total$20,000/- am i correct?
    Thank you

  8. Avatar of Miss A.. says

    Dear Sir, for the first 6 mins of lecture , we only get to hear Mr.John.We are unable to see what he’s writing as the screen doesn’t show. I have read other comments on this video & came to know that many other viewers are experiencing same problem as me .Please resolve this issue.

  9. avatar says

    This is a good, helpful and informative lecture. I really appreciate the efforts put by the lecturer. What I am looking for?
    Some solved Exam Problems with explanation. If it is possible?
    Any thanks again for providing help in studies.

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