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  1. Avatar of Swati says

    Dear Sir,

    F7 December 2008 Question 1 Pedantic:

    I am a bit confused with Working 4A for NCI (40%). Do we not deduct the 40% of pup from here? why?
    And when do we deduct it from NCI?

    Thanks..

    • Avatar of MikeLittle says

      Without me looking up the question, let me ask first of all “Which company made the sale?”

      If the answer is Pedantic, then the adjustment is in Pedantic’s records / retained earnings so will have no affect on the entitlement of the nci

      If it wasn’t Pedantic that made the sale, please post again and I’ll check out the question

      OK?

      • Avatar of Swati says

        Dear Sir,

        The question says: Sales from Sophistic to Pedantic in the post acquisition period were $8 million. Sophistic made a mark up on cost of 40% on these sales.Pedantic had sold $5·2 million (at cost to Pedantic) of these goods by 30 September 2008.

        So, when subsidiary is selling to parent, the we deduct the ‘pup’ from NCI for working 4A (nci 40%)? Is it?

        Swati.

      • Avatar of MikeLittle says

        Yes – the unrealised profit is $800,000 and should be deducted from the Sophistic retained earnings “today” in your calculation to arrive at the Sophistic post-acquisition retained earnings. That’s the bottom figure in working W3 and it’s that figure that we use when calculating the nci share of post acquisition retained earnings in the subsidiary.

        So, you see, the nci is charged with their share of the pup as a result of deducting it from subsidiary retained earnings

        OK?

  2. avatar says

    I still don’t understand where the figures are coming from :(

    @alextrunghuynh, In a situation where Steve Scott tells you the value of the goodwill attributable to the nci, you still need to calculate the value of the nci INVESTMENT.

    The way to do this is to realise that the nci investment is equal to their proportional share of the S fair valued net assets at date of acquisition + the goodwill attributable to them

    So, for example, ( 30% x FV of SNA @ DOA ) plus the 1.5 million

    OK?

      • Avatar of MikeLittle says

        The question tells us that the GOODWILL attributable to the nci is $1.5m but we need to know the value of the nci INVESTMENT

        The nci investment is equal to the combination of their share of the fair value of the subsidiary’s net assets at date of acquisition plus any goodwill attributable to the nci.

        The fair value of S net assets is represented by:

        Shares 4,000
        Retained earnings brought forward 3,500
        Retained earnings 6 months 1,500
        Fair value adjustment 2,000

        Total 11,000

        Nci share 40% x $11,000 4,400
        Attributable goodwill per the question 1,500

        Nci investment 5,900

        OK?

    • Avatar of MikeLittle says

      @alextrunghuynh, In a situation where Steve Scott tells you the value of the goodwill attributable to the nci, you still need to calculate the value of the nci INVESTMENT.

      The way to do this is to realise that the nci investment is equal to their proportional share of the S fair valued net assets at date of acquisition + the goodwill attributable to them

      So, for example, ( 30% x FV of SNA @ DOA ) plus the 1.5 million

      OK?

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