# ACCA F7 December 2008 Question 1 Pedantic

1. says

Did Sir,
How did you calculate share issue of 16,000.

Thank you!

• says

I think that you mean 1,600 not 16,000!

60% * 4,000 acquired / 3 * 2 are the number of shares issued on the acquisition of Sophistic and that calculates out to 1,600

Ok?

2. 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..

• 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?

• 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.

• 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?

3. says

Under the heading F V of N A @ DOA, not sure how the figure for – retained earnings b/fwd (3,500) was arrived at.

• says

I don’t have the question in front of me but is it not retained earnings at the end of the year – the retained earnings this year?

• says

I am sorry Mike, but I am still not sure how the 3500 came about?

• says

Retained earnings from the question at the end of the year are 6,500. Profit for the year, from the question, is 3,000

Therefore retained earnings brought forward must be 3,500 which when this year’s retained earnings are added on to that figure gives us 6,500.

Therefore retained earnings brought forward must be that 3,500

• says

Just Figured it out with a bit of help! – RE 6500 – 3000 Profit x 6/12 because its for half the year only!
Thank you Ever so much Mr Little!

4. 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?

• says

how did you get 5.9 for the nci in pedantic

• 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

Total 11,000

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

Nci investment 5,900

OK?

• says

I recorded these answers using the Kaplan revision kit as the source of the question. Because Kaplan are not platinum providers, they are not allowed to reproduce the ACCA questions verbatim.

It could be that this explains the apparent magic with which my figures have appeared.

If by any chance this does not explain the anomaly, then post again

• says

But 5.9 is explained in the posts just below this string

5. says

i was wondering the same thing Alex. I’m still confused by it and trying to work it out.

• says

@sueellen, The \$5.9M is the FV of the NCI at acquisition mentioned in note 5 of the question.

• 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?