1. Avatar of nari says

    hi mike
    Something that bothers me a bit in this and other questions such as chap 7 ques 7 is if P is buying $1 shares in S at a cost of $1.50 (at doa) , then why is the premium not shown as part of the net assets of S at doa? in this quest the $1 shares were bought at a price of $3.50 @ doa. Even though at year end there is no share premium account , I would think that at doa there would have been one.

  2. Avatar of nari says

    hello mike, regarding the decrease in value of 1.2 mill below the fair value of assets. I don’t understand why the decrease in value is not shown in the profit and loss ? (since sanford did not have a revaluation account)

      • Avatar of nari says

        Mike, thanks for your response but I still don’t understand,…… the 1st paragraph they said the EXCEPTION to the fair value of the assets was that property was 1.2 mil below at date of acquisition and that “Sanford has not incorporated this value change into its entity financial statements” If you could elaborate a bit more maybe I would understand…..I really would appreciate it if you did. Thanks.

      • Avatar of MikeLittle says


        The fair value of the subsidiary’s net assets are not (ok, exceptionally rarely) adjusted for in the subsidiary’s accounting records. It says in the question Premier and you have yourself copied the line in your post – “Sanford has not incorporated this value change into its entity financial statements”

        This fair value adjustment to the Sanford net assets is taken into account when calculating the goodwill paid by Premier on the acquisition. In addition, for the purposes of the CONSOLIDATION ONLY the TNCA of the group will be reduced by the value of this downward fair valuation.

        Furthermore, there may be an adjustment necessary to the post acquisition charge for depreciation – and that WOULD go through the Sanford post acquisition Retained Earnings in working W3, Consolidated Retained Earnings.

        But, to get back to your original question, the fair value adjustments to the carrying values of subsidiary net assets at date of acquisition are made in working W2 to calculate the goodwill and in working W3 where there is a consequent adjustment necessary for eg depreciation (either an additional depreciation to charge (where fair value was greater than carrying value) or excess depreciation to add back to the subsidiary’s post acquisition retained earnings (where fair value was lower than carrying value))

        Is that better?

  3. avatar says

    Hi Mike,

    Thanks so much for going through these past exam papers, it really helps!

    I work the questions from the kit, then watch the videos your reasoning goes a far way in clearing up some issues.

    why in this questionn the profits for the year is split $10760 and 190 and total comprehensive income 11560 and 190.

    isnt that showing the same deduction twice?

    thanks much.

  4. avatar says

    On the consolidated statement of financial position, under Investments you have added 1800 + 300 for the increase in value of the investments (i understand it all until then) but then deducted 800?? for what? is it the loan note part of the investment in Sanford? it says in the question that the issue of the loan note has been recorded. Could you pleas tell me where I am going wrong here?
    Many thanks in advance and thanks for all the videos and help on here! :)

    • avatar says

      This is because the question says that the issue of the loan note has been recorded as you have noted, this means that the double entry that was passed in recording this transaction was initially:-
      Dr: Investments 800
      Cr: 6% Loan note 800
      The concept is that if you issue loan note you increase your financial investment hence we debit it and once you issue shares you increase your capital and hence credited….And this is currently the accounting entries being reflected in the unconsolidated F/S. Hence as part of consolidation, since the Loan note has been issued as part of consideration, it has been included in Goodwill; hence if we do not cancel this transaction, it will be recorded twice, i.e as part of investment and as part of cost of investment (i.e goodwill)
      Hence we need to subtract the 800 in order to cancel this effect.
      Hope you have got a concept…
      May be Mike will come to make this clear…this is according to my understanding..

      • avatar says

        Sorry to say but this puzzles me greatly, I have r ead your answer over and over but still havent cleared it as yet. If it is entered twice so it has to be deducted from Investments then why is it not deducted from Loan Notes also.

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