1. avatar says

    Hi Sir,
    We are told in the question that the profit obtained as a result of the transfer of the asset from Prodigal to Senitel has been deducted in the depreciation cost, i was thinking that maybe we should deduct the profit 1st from the cost of sales then we deduct the 800,000 and the 2nd thing Sir i didn’t understand is why we add the 800,000 rather than subtracting in the cost of sale, e.g

    Cost Of Sales(260,000+55,000-1000-800).

    I really appreciate for your help.

    • Avatar of MikeLittle says

      Was the plant transferred from the parent to the subsidiary? In which case, the pup adjustment is in the parent company.

      Without the question in front of me (and no notes readily available) I guess that the above could answer your question.

      If not, post again

    • Avatar of MikeLittle says

      Without the question in front of me, I guess that 80,000 shares were issued in a takeover share-for-share exchange but the share issue has not been recorded. Am I correct?

      And I presume that the market value of the parent company’s shares as at date of acquisition was $4. Still correct?

      And the nominal / face value of the company’s shares is $1?

      OK so far?

      Ok, when parent issues 80,000 shares with a value of $4 each, but those shares have a face value of only $1, the remaining $3 worth attributable to those shares is classed as share premium and must be credited to the share premium account

      Does that answer it? If not, post again – but this time, give me the question name :-) I really do not want to listen to myself any more times than I really have to!

  2. avatar says

    I have a few questions:

    -For the equity section, why are we not adding up subsidiary figures (given in the Q from SOFP extract) like “Other equity reserves= 3.2+ 7+ (.2 x 75%) {we did not include the subsidiary 2.2} but we did include the loss on fair value of equity 200 x 75%.
    -Also in NCI W4B Share in profit of Subs: Why aren’t we adding the Fair value adjustment of $1m and deducting Depreciation of 200?
    -For R.E calculation why are we not deducting PUP in that calc?
    - Shouldn’t we deduct the PUP from COS, eliminating the profit element?

    I’m a bit confused on the logic. Thanks for helping in advance.

  3. avatar says

    I don’t understand why revenue computation is 450 + 240 * 6/12 – 40 instead of 450 + (240-40)*6/12. Is it correct to apportion the inter group transaction that we know for sure that took place after the shares exchange?

    • Avatar of MikeLittle says

      @gaabita, not always. Sometimes Steve says that the subsidiary has dealt with its new parent throughout the year. In that situation, we should eliminate only the post acquisition revenue and cost of sales, and adjust only for the pup on any sales still in stock which had been transferred post acquisition

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