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  1. Avatar of Swati says

    Dear Sir,

    Referring to F7 June 2011 Question 1 Prodigal:

    Why is NCI also given the share from ‘Gain on Land Revaln’ and ‘Loss on FV of Equity Fin asst Invstmnt’? If they are items of OCI , why is NCI interested in this? I somewhere read that “NCI has no interest in the OCI’?

  2. Avatar of Swati says

    Dear Sir,

    Ques: F7 June 2011 Question 1 Prodigal.
    While calculating the FV of TNA of Subsid on doa, when we calculate the Profits for 6 months (time-apportioned) then we are looking at the Income statement ‘profit for the yr’ (i.e. 66000).

    My doubt is: why are we not taking 66,600 (basically including OCI) and doing 6/12 of 66,600? Do we never take this when we are calculating the fv of TNA at doa of S?

    • Avatar of MikeLittle says

      The question specifically says that the revaluation of land takes place at the end of the year and, additionally, states that the land value increased subsequent to acquisition

      The question says “During the post acquisition period Sentinel’s land had increased in value over its value at the date of acquisition by $1 million”

      With reference to the Other Equity Reserve, there is no information within the question concerning the date of the fall in value of the financial asset investment.

      However, as stated on frequent occasions within the recording, you are specifically told NOT to calculate goodwill but that I was going to “for your benefit”

      Had you been asked to calculate the goodwill, we would have needed to know the value of the other equity reserve / financial asset investment as at date of acquisition

      OK?

  3. 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!

  4. 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.

    • avatar says

      With reference to group accounting, only the parent’s share capital must be accounted for / i.e. included. Never ever the Subsidiary’s!!

      The pre acq element of subsidiary’s profit and the FV adjustment are applied in calculating the Goodwill, if applicable.

      The intention is not to eliminate the profit element but to adjust it via the unsold stock element. Depending on who made the transfer / sales, the adjustment is made in the seller’s book – parent or subsidiary.

      • Avatar of MikeLittle says

        Hi, not sure what Gagbo is saying here

        Mdots, I’m probably too late to answer your question for the exam (you should have posted on Ask theTutor!)

        Gagbo, if you have a question, do please post it on Ask the Tutor

  5. 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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