sir, for question 4 the nci is coming to be 477000 25%of 1200000 multiplied with 1.59 right? and for the deferred payment can you please explain the step? as in why is it 2 divided by 100
Hello, Im confused as to why we calculate the discount factor in Q3 for furthur cash consideration and we do not calculate it in Q2 for the same cash consideration. Is it because in Q3 the date of furthur cash consideration is mentioned (30 April 2015?)
The question is based upon the number of shares acquired by Spice and that is 65% * 3,000,000 = 1,950,000 shares acquired
For every 5 shares acquired in Ogre, Spice will issue 2 Spice shares and these shares are worth $2.60 each …
… so we have the line 1,950,000 / 5 * 2 * $2.60 = $2,028,000
Then we have the cash element of the acquisition cost and, again, this is based on the number of Ogre shares acquired … and we know already that Spice acquired 1,950,000 Ogre shares
So now we have the line 1,950,000 * $1.20 = $2,340,000
For chapter 8, Q2,… What if it was a fv of building… Are we going to add subtract it from goodwill just as we subtracted that of land. For example Shares 3000 +1940+650 What of the 650 was for bulding After calculation the depreciation and pro-rate to the months… Are we going to subtract the figure to get goodwill
The 650 would be added in when we calculate goodwill arising on acquisition and would increase the value of the building in the subsidiary’s records
It follows that there would be additional depreciation to be charged on that fair value increase in the value of the building but no adjustment is now going to be made to the goodwill that we calculated on acquisition
Hello! Regarding Q1: discount factor is applied twice because two years have gone since the date of acquisition? If so, don’t understand why a discount factor is applied twice as well in Q8…
I am sorry! Not 8, I meant 4 – the last question of this chapter. I was doing the previous chapter in the same time. There are 8 questions, therefore I made this mistake. Sorry again!
Aneway, could you help me with 1st and 4th q-s of this chapter, please? Could you explain the way of applying the discount factor? Why are you doing it two times?
You have already explained discount factor. However, I am asking not about that. Regarding Q1: discount factor is applied twice because two years have gone since the date of acquisition? If so, why it is also twice in Q4?
But at date of acquisition, the date when the goodwill calculation would be done, the payment date was two years hence and therefore the deferred payment needed to be discounted for those two years
For how many years will you apply this cost of capital to the loan note? No information about redemption date is given so discounting that loan note is not possible
Hello Sir, On question 1, Ryan and Lowe, why do we multiply 75% x 24 million x 2 / 3 by $4.20 and not by $3.18, the price of a share in Lowe , since we acquire control over Lowe?
Please, if you want to guarantee that I shall see your questions, in future post them on the F7 Ask ACCA Tutor page
Now, ask yourself this …. what was the value that Ryan paid to the former Lowe shareholders in order to persuade them to sell their Lowe shares to Ryan?
We are told that retained earnings are at the date of acquisition, but they don’t change in the middle of year, am I right?
Do we need to assume that if there is an acquisition than it is possible that Ogre has made a new financial statement and has calculated ret ears once more after three months after beginning of accounting period?
The confusion is possibly because we normally have to time apportion this year’s retained earnings in a mid-year acquisition question
In this question we are told what the retained earnings figure was as at date of acquisition instead of the more normal route of being told the profit for the year during which acquisition took place
mehazia says
sir,
for question 4 the nci is coming to be 477000
25%of 1200000 multiplied with 1.59
right?
and for the deferred payment can you please explain the step? as in why is it 2 divided by 100
MikeLittle says
That nci line should be multiplied by 2 because the shares are only 50 cent nominal value
Share Capital of $1,200,000 50 cent equity shares means there are 2,400,000 equity shares and the nci have 25% of those @ $1.59 each
“and for the deferred payment can you please explain the step? as in why is it 2 divided by 100”
It’s multiplied by 2 for the reason stated above (50 cent shares) and it’s divided by 100 because the payment is $106 for every 100 shares acquired
OK?
soraaa says
Hello,
Im confused as to why we calculate the discount factor in Q3 for furthur cash consideration and we do not calculate it in Q2 for the same cash consideration.
Is it because in Q3 the date of furthur cash consideration is mentioned (30 April 2015?)
Thank you.
MikeLittle says
There’s nothing in question 3 to suggest that the cash payment is deferred so, yes, it’s because (in question2) the payment date is given
If you were to discount the cash payment date in question 3, by how many years would you want to discount it?
38 years? 218 years? If no date is given you have no choice but to accept that it is payable immediately
OK?
racucamelia says
Hi,
for Q2 I do not understand why 1950 is not multiplied first time with 2.6 and the second time 1905 * 2/5*1.2.
Thank you
MikeLittle says
“and the second time 1905 * 2/5*1.2.”
I believe that you mean 1,950 * 2/5 * 1.2
However, that is still incorrect
The question is based upon the number of shares acquired by Spice and that is 65% * 3,000,000 = 1,950,000 shares acquired
For every 5 shares acquired in Ogre, Spice will issue 2 Spice shares and these shares are worth $2.60 each …
… so we have the line 1,950,000 / 5 * 2 * $2.60 = $2,028,000
Then we have the cash element of the acquisition cost and, again, this is based on the number of Ogre shares acquired … and we know already that Spice acquired 1,950,000 Ogre shares
So now we have the line 1,950,000 * $1.20 = $2,340,000
Better?
bisola95 says
For chapter 8, Q2,… What if it was a fv of building… Are we going to add subtract it from goodwill just as we subtracted that of land. For example
Shares 3000 +1940+650
What of the 650 was for bulding
After calculation the depreciation and pro-rate to the months… Are we going to subtract the figure to get goodwill
MikeLittle says
The 650 would be added in when we calculate goodwill arising on acquisition and would increase the value of the building in the subsidiary’s records
It follows that there would be additional depreciation to be charged on that fair value increase in the value of the building but no adjustment is now going to be made to the goodwill that we calculated on acquisition
OK?
bisola95 says
Thank you very much
vikulchik07 says
Hello!
Regarding Q1: discount factor is applied twice because two years have gone since the date of acquisition?
If so, don’t understand why a discount factor is applied twice as well in Q8…
Thanks in advance!
MikeLittle says
Which question 8?
vikulchik07 says
I am sorry! Not 8, I meant 4 – the last question of this chapter. I was doing the previous chapter in the same time. There are 8 questions, therefore I made this mistake. Sorry again!
Aneway, could you help me with 1st and 4th q-s of this chapter, please?
Could you explain the way of applying the discount factor? Why are you doing it two times?
Thanks in advance!
vikulchik07 says
You have already explained discount factor. However, I am asking not about that. Regarding Q1: discount factor is applied twice because two years have gone since the date of acquisition? If so, why it is also twice in Q4?
MikeLittle says
1 January, 2014 to 31 December, 2015 is how many years
Hint: use your fingers!
vikulchik07 says
thanks for your advice!
I asked because the reporting day is 31 December, 2014
MikeLittle says
But at date of acquisition, the date when the goodwill calculation would be done, the payment date was two years hence and therefore the deferred payment needed to be discounted for those two years
OK?
sue1234 says
HOW DID WE ARRIVE AT 2 IN THE FORMULA FOR CONSIDERATION(2\5*7)
MikeLittle says
“… acquired 75% of the $1,200,000 50 cent …”
How many 50 cent shares are there in $1,200,000 share capital?
tikologo74 says
Chapter 8 Q 2
Why Spice’s cost of capital of 10% not accounted for?
MikeLittle says
For how many years will you apply this cost of capital to the loan note? No information about redemption date is given so discounting that loan note is not possible
tikologo74 says
Good day
Chapter 8 Q1 & Q4
Q1:Why 1/1.10 appears twice & Q2 Why 1/1.06 appears twice?
It there any better formula than duplication of the same figures?
MikeLittle says
There IS a better way of writing 1/1.06 x 1/1.06 twice but I’ve written it like that to emphasise that the discount factor is applied twice
I could have written it as “*.88999” or as “*1/1.1236” but that would not be any clearer (I believe)
Similarly “1/1.10 x 1/1.10” could be “*.8264” or as “*1/1.21”
OK?
vikulchik07 says
Hello!
Regarding Q1: discount factor is applied twice because two years have gone since the date of acquisition?
MikeLittle says
Correct
Nikko says
Hi Mike,
please explain Q4 1698113 amount
just couldnt understand the calculations behind it
danirusu says
Hello Sir,
On question 1, Ryan and Lowe, why do we multiply 75% x 24 million x 2 / 3 by $4.20 and not by $3.18, the price of a share in Lowe , since we acquire control over Lowe?
MikeLittle says
Please, if you want to guarantee that I shall see your questions, in future post them on the F7 Ask ACCA Tutor page
Now, ask yourself this …. what was the value that Ryan paid to the former Lowe shareholders in order to persuade them to sell their Lowe shares to Ryan?
…… and that’s why we use $4.20 and not $3.18
OK?
danirusu says
I see, it makes sense now. In the future i will post the questions in the right section.
Thank you for your quick reply.
Samrat k. Pal says
I have a question:
Why there is no adjustment for pre-acquisition profit/loss (1st January-31st March 2014)?
MikeLittle says
Which question?
MikeLittle says
Spice and Ogre? Why no time apportionment? Because you’re told what the retained earnings were at date of acquisition, not at last year end
waszpawel says
We are told that retained earnings are at the date of acquisition, but they don’t change in the middle of year, am I right?
Do we need to assume that if there is an acquisition than it is possible that Ogre has made a new financial statement and has calculated ret ears once more after three months after beginning of accounting period?
It is a little bit confusing….
MikeLittle says
The confusion is possibly because we normally have to time apportion this year’s retained earnings in a mid-year acquisition question
In this question we are told what the retained earnings figure was as at date of acquisition instead of the more normal route of being told the profit for the year during which acquisition took place
OK?
Maria says
How to calculate Q4?
MikeLittle says
Have another look at the quiz, go to question 4 and you should find the solution right there for you
Jane Looi says
Need help on question 2! How to find the answer?
MikeLittle says
Cost 1,950 x 2/5 x $2.60 = 2,028,000
1,950,000 x $1,20 = 2,340,000
1,950,000 / 390 x 100 = 500,000
nci 1,050 x $2.80 = 2,940,000
Total $7,808,000
Shares 3,000,000
ret ears 1,940,000
Fair value adjustment 650,000
Total $5,590,000
Goodwill $2,218,000
OK?
littlestar412 says
Hello everybody,
Reading your comments really helped me to go through these questions, thank you!
However I haven’t been able to complete Q3. Could somebody tell me the correct workings of it, please?
MikeLittle says
I need to put in the date of acquisition (1 May, 2014) and I need to tweak the answer from 1,835 to 1,833
OK?
aridi says
Hello,
Could you please explain me how the 86400 is the solution for Q1 and not 107640?
thanks in advance,
AD
MikeLittle says
75% x 24 million x 2 / 3 x $4.20 = $50,400,000
75% x 24 million x $2.42 x 1 / 1.10 x 1 / 1.10 = 36,000,000
Total $86,400,000
Ok?
moniq789 says
thanks for the workings 馃檪
It took me a while until I realized that there are two years between current date and date of the acq (2011-2009)
bainun says
i still don’t get Q3
hw is it $1835
MikeLittle says
Should be 1,833 – on my list of corrections to make
for8verlik says
QUESTION 4 Sored plc and Raised plc
goodwill my cal comes to 551,while answer is 449
w2 gw
cost of investment
total shares acq = 0.75*2400000=1800000
amt to paid 106 for 100shares acquired
106/1.06 (discounted rate)= 100 thus pay 1800000*100/100=$1800,000
2) share exchange 1800000/7*5*$2.3aprox $2957,000
3)fv nci doa =0.25*2400,000*1.59=$ 954,000
total =1,800+2,957+954=$5711,000
share cap=$1200,000
pre aq earnings=$3,760,000
oa adjust = nil
total=1200+3760=$4960,000
Goodwill=5711-4960=$751,000
gw impairment – 200,000=$551,000
what did i done wrong why the answer is 449 (102 different)
MikeLittle says
$106 deferred consideration is not payable until after 2 years!
RTFQ!
pamella says
On question 3 how is the deffered consideration calculated without knowing when the acquisition took place..assist me plz
samh says
The fair value of deferred consideration is present value.
MikeLittle says
You’re correct, the information is missing. It should be May 1, 2014
stepstothebest says
I couldn’t agree more.
MikeLittle says
On reflection … the information IS there!
What are the first 3 words in the question?
MikeLittle says
1,950,000 x $1.20
780,000 x $2.60
1,950,000 / 390 x $100
1,050,000 x $2.80
Less
3,000,000 x $1.00
$1,940,000
$650,000
Goodwill $2,218
samh says
Q2:the retained earnings of O 1,940,000 is pre鈥攁cq retained earnings?
..
I still failed to calculate 2378 in the end…
Oh, help me..
My calculation:
Consideration: (2/5*$2.6+1.2+100/390)*3000*65%
Nci :3000*25%*$2.8
鈥擣V of ONA@DOA
Sh 3000
ret ears 1940
Therefore GOODWILL is 2028
kalpna says
please help with the answer to question 3
MikeLittle says
75% x 1,500,000 x 3 / 7 x $1.60 = $ 771,429
75% x 1,500,000 x $1 x 1 / 1.06 = $1,061,321
Total consideration paid $1,832,750
Question needs information about date of acquisition (1 May, 2014) and answer needs to be tweaked (from $1,835 to $1,833)