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ACCA F7 lectures F7 notes
March 14, 2016 at 6:14 am
Regarding Example 11. Following along, in working 2 – Goodwill, I include the Fair value adjustments to get the proper goodwill figure. So far so good. In Working 3 – Consolidated Retained Earnings I directly add the fair value adjustments to retained earnings (less depreciation of DNCA, inventory as per question). Im with you so far.
My question is, how would working 3 change, and what else would I need to change to my workings so that I may put the fair value adjustments in revaluation reserve, and still calculate the correct retained earnings and other figures for my CSoFP?
March 14, 2016 at 6:29 am
Sorry Mike, I tried looking back to previous questions/comments, and am just a little more confused than I was before.
Is there any chance you can give me a brief description of how the the workings differ between your method, and the revaluation reserve you mention in the video?
March 14, 2016 at 7:12 am
For working W3 open a separate account specifically for the fair valued / revalued asset and put the fair value adjustments through that account rather than through the retained earnings
But I don’t understand why you cannot simply put the fair value adjustments through retained earnings as I have done
Isitin some way offensive to you to include revaluation Gaines along with retained earnings?
It’s quick, it’s easy and it’s not worth worrying about even though technically the revalued fair value increases should be included as revaluation reserves
March 14, 2016 at 8:14 am
I greatly appreciate these lectures, as they are both engaging and interesting. I am also able to learn the material better than, and quicker than just reading study texts. Its not offensive, and was more oriented to satisfy my curiosity of the comments you made during the lecture.
Thanks again for your response, Mike.
February 15, 2016 at 9:55 pm
Just wondering if we loose any marks by putting the FV adjustments directly in the cons. retained earnings.
February 16, 2016 at 8:55 am
You need to put them through the goodwill calculation too
And if you’re talking about fair value adjustments as at date of acquisition, the only thing affecting the consolidated retained earnings is any post-acquisition change in that fair value adjusted asset.
Yes, I know! I put through the fair value adjustment as at consolidation date, and the (for example) depreciation on that adjustment since acquisition, and the fair value adjustment as at acquisition date.
But, if you think about it, the real effect of those three is simply to put through the (for example) depreciation on that adjustment post acquisition
Nevertheless, I shall continue to put through all three elements
Is that clear?
November 15, 2015 at 5:58 pm
Firstly just to say, thanks for the lectures, they are a huge help.
I have a question which relates to the fair value adjustments in the retained earnings. Your example makes perfect sense to me and I used this approach to try to answer question 2 part c of the December 2014 specimen paper. In that question you have to create an extract of the Equity section of the consolidated statement of financial position, however in the answer that is provided by ACCA they have not adjusted the retained earnings for the fair value adjustment of the item of plant. So now I am confused, unless I have misunderstood their question I cannot see the difference.
Guidance would be much appreciated, as I am now worried I will get this wrong in the exam. Please let me know if I need to post the actual question here, I was hoping you may be familiar with it.
July 3, 2015 at 3:59 pm
Many thanks to you and Open Tuition for your support.
I was trying to do example 11 of page 46 of the course notes using revaluation surplus. However, I just can’t seem to get to the bottom of it.
Could you please show me how?
I am not a great student, but would like to learn.
May 13, 2015 at 11:06 am
Hi Mike, How did we arrive at $18,000 for the depreciable non-current Asset over 5 years. plus can u please explain a real life example of a non-depreciable current Asset and their features and accounting procedures, entries
January 8, 2015 at 9:48 am
You are so funny 🙂
Here what I am after to:
1/ Why we didn’t take 12000 in w3: DNCA ?
2/ This doesn’t relate to this, but in notes i.e goodwill attributable to NCI on acq was $2000. So how we can deal with this? Will we just put it on NCI value in w2?
January 8, 2015 at 10:03 am
1) I keep getting “Blocked plug in” on my computer so I can’t play the video
Please let me know the chapter and question name
2) “Will we just put it on NCI value in w2?” Yes. The nci for working W2 is their proportionate share of fair valued net assets at date of acquisition PLUS the $2,000
January 8, 2015 at 5:11 pm
1/ I am talking about example11 i.e IFRS 13, ch # 7.
Here I talked about w3 of DNCA. I asked why we will not take $12000 of $30000 by depreciating over 2 years.
2/ This doesn’t relate to any example, but it is on page 40 above the example 6 of ch 7.
I asked that “goodwill attributable to NCI on acq was $2000”. So how we can deal with this? Will we just put it on NCI value in w2?
January 8, 2015 at 5:16 pm
I answered your second question in my last post.
I’m now trying to find the appropriate question in order to answer question 1
January 8, 2015 at 5:38 pm
Ok and sorry for that struggle 🙂
January 8, 2015 at 7:04 pm
Because by the year end there has been two years’ worth of depreciation on the $30,000 (expected life of 5 years as at date of acquisition, two years have passed so only 60% of $30,000 still in the subsidiary as at consolidation date)
January 9, 2015 at 6:25 am
Thats hugely so genius answer. Thanks Mike, you are accounting savior 😉
September 12, 2014 at 10:22 pm
In the above question which is example 11, if we have to show the revaluation reserve separately it comes to a negative figure .
Non Depriciable NCA 15000
Depriciable NCA 18000
Less Fair Value Adjustments on Acquisition
Non Depriciable NCA 15000
Depriciable NCA 30000
Gross Total (32000)
Our Share 70%
Revaluation Reserve (22400)
How will we show this in the consolidated SOFP?
PS: I’m going to follow the method you showed in the lecture as it is a lo easier to do and reduces my work but just wanted to know how it would be done.
September 13, 2014 at 5:14 pm
I’m not sure what you are trying to achieve here! On acquisition, the fair value adjustments will be notionally entered into the subsidiary’s records – in the case you quote, the double entry will be Dr the depreciable and non-depreciable TNCA by their respective amounts and notionally credit the revaluation account.
As time goes on and we depreciate the assets of the group for the purposes of consolidation, the double entry is Dr the Profit or Loss account and Cr (effectively) the depreciable TNCA
At no stage in that second journal entry have I mentioned making an entry into the revaluation reserve!
September 13, 2014 at 7:12 pm
Thank you 🙂
I’m sorry if my doubts sometime seem stupid and you probably get irritated going through it but thank you for always replying 😀
September 13, 2014 at 9:39 pm
No problem! If it helps you to achieve success and pass these exams, then that’s pleasure enough for me (and for all the other members of “the team”)
August 26, 2014 at 3:05 pm
Sir, i cannot understand what is done in working 3- con. ret. earn. why do we have to add the non-depreciable non-current assets -15,000
Depreciable non-current assets- 18000?
i didn’t get the logic.
August 26, 2014 at 3:45 pm
Kaplan and BPP take a different approach to this mini-topic. They calculate the fair value of net assets at date of acquisition and at date of consolidation. The difference is post acquisition movement in subsidiary’s reserves.
Personally, I don’t like that method!
My way identifies the retained earnings “today” as amended by any fair value adjustments to the subsidiary’s figures and compare that total with the subsidiary’s fair valued retained earnings “then” also as amended for any fair value adjustments to the subsidiary’s figures.
This second value, subsidiary’s retained earnings “then” is found in working W2 Goodwill
The “then” figure is shown as adjusted for the fair values of the inventory (now sold), the non-depreciable non-current assets and the depreciable non-current assets
If we are to be able to compare like with like to discover the post acquisition retained earnings, we need to adjust the retained earnings figure “today” by those same three adjustments
Inventory – all sold, so no adjustment
Non-depreciable non-current assets – presumably (in the absence of contrary information) still owned but, because it’s non-depreciable, they are shown at their original value of $15,000
Depreciable non-current assets – again, in the absence of contrary information, we still own these assets. But what is their value “today”. It’s $30,000, 5 year life, two years since acquisition, therefore $18,000 notional book value
Does that explain it for you?
awesome wajid says
November 10, 2014 at 11:13 pm
Dear sir mike, if i solve fair values from ur approach, will my answer be the same as bpp? overall financial statement will match by same figures?
September 17, 2015 at 9:44 am
in 11 eg; you haven’t taken 20,000 fair value of inventory, assuming that all have been sold.but,
1. since, we calculate the good will solely for consolidation purpose and as of DOA. don’t we need to take them. because, the inventory has direct impact to the console retain earnings and console inventory
2. in my previous studies (CMA -Sri Lanka) We accounted total good will and total good will impairment only in CSOFP and not adjusted in to NCI. as there are arisen for consolidation purpose only.
September 17, 2015 at 10:25 am
If I’m thinking of the correct example, we are preparing financial statements 2 years after acquisition
What is going to be the fair value of inventory 2 years after acquisition?
Maybe your previous studies were before the revision of IFRS 3 or maybe the nci was value on a proportional basis
September 17, 2015 at 11:10 am
Dear Mr. Mike,
noted you comment for eg.11 with thanks…..Can you pls clarify further,
I’m very clear on Fair value adjustment for Fixed assets and other assets…..
further I’m very clear on your view too. after two years later…..the stock has to be sold out fully. it’s ok, Sir
But,since we calculate good will on the date of acquisition and since there is a fair value for inventory rather than the book value as of DOA…..shouldn’t it be adjusted when calculating the good will….as same as fair value adjustment for fixed and other asset ….
or else….are there different accounting treatment for fixed assets and inventory
September 17, 2015 at 1:28 pm
Are you really certain that the inventory fair value hasn’t been used in calculating the goodwill? I’m 100% certain that it HAS been incorporated into the goodwill calculation.
I suggest that you check it again!
July 17, 2014 at 7:16 pm
Dear Mike Sir,
I want to know if ‘Complex Groups’ (A owns 60% in B and then B has a 60% share in another company C) are in DipIFR syllabus. I am preparing for DipIFR for December 2014.
July 18, 2014 at 5:22 am
Hi, I’ve just checked the syllabus on the ACCA website! It talks about “simple groups” so no, complex groups are not examinable
I bet that’s a relief for you!
July 18, 2014 at 6:04 am
Thanks, Mike sir!
July 18, 2014 at 2:35 pm
May 10, 2014 at 7:21 pm
I know the TNCA lol
Mike u are a great lecturer! I have a good feeling about F7.
April 27, 2014 at 12:58 pm
I know this is very basic but HOW did you get 18k of depreciation for the 2 years? On the answers at the back of the course notes, the total depreciation (30k) is multiplied by 60%. How did they arrive at that? I mean, 2 years comprise 40% of the 5 years through this calculation:
(2/5) * 100 = 40%
Which means the depreciation that occurred during the 2 years is 12,000.
How did you arrive at 18,000?
Sorry, I dont mean to waste anyone’s time by asking a silly question but I am really stuck at this!
May 4, 2014 at 12:23 am
@amansoor you are correct in the calc of depr’n of 12,000 however the figure of 18000 that is reflected is the nbv of the asset: cost less depr’n to date (30,000-12000=18000)……
April 26, 2014 at 4:58 pm
LOL I lost it at the “TNCA song”! Hilarious!
April 9, 2014 at 11:55 pm
shouldnt the NCI figure be 78,900?
ass 64,500 + 14,400 = 78,900?
February 17, 2014 at 2:43 pm
Hi mr mike . i want ask about revaluation assets in consolidation F S
On 1 January 20X7 Hardy owned some items of equipment with a book value of $45,000 that had a fairvalue of $57,000. These assets were originally purchased by Hardy on 1 January 20X5 and are being
depreciated over 6 years.
hardly is subsidery
i know 12000 revaluation will put in GW calculation and TNCA in CoFS completly .
but i dont know how can i deal with dep in CoRE and TNCA
February 17, 2014 at 2:50 pm
Please post this again on the “Ask the tutor” page
November 27, 2013 at 11:48 am
please mr mikel i want ask about form of answer in exam . I will answer in excel sheet? or in white papers or what?
f7 will be my first exam . please help
November 3, 2013 at 10:24 am
on the consolidated statement of financila position why was inventory fair value adjustment not include on other assets
November 3, 2013 at 10:34 am
November 3, 2013 at 6:46 pm
am sorry sir its example 11 chapter 7.Or am i right if its because there is no inventory at the end of the year thus why there is no adjustment,
September 26, 2013 at 5:26 pm
Dear Mr Mike
1.Why would you not deduct the extra depreciation of 12 from the groups retained earnings especially if they have not been accounted for by the subsidiary.
Would it not be prudent to account for the depreciation expense due to FV adjustment.
2. If there is a FV adjustment in the subsidiary then should we not create a revaluation reserve when consolidating and decrease it by the excess depreciation.
Hope for a reply!
November 3, 2013 at 10:38 am
IF I’m on the correct question, is the extra depreciation not 9 (36 / 4)
The 9 IS accounted for by reducing the selling company’s retained earnings by the NET pup (if I’m on the correct question)
I suppose it depends what the fair value adjustment relates to. Yes, I could see the argument that says it’s a revaluation. Frankly, I’m not so sure that it matters whether you include it within retained earnings or show it separately as a revaluation reserve
September 13, 2013 at 3:19 pm
apart from learning the drill of 4 workings
there are also things to learn which are based on accounts knowledge
but you did not cover all of them, and left to students effort.
Am i right. and u want to practice us to do.?
September 13, 2013 at 9:48 pm
I thought that I covered pretty well all the important areas within the lectures but, yes, there’s got to be some left for your own input and practice is a key ingredient of this
July 6, 2013 at 6:05 pm
Please Mr Mike, how did you arrive @ the 85000 pre- acq. Retained earning? I guess is the 20000 plus fair value adjustment of 65000. kindly explain, thanks.
July 7, 2013 at 9:33 am
Yes, that’s it. You can find the figure for pre-acq, when preparing W3 Cons Ret Ears, by looking in W2 Goodwill. The FV of SNA @ DOA in W2 comprises S’s share capital, share premium and (basically) retained earnings as adjusted for fair value adjustments.
The thing you must be careful about, though, is that you don’t pick up for the pre-acq figure the full fair value SNA. The figure you need for W3 is just the Retained Earnings figure as adjusted for the fair value changes
July 7, 2013 at 10:13 am
Thanks alot Uncle MIke,now I understand. God bless you .
July 4, 2013 at 9:57 pm
Thanks..hope to pass
May 24, 2013 at 4:55 am
thanks for your time and efforts on this.
Could you please explain why in the case of shares valued say at $1.50 just before acquisition, this valuation is not included in the W2 calculation of the FV of SNA at DOA( i.e the $1 shares will now be included as $1.50) rather you stick to the Balance sheet value, but then, you use the revalued NCA in that same calculation, why not stick to the book value also. However, this newer shares figure is included in calculating the NCI’s value @ DOA
May 24, 2013 at 6:52 am
The market value of shares has NOTHING to do with the company – it’s dependent upon supply and demand in the market and on market sentiment. The market value information is there only for the purposes of valuing the nci on a full, fair value basis.
The fair value of the subsidiary’s net assets is their book, carrying value as adjusted for any fair value re-assessments and the book value of net assets is the same as the company’s figure for shareholders’ equity
And shareholders’ equity is share capital + reserves
April 17, 2013 at 7:32 pm
Is it okay only to listen to these lectures and not read the text book? I hardly have any time left. After listening to these lectures, am planning to practice the exam questions. please reply.
May 10, 2013 at 5:44 pm
Be careful of this approach. I was in the same situation as you for Dec-12 session, I used only these lectures (but practised not enough) and I failed.
However, for F5 it was ok. I passed using only opentuition resources.
April 16, 2013 at 3:07 am
how did you get 18 for the DNCA?
April 18, 2013 at 10:23 am
Sue 30,000/5 =6000 annually. Bought at the start of 2008 so at end of 2008 is one year & at the end of 2009 is another. We’re consolidating at the end of 2009. The asset is depreciated for two years 30000-(30000/5*2)= 18000. Carrying Value at the end of 2009 is $18k
February 26, 2013 at 9:56 am
Oh my goodness- I didn’t actually dream about the cons ret ears song!!!!!
October 23, 2012 at 9:55 pm
I have a question regarding the Exampole 11 in chapter 7. I am listining your lectures and also using BPP book and just see that they do FV adj in W3 a bit different. And as much as yours explanation seems to be logical to me, the way they show in BPP book is easier to remember and no make mistake, but I do not fully understant why this can be that way.
Would you mind to have a look and explain it to me.
W3) D R
per question 360000 100000
FV adj (32000) (*) see below
pre acq (20000)
post acq 48000
DOA Movement YE
INventory 20000 (20000) –
NDNCA 15000 – 15000
DNCA 30000 (12000) 18000
Goodwill RE SOFP
The question is why this negative 32000 can be put in RE like that? hope my question makes sense.
October 23, 2012 at 9:57 pm
OOOPS I can see that format of my typing has been changed. not sure if yiou can ready my notes now….
October 13, 2012 at 6:27 pm
October 7, 2012 at 3:31 pm
Has the inventory been sold at year end? Why was this not part of the FV adjustment on the consolidated retained earnings?
October 7, 2012 at 6:20 pm
@ribberson, which question?
October 13, 2012 at 7:31 pm
It is an assumption, that hopefully Romuna has been sold its inventory (it is about 28th minute of the lecture).
And it is assumption that non-current assets are still in Ramuna’s FS.
October 14, 2012 at 11:34 am
@sangria9, Many thanks
September 17, 2012 at 11:59 am
how you got NCI(w4) 88900?
value @ DOA 64500
post retained earnings 14400
ans is 78900
@ginduja21, which question?
August 21, 2012 at 8:51 am
GUYS ,i hope yoy are all well.anyone with an idea/s on how best i can pass F7.this is the 3rd tym failing this subject.
August 21, 2012 at 2:09 am
July 31, 2012 at 12:58 pm
June 3, 2012 at 3:00 pm
An Excellent lectures which have quite good improvement compared to the previous version of these notes. Only question is – what about Associates? Why there are no examples on how to do the consolidation with associates? We know that in exam besides subsidiary we will have to include in the consolidation Associate as well 🙂
November 5, 2012 at 6:02 am
@noldis, We DO NOT consolidate associates instead we EQUITY ACCOUNT!!!
henok bekele says
May 24, 2012 at 9:08 pm
Thank you so much i am so happy with this vidieo lectures.
God bless you
May 19, 2012 at 3:44 am
That was great
April 16, 2012 at 9:04 am
I’m really finding these lectures very helpful.
God bless all the people behind this wonderful resource!!!
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