1. avatar says

    Answer 16

    Mike, could you please also explain, why in answer in FV of SNA @doa stands:

    Ret earnings b/F 1500
    Ret earnings 6 months 1000

    Shouldn’t it be 3500 and 500 respectively?


  2. avatar says

    Dear Mike!
    I have a question regarding mini exercises.
    Answer 8

    I don’t understand, from where comes addition 2000 in the line:

    Ret earnings 6 months (21000+2000)/2

    So 21000/2 is RE from 1 Oct 2008 till 1 Apt 2009, and what is 2000?

    Thank you!

  3. Profile photo of anonymous says

    Dear Mike Sir
    I have a doubt in associates calculations.

    Investment in Associate

    Cost of investment xxx
    + % sh. of post-acq reserves xxx
    (-) Impairment (xx)

    By doing that working what should I understand? I get confused because cost of investment is an expense and share of post-acq reserves is income, so how can it be added i.e., expense + income? I know I am wrong,but I don’t know how to think it the right way.

    Cash-in-transit is another difficult area. Cash-in-transit has to be reduced from receivables and cash is to be increased. By doing this it means that cash is assumed to have been received and therefore cash increases and receivables reduced. Am I right?
    After the above adjustment is made, a certain other amount is reduced from current asset and current liability as intra-group? Why is this done? Also is intra-group and inter-company the same?

    Please help me Sir.

    • Profile photo of MikeLittle says

      Cost of investment is NOT an expense. It’s the purchase of an asset – Dr Asset Cr Cash

      Share of post-acq retained – you say it’s a credit. What’s the other entry – the debit? If you can’t work it out, let me know.

      Cash in transit – a difficult area? Why? “By doing this it means that cash is assumed to have been received and therefore cash increases and receivables reduced. Am I right?” Yes

      “After the above adjustment is made, a certain other amount is reduced from current asset and current liability as intra-group? Why is this done?” Because after we’ve made the adjusting entry for errors, cash and goods in transit, the two accounts (typically receivable in parent and payable in subsidiary) should now be equal and opposite.

      But when we consolidate, we add the receivables to the receivables, we add the payables to the payables.

      And if we haven’t cancelled the intra-group balances, then we shall be showing within total receivables an amount receivable from ourselves and which is included within total payables. And we cannot show “ourselves” owing “ourselves” money. That’s why we cancel.

      “Intra-group” and “inter-company” are the same in this context. If it’s a quote from me – I was careless – I should have been consistent with the expression “intra-group”

  4. Profile photo of davisyieh says

    Hi Sir, may i asked if it wasn’t a proposed dividend but actual dividend paid out in cash before consolidation date, do we still eliminate the dividend expense in the subsidiary with the dividend income in the parent company? Eg. like intercompany sales and purchases.

    Meaning the double entry will be:
    Dr Cash
    Cr Retained Earning (Dividend Income)

    Dr Retained Earning (Dividend Expense)
    Cr Cash

    Am I understanding this correctly?

    • Profile photo of MikeLittle says

      In the parent’s OWN figures, the dividend income from the subsidiary will be shown within investment income.

      Similarly, the dividend paid by the subsidiary will be shown in the subsidiary’s own statement of changes in equity

      On consolidation, the income from the subsidiary will be omitted

      So far as the subsidiary’s figures are concerned, we consolidate this year’s subsidiary PROFIT AFTER TAX ie before the deduction for the subsidiary’s this year dividend

      In summary, I think your solution is incorrect!

      • Profile photo of davisyieh says

        Sir, may i asked how will you account for the double entry for elimination of the dividend paid out if we are only adjusting the parent’s investment income in consolidated income statement?

        Sorry but i am still not very clear with it.

      • Profile photo of MikeLittle says

        Dividends paid do not appear in the income statement

        We consolidate the subsidiay’s profit after tax in the consolidated income statement.

        In the balance sheet, we consolidate our share of the subsidiary’s post acquisition RETAINED earnings ie net of the subsidiary’s dividend payments.

        There really isn’t a debit and a credit involved – it’s a “consolidation adjustment”

        So the ignoring of the intra-group dividend received is not achieved by “debitting” anything at all

        Is this not explained in the video lecture? I’m sure that I cannot have given any indication about debitting nor crediting any accounts when eliminating the dividend income from the subsidiary

    • avatar says

      No, you seem to be time apportioning the accumulated retained earnings from when the company was vreated. Surely we should only time apportion this years fgure. That’s why Mike always shows the figure brought forward and then the time apportioned this yearfigure

  5. avatar says


    Again, this is what I was hoping the answer to be!

    Dr SofCI tax (current) 4.5
    Cr Current Liabilities 4.5
    Dr Deferred tax 2.8
    Cr SofCI tax (deferred) 2.8

  6. avatar says


    This is what I was hoping the answer to be!

    Dr SofCI tax (current) 18.7
    Cr Current Liabilities 18.7
    Dr SofCI tax (deferred) 10.00
    Cr Deferred Liabilities 10.00

    • Profile photo of MikeLittle says

      No. We do need to credit the line which states “Finance lease payment (paid on 31 March 2010)” with 6,000 and debit Finance Costs – finance lease interest with 1,248 and debit Obligations Under Finance Lease Account with 4,752

    • Profile photo of MikeLittle says

      I don’t see where you have got the figure 26 million! However, I believe that you are asking why we do not amortise the expenditure on the new project which started on 1 October, 2008.

      The 1,400,000 is pure research and is correctly written off to cost of sales. Then 3 months x 800,000 (2,400,000) is development expenditure, but there’s no certainty of project viability so the 2,400,000 is again correctly expensed to cost of sales. Then 6 months x 800,000 (4,800,000) is spent after confirming viability. However, IF you had read the question carefully, you would have seen that the question states “The project is still in development at 30 September, 2009″

      Now, to get back to F3 level, the concept of depreciation / amortisation is to match the expense of writing off an asset against the revenues which those assets have helped to generate. And because this project is still in development, then it has not yet started to help in revenue generation. And that’s why we don’t amortise it!

  7. avatar says


    Why in all the examples involving an Associate Company that the changes are made to the Associate even though on some occasions it is the seller and on other occasions it is the buyer?

    • Profile photo of MikeLittle says

      If you listen to the video lectures, that point is explained. The simple answer is ….it’s the easier way to deal with the problem of eliminating the group’s share of the pup which arises when a parent sells to an associate or an associate sells to the parent

  8. avatar says

    ANSWER 3

    Do we assume land has not changed in value?

    Assuming no change in value of land, then buildings have increased by 6000 in value.

    Therefore, should we DR Buildings 6000 instead of DR Buildings accumulated depreciation?!

    Also, should the investment adjustment be 1016 instead of 1000?

    Thanks again

    • Profile photo of MikeLittle says

      A revaluation of an asset which is being depreciated should firstly be debited to accumulated depreciation and only after nullifying the Accumulated Depreciation Account should there be the surplus debited to the asset account.

      As for the Investments at fair value, it does appear that you may have spotted a typographical error which NO-ONE else has discovered. If you check the ACCA website and find the Dexon question (probably June 2009) hopefully you’ll find that the investments value should be 12,500 and not 12,700


      • avatar says

        Value @ 1 April 2008 20 (land) 165 (building)
        Deprec. 11
        20 154
        Revalue. 6
        20 160

        Therefore shouldn’t it be?

        Dr Dep 11
        Cr Acc Dep 11

        Dr Build 6
        Cr Rev Res 6

    • Profile photo of MikeLittle says

      No, I don’t think so. 175,000 / 35 year’s useful life = 5,000 par annum

      There should be (good practice, but not a requirement) an annual transfer (through Statement of Changes in Equity) of an amount representing the “excess” depreciation caused as a result of the revaluation. That transfer will be deducted from Revaluation Reserve to Retained Earnings. In the Kala example, that transfer would be 1,000 each year so maybe that’s where you’re finding your 4,000 figure

      If not, or if you’re still not happy, let me know

      • avatar says

        So we being prudent here? if this was the opposite then it would be taken as a one time hit in the SOCI? As ithe revaluation is positive then it is gradually released into Retained Earnings. Therefore for the remaining 35 years, assuming all stays constant, we would continue to DR Retained Earnings with 1000 and CR SOCI with 1000?

      • Profile photo of MikeLittle says

        Er, no! The annual transfer will be to CREDIT Retained Earnings and Debit Revaluation Reserve

        If it were a revaluation downwards (normally called an impairment!) that WILL be a one-time hit to the Statement of Income


      • Profile photo of MikeLittle says

        Sorry wgk – not only did you get your debits and credits the wrong way round. You also got the Accounts wrong. For example, where does “Credit Statement of Comprehensive Income” fit into the answer?

      • avatar says

        Where does “Credit Statement of Comprehensive Income” come from?

        The model answer states:

        Dr Revaluation reserve 1000
        Cr S of Comp Inc 1000

    • Profile photo of MikeLittle says

      Have you understood ANYTHING from the previous 3 chapters and particularly how we calculate goodwill on acquisition?

      Can I ask you to look at this again and, if you still have a problem, post your question on the “Ask the tutor” bit of the F7 forum and I’ll get back to you

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