# Preparation of the CS of Comprehensive Income Example 4

1. says

Dear Mike Sir,

In the Example 4, page 62 of Ch 10 of F7 notes (Viktorija & Natalija) – I am not clear with the Working 4b (NCI)?
NCI is calculated as 40% of (42000-2700). My confusion is ‘why are we deducting 2700 and not 20000 which is the dividend proposed? As in, why are we not doing: 40% of (42000-2700-20000)?

Swati.

• says

What’s the working W4b song? They want
“their share of
this year’s
subsidiary
time apportioned
profit after tax”

Now, think where dividends are accounted – they are taken out of those profits after tax. So by applying the song to the subsidiary post tax results the nci are credited not only with their share of retained earnings but also their share of the dividend

OK?

2. says

Hi Sir, Chapter 11 – Accounting for investment in associates, example 2 Maris and Girts, we need to prepare the SOCI, in the question it says Dividends of \$1500 and \$400 respectively have been proposed.

Maris has not yet accounted for the dividend from Girts which was proposed prior to the year end.

What should we do? Thanks

3. says

Hi Mike,

I am a bit stuck with calculating Retained Earnings in the example 6 on page 64. I do understand there is no requirement to do this in the question however I would really appreciate if you could help me with calculating it and splitting to b/f and c/f. Thanks in advance!

• says

I am also waiting for Sir Mike lecture On example 5&6 and chapter 11. Let see when we get reply as we have short time now. I really appreciate Sir for this big job & all opentuition staff.

4. says

Sir, I’m having a little trouble with Example 5 Didzis and Ansis. For W3b Ret Ears Carried forward, how do we get dividend receivable of 6000 according to the answer at the back of the notes?

Also sir, could you please kindly explain to me about the following:
Dividends Final, proposed, interim, and irredeemable and redeemable preference shares?Not sure if there is redeemable or irredeemable dividend as well? I really did not understand these back when I was doing A-level accounting.

I don’t quite understand which goes in SOCI, SOFP and SOCE.

Would really help me out sir, thank you

• says

Working W3 is based on “H’s own +H’s share of S post acquisition retained …..”

In Didzis / Ansis, do you accept that Ansis is showing as an appropriation of profit (not an expense) a dividend of \$8,000? And do you accept that Didzis owns 75% of Ansis? Ok. So Didzis wants 75% of the Ansis dividend to be shown as an item of income. But nowhere in the Didzis financial statements does this \$6,000 appear. And that’s why we have to bring it in in working W3.

Dividends – interim, paid to members part way through the year as a payment on account of the full year’s dividend.

Proposed, proposed by the directors when they know the final results for the year. Only “proposed” because the dividend has to be approved by the members at the annual general meeting

Preference shares – shares which carry (limited) preferential rights when compared with equity shares. Principally, although they do not normally have a right to vote at general meetings, they enjoy a fixed rate of dividend on their shares and will receive that dividend BEFORE the equity shareholders receive a dividend. Not on a timing basis ie if equity dividend is paid in April, the preference dividend is paid in March. No, in priority. So if there are only sufficient distributable profits to pay either the preference dividend OR the equity dividend, then preference shares will get theirs in priority to the equity shares.

The other preferential right is in the situation of a liquidation where the preference shareholders will be repaid their \$1 in full before the equity shareholders receive a single cent

No such thing as a redeemable / irredeemable dividend (at least so far as I am aware)

Statement of Income – include within Finance Charges the preference dividends.

Statement of Changes in Equity, show the equity dividend in the Retained Earnings column as a deduction

Statement of Financial Position – show Equity Shares within the equity section

Show Preference Shares within the long term liability section

OK?

• says

Oh my god! Thank you for such an excellent response! I now understand the whole concept of dividends and which goes where. Once again, I wholeheartedly thank you sir

• says

You’re welcome – glad to have been of help

• Great answer Mike – thank you

Why do we calculate the Retained Earning and NCI b’fwd? Doesn’t the final position at the end of the year suffice?

Thank you

• says

Chapter 10 example4. BPP book seems ignore the dividen payment by subsidiary and then attribute the post acquisition retain earning to NCI and parent.

• says

Is this example 4, chapter 10 from the course notes? Viktorija and Natalija? If so, I have no idea what your question is about! I HAVE ignored the dividend from the subsidiary in the notes answer. The lecture MAY still give a “proof” of the final amount and in that proof we DO need to include the subsidiary dividend paid to the parent to calculate the “normal” working W3. But you are unlikely ever to have to prove the amount calculated as the consolidated profits for the year or reconcile W3 with the figure at the end of the Consolidated Statement of Income.

5. says

I have the same question: are there videos for examples 5 & 6? thanks so much!

6. says

@mikelittle Thank you for the lecture. However I am facing problems in questions 5 and 6. I am happy with the concept but still don’t feel confident about it.
In these questions is there a check like we used to do in question 1-4 in which the amount as per our working 3 matches with the PAT- H Dividend- NCI share.

Thank you

• says

Hi – yes, there is the proof and it’s the normal working 3 song. Take the consolidated profit after tax, deduct parent dividend and deduct nci share of subsidiary this year’s profits after tax and you should get there

• says

Oh got it . In question 5 we would deduct W3 (a) from W 3 (b) to arrive at the same figure i.e. consolidated profit after tax, deduct parent dividend and deduct nci share of subsidiary this year’s profits after tax. Thank You Mike. You are a saviour.

7. says

Is the lecture for example 5 posted online? I can just find example 1,2,3 and 4. Thank you for anyone who can answer…

8. says

sir i have a problem with a parent and an associate: i know this notes doesnt cover associates: my problem is this:
when a parent sells goods to an associate, the parent is the one making the profit but why is it that only the parents share of the profits is debited in the concosolidated retained earnings

• says

Because the associate is NOT a group company. The IFRSIC Interpretations Committee decided that it IS appropriate to eliminate JUST the parent’s share of any unrealised profits arising from a transaction with an associate

OK?

9. says

Mr. Mike, on the issue of the pup, in example 3, there was a margin on the intra group transfer. you accounted for that by adding it back to the cost of sales. now in example 4, there was a mark up on the same type of sale and u ALSO handled it by adding it back to the cost of sales. Why the same treatment for mark-up AND margin sales?
Could you also explain the rationale behind adding the pup to the cost os sales? I thot that since the entire transaction amount was removed from both buyer’s and seller’s records( by deducting from revenue AND cost of sales), that the pup was included in those amounts?

• says

Mark up and margin are simply ways of calculating the pup.

Having calculated it, it needs to be added to cost of sales, whether it’s mark up or margin, the treatment is the same

Why add to cost of sales? Because it’s an unrealised profit. By adding, we increase cost of sales and therefore REDUCE the recognised profit

The elimination if the intra-group sale is because it’s in the original buyer’s purchases / cost of sales and in the other company’s closing inventory so is already deducted from cost of sales.

We cannot now include it in the revenue of the original purchaser and in the other company’s purchases – that would have included the amount twice in cost of sales and once in revenue ( but it hasn’t been “sold” – just transferred within the group )

10. says

Hi There
It’s been a while I’ve not keep in touch with ACCA. Just want to make sure if “Associates” have been removed from F7??

11. says

Also can the lecturer help us with Associates Ch 11. I would love to clear my concepts on that.

Many thanks. These lectures are the best I had. Quickly clear my concept

12. says

Is this just me or the lecture ended at Example 4? I can only see upto 9.35. Please help me as I need to know how to do example 5 and 6.

13. says

Many thanks for the wonderful lectures,they r great help……….in example 6- retained earnings brought forward, in cant understand wher the 6000 of div rules come from.plse help

14. says

For Example 5
Do we have to prepare pre and post RE, can we not just go with Consolidated RE as with all the privious examples we have done.

Also why is declared divident ignored when preparing RE. I understand they are included in the statement of Changes in Equity but that is not what we have been asked for. We only need stat of CI and Consolidated RE to go in the statement of FP. It can be argued that we need two stat. of CI one for group and one for Subs. but the questions specifies fugure not figures?
I am just worried what is it that I missed as I only prepared Consolidated RE and included declared divident which is why my figure is different from yours?

• says

@despina, If I have missed the dividend which Didzis is expecting from Ansis in working 3, then that’s an error – it should be included in working 3 for the Statement of Financial Position

There is no need to prepare the working 3 brought forward. I get students to do it to show that it’s exactly the same working as for Retained Earnings carried forward. You will NOT be asked for a Statement of Changes in Equity in question 1. However, you may very well be asked to do it in question 2.

My students do it for Didzis / Ansis so I can show them what it looks like on day 2 of the course so they are ready for the same layout when we get to day 4 of the course – that’s when we start looking at question 2 issues