Comments

  1. avatar says

    Sir,
    I am confused in the example 1 regarding not entering receivable 30+30 of Jurate and 20 of Dovile; and in the same way trade payable 50+10 of Jurate in the CS of FS.

      • Avatar of MikeLittle says

        Because when we consolidate the group accounts are presented as those of a single company. The amounts owed by / to Dovile / Jurate are effectively owed by a company to themselves.

        It’s like saying that your left trouser pocket owes your right trouser pocket $5,000. So, does that make you $5,000 richer?

  2. Avatar of Swati says

    Dear Mike Sir,

    I have a small doubt in the Mini Exercise Question (Page 203, Paper F7, Question # 3 Patricija & Sergejus) It is the ques of ‘share exchange’ case at the time of calculating Goodwill.
    My doubt is- While calculating the FV of TNA of this Subsidiary @ doa, how have you calculated Ret. Ear b/f. as 3.5 million ? I understand it is the mid-yr acquisition, so its supposed to be 6/12. But don’t we do 6/12 * 6.5 million which will be 3.25 million?

    Ques says:

    On 1 November, 2009 Patricija acquired 60% of the 4 million $ equity shares of Sergejus in a share exchange of two shares is Patricija for three shares in Sergejus. At the date of acquisition shares in Patricija had a market value of $6 each.Sergejus pro?t for the year ended 30 April, 2010 was $3 million and retained earnings at that date were $6.5 million. At the date of acquisition, the fair values of Sergejus‘ assets were equal to their carrying amounts with the exception of an item of plant which had a fair value of $2 million is excess of its carrying amount. The non-controlling interest is to be accounted for at fair value. For this purpose, the fair value of the goodwill attributable to the non-controlling interest is $1.5 million, and goodwill is not impaired as at 30 April, 2010.

    Please solve this doubt.

    Thanks a lot,

    Regards,
    Swati

    • Avatar of MikeLittle says

      Hi (again!)

      “profit for the year ended 30 April, 2010 was $3 million and retained earnings at that date were $6.5 million.”

      OK, of that $6.5m, $3 was retained THIS YEAR. Therefore, at the start of this year, the retained earnings figure must have been $3.5m and that is entirely pre-acquisition. Now, this year’s retained earnings are $3m and half of that was achieved pre-acquisition

      So total pre-acquisition retained earnings are $3.5m + (6/12 x $3m) giving a total of $5m

      OK?

  3. avatar says

    I hope someone can help me with this!
    in example 1, when doing the FV at DOA why inventory 60k,cash 20k,receivables 70k and non-current assets Tangible of 150k are not included in the answer?

    Is it because they are current assets?
    Do we only include Non-current assets? Because in chapter 7 example 11 page 46we included Non-dep non-cur assets and Dep non-cur assets.

    I am confused now, can someone help me please?

    • avatar says

      Hi there,

      In example 1, the DOA happened at incorporation of the subsidiary. Therefore, there was no retained earnings or anything brought forward from before. Since the company was “born” on the date of acquisition, it did not had any inventory/cash/etc to be adjusted to.

      In example 11 of chapter 7, the DOA was 2 years ago which is why it had depreciation/inventory etc.

      Hope this helps :)

  4. avatar says

    Please mr.mike
    i found this in practies note questions and i can not under stand
    (1) Included in receivables of August are amounts owed by Scone of $75,000. The current accounts do not at present balance due to
    a payment for $39,000 being in transit at the year end from Scone.

    i know i will cancel 75 of receivables A with payaples S
    but about cash transit . cash of A will incret another side?
    please help

    • Avatar of MikeLittle says

      Deal with the in-transit item first. So, in A’s records (on the face of the question) Dr Cash and Credit Receivables with the $39,000 in transit. That now leaves $75,000 – $39,000 receivable from Scone and that’s the same amount in Scone’s records shown as payable to August.

      So now cancel from Total Receivables and from Total Payables the amount of $(75 – 39) $36,000

      OK?

  5. avatar says

    Sir, please tell me if Im right!
    If P sells to A, then SFP treatment is to deduct P’s share of PURP from the RE, and the same amount is deducted from the investment in associate. SOCI treatment is to add the amount to cost of sales of P
    If A sells to P, then SFP treatment is to deduct P’s share of PURP from the RE, and the same amount will be deducted from the group inventory. SOCI treatment is to add the amount to the cost of sales of P

  6. Avatar of marilynlojikim says

    Hi Mike, i am on page 48 of chapter 8. I am referring to the answer for example 1 . Just wondering why is the retained earning W3, the pre-acqn re is nil? In what circumstances in the exam question that we assume its nil? I hope u understand my question. Thank u. Btw, greattttttt video. Loving it.

  7. avatar says

    I am confused! I thought that as long as goods are sold it is not deducted in the Consolidated income statement! Looking at Question 11 Fallowfield……only half of goods remain..why was the entire 40000 deducted?….Help

  8. Avatar of cristina85 says

    guys when u have inter co revenue, and they mention in the exercise :”the current account in that day of the transaction was…xxx.”u need to adjust Group A/R and Group Liabilities when you consolidate by minusing in both acounts the same xxx mentioned, as is an inter co revenue, is not payable and is not collectable.Just fyi!

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