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May 25, 2015 at 11:08 am
Hey, I’m having trouble watching this video. All the other videos are fine but this one continues to reload over and over again. I tried on numerous devices (Phone, laptop, tablet and even a P.C). Please help.
May 25, 2015 at 11:23 am
maybe it is temporary glitch, the video works fine,
May 9, 2015 at 2:28 pm
Thanks Mike, you are quicker than Batman!
One thing I want to confirm here that whenever the “Negative” goodwill arises then it should always completely add in Group Retained Earning ? It doesn’t really matter that either a NCI value is given or it proportionate ?? I mean should we require to apportion the amount of negative goodwill if NCI is not proportionate ??
May 9, 2015 at 3:24 pm
Hi saqib you need to put this on the ask the tuitor page if you want to be surre that mike sees it
April 4, 2015 at 2:00 pm
I’d like some help on the following question:
“The acquisition of Subsidiary (S) by Parent (P) took place on 1/10/x0.
Immediately after the acquisition P transferred an item of plant with a carrying amount of $4,000 to S an agreed value of $5,000. At this date the plant had a remaining life of 2 1/2 years.
P had included the profit the profit on this transfer as a reduction in its depreciation costs. All depreciation is charged to the CoS.”
Calculate the depreciation.
Consolidated accounts are being prepared for the YE 31.3.x1
The answer says depreciation is:
Profit on transfer $5000 – $4000 = $1,000
Proportion depreciated 0.5 / 2.5 = ($200)
Unrealised Profit = $800
Dr CoS $800
Cr Plant $800
My question is, why is the profit multiplied by 0.5?
Is it because although a full years’ depreciation should be charged in the year of acquisition, P acquired S half way through their financial year and therefore have pro-rated the depreciation charge?
If this is the case, what has happened to the remaining depreciation charge for that year? Are we to assume that depreciation prior to acquisition has already been charged to CoS?
April 4, 2015 at 4:06 pm
The depreciation of that asset is split into two parts. The first part (the first six months of the year) the depreciation is accounted for in the records of the parent company and is taken into account in arriving at the carrying value as at date of transfer.
The second part (since date of acquisition until the year end) is accounted for in the subsidiary and, since it’s only half a year, then the element of depreciation that is to be charged in the subsidiary’s statement of profit or loss is depreciation for a full year but then divided by 2 because it’s only for half a year
It’s actually an unfortunate example because the depreciation for half a year on the $5,000 asset is $1,000 and that figure is the same as the pup on the initial transfer
You say in your post that “although a full year’s depreciation should be charged in the year of acquisition ….”
What makes you think that?
April 4, 2015 at 4:18 pm
In my last comment, I meant that the rule is for a full years depreciation to be charged in the year of acquisition and none in the year of disposal.
Ordinarily if the asset was acquired on 1.10.x0 then depreciation should’t have been pro-rated, but from what I understand, half the years’ depreciation was already charged in the Subsidiary, therefore the remaining half would be charged to the Parent after acquisition, and when looking at the group accounts, a whole year’s depreciation would have been charged.
Or maybe I am just totally confused… in which case I think I will just give up and focus on answering the rest of the questions correctly.
April 4, 2015 at 4:36 pm
Don’t give up!
The parent is selling to the subsidiary so 6 months’ pre-transfer depreciation is in the parent and now we need 6 months’ post-transfer depreciation in the subsidiary.
You are quoting this rule to me as though it is cast in tablets of stone “…. the rule is for a full year’s depreciation ….”
That’s not a rule! It’s a policy that some companies choose to adopt, but it’s not a rule
April 4, 2015 at 4:38 pm
Ahhh I thought it was the rule set in stone by IFRS/IAS
Thanks for the heads up!
February 10, 2015 at 8:03 pm
Apologies for raising this query on the lecture site rather than “ask the tutor”. Just thought it might be quicker than referring back to the lecture example. My query is if the example above had made the exact same transaction but from the sub to the parent (i.e. PUP of 10 on sale less the excess of 5 on dep’n now in parent company) then the net effect is now a reduction in the sub rather than parent – Dr Ret Earn, CR TNCA etc.
Does the sub now present as follows on the consolidated statement of retained earnings (for the sub);
Per Question 600
Pre Acq (275)
Less: PUP (5)
Post Acq 320
This would leave post-acq for parent as 60% x 320 = $192,000. I’m assuming this is correct as the 600 would (theoretically) already incorporate the accelerated depn etc. Equally the NCI of 40% in W4 would then be 40% x 320 = $128,000.
Many thanks for your help in advance and many thanks for getting me through my F4 paper last month too!
April 4, 2015 at 4:39 pm
This is pure chance that I saw this post – I rarely look at the comments after the lectures. You, of all people, should know that I respond always when the post is on “Ask the Tutor” but it’s a rare occurrence that I see other posts.
Your principles are correct (I don’t have the question in front of me, but so long as the figures that you are using are correct, then so too are your observations)
Congratulations of your F4 roaring success – I bet you’re missing it now….all that fun and excitement!
February 9, 2015 at 6:06 pm
Hi Mike, im just wondering why the net pups is written off against the retained earning of the selling company only.
Taking this example, the parent made a sale of asset to the sub making a profit of 10. Therefore the subsidiary is charging extra depreciation (of 5)
So logically, the profit of 10 should be charged against the retained earning of the parent while the extra depreciation of 5 should be added on to the retained earning of the subsisidiary. This would affect working 3 . cons retained earning.right?
April 4, 2015 at 4:42 pm
Jonathan, if ever in the future you want a tutor to respond, please post your question on the ask the tutor page. It’s a rare occurrence that we look at other posts!
It used to be the case that we eliminated the profit on disposal from the seller’s retained earnings and added the excess depreciation back to the buyer’s retained earnings.
This changed about 4 years ago so the NET adjustment is now made in the seller’s retained earnings
April 8, 2015 at 6:28 am
Ok. got it. Thanks a lot Mr. Mike
January 13, 2015 at 9:40 am
Fantastic! The step by step approach is interesting. I recommend these series of lectures for all ICAN students in Nigeria.
The method used to treat inter group non current assets. How can we compute depreciation if useful life of the asset is unknown using the short method you recommended?
I mean how can I compute depreciation using (unrealized profit divided by remaining useful life)
January 13, 2015 at 11:35 am
A question HAS to give you that information. Let me turn your question round ….. how can you calculate depreciation if you use the “long” way round and the examiner doesn’t tell you remaining useful life?
December 16, 2014 at 3:29 pm
sir you are a genius with that shortcut.
November 24, 2014 at 11:25 am
Hi,For December 2014 exam the consolidation question is going to be 30 mark or 15 mark?
August 24, 2014 at 9:40 am
Could you please explain, the example says, that assets fully depreciated in the year of purchase and none in the year of sale.
Is this a kind of examiner trick? because we do have a sale (to our subsidiary) but we still charge depreciation?
August 24, 2014 at 12:27 pm
Yes, but it’s the subsidiary that is charging depreciation because the subsidiary has just bought the asset.
The parent has sold the asset and therefore is not charging depreciation (in the year of sale)
May 11, 2014 at 7:07 pm
PUP means what exactly?
May 11, 2014 at 7:08 pm
as in PUP is the abbreviation of what?
May 11, 2014 at 7:36 pm
PUP = Provision for Unrealised Profits 😀
Quick and easy way for PUP:
Profit from transfer / number of years remaining useful life
Profit from transfer less answer above = PUP
That diagram helped me understand the fast way to calculate.
April 5, 2014 at 10:40 pm
Great lectures Sir, I’ve Passed my 5 exams (F1, F2, F3, F4, F6) on first attempts with the help of opentution. Without these i would have been stuck in ACCA forever. Thank you for sharing the great knowledge and helping us.
February 14, 2014 at 3:50 pm
sir, i’m madly in love with your delivery. impeccable lectures… but i just wanna be sure if i could, in the adding of TNCA of Lina and Asta, just reduce the assets by only the net adjustment (5) rather than -10+5. Just don’t like losing silly marks so i wanna be sure…. thanks sir.
February 14, 2014 at 4:01 pm
Hi, you’re right, just the NET figure
NB, ask the tutor pages are now re-opened after our Christmas break between exams and results
February 17, 2014 at 10:07 am
Thanks a lot Sir.
February 17, 2014 at 2:52 pm
February 6, 2014 at 12:14 pm
Very nice lecture sir! Just a quick question, for this example we got the depreciation on a straight line basis, in the exam must we expect reducing balance as well? Thx.
February 7, 2014 at 9:09 am
You can expect two types of depreciation in the F7 exam – normally it’s straight line and reducing balance. But sum of the digits method has been asked and, in a recent question 5 (I think) there was a “complex asset” question involving 5 (I think) elements of a ship being depreciated in different ways over different periods of time. Yes, question 2 will typically have both s-l and reducing balance, but others could be in there too
January 13, 2014 at 5:06 pm
Has this lecture been updated for the June 2014 exam?
January 13, 2014 at 6:01 pm
Yes, it’s up to date and back in line with the course notes
January 13, 2014 at 7:00 pm
January 14, 2014 at 8:31 am
November 17, 2013 at 3:26 pm
Dear Sir Mike,
I read the comments and you said that this lecture is outdated so Do I only view the notes or if this lecture is still applicable for current exams? Please do reply me asap, Thanks in advance
November 17, 2013 at 3:37 pm
The only little way in which it is outdated is in the treatment of the depreciation on the transferred non-current asset.
In the lecture the extra depreciation calculated on the profit element of the transferred asset is adjusted in the records of the buyer.
This has now changed and the NET gain on transfer, net after the depreciation, is adjusted in the records of the selling company – so there’s no adjustment to be made to the records of the buying company
November 17, 2013 at 3:40 pm
Thank you sir, that means its still applicable now with only a little bit of exception of treatment of non current assets transferred, Thanks Again I understood, God bless you!
November 18, 2013 at 9:41 am
Mike, every thing fine but this changes in the net effect of profit and dep changed by whom. I mean by IAS or IFRS can you please give the reference.
Thank you sir, God bless you
Can you please mark the reference through which the changed affected
November 18, 2013 at 10:16 am
You’re right – it does change both working 3 and working 4.
And, no, I cannot give you the reference – (I would if I could remember it)
November 21, 2013 at 4:58 pm
Therefore what would be consolidated retained earnings in working 3 of Linas & Asta?
October 27, 2013 at 5:17 pm
i am a cima students but a very excellent teaching style….love you sir,i learn all consolidation from these lectures so so conceptual…..thanks a lot
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