Consolidations – Simple Groups Example 1

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This lecture is applicable for Paper F7 but is also a revision lecture for Paper P2

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Agne acquired 72% of the equity shares of Dace on 30 June 2009 for $250,000.

On 31 August 2009, the Statements of Financial Position were:
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1. At the date of acquisition, some of Dace’s inventory had a fair value $16,000 in excess of its carrying value. All had been sold before the year end.
2. On 31 July 2009, Dace had sold an item of property, plant and equipment to Agne realising a profit on sale of $20,000. Agne was depreciating this item over its remaining useful life of 4 years. It is group policy to charge a full year’s depreciation in the year of purchase, and none in the year of sale.
3. On 29 August, Agne had despatched goods to Dace at a transfer value of $26,000. Agne sells goods at a mark up of 30%. Dace had sold a quarter of these goods by the Statement of Financial Position date.
4. The current accounts did not reconcile at the year end because Dace had sent a payment of $5,000 to Agne, but Agne only received it on 3 September 2009. Before any necessary adjustment, the intra group balance in Dace’s records showed an amount owing to Agne of $12,000.
5. Goodwill is impaired by 25%.
6. Both entities have declared but not yet accounted for a dividend of 5c per $1 share.
7. The directors valued the nci at $87,667 at date of acquisition

Prepare a Consolidated Statement of Financial Position for the Agne Group as at 31 August 2009.

Comments

    • Avatar of MikeLittle says

      @loveg918, yes, the dividend is an appropriation of profit after tax. In our calculations of W4b we give the nci their share of profit after tax and that amount INCLUDES the dividends which are attributable to the nci.

      You say the parent company records their share within retained earnings in W3. that is correct. The figure at the end of W3 in the subsidiary column is post acquisition retained profit ( ie after the proposed dividend ). If you check the resulting Statement of Financial Position, you should find an amount in current liabilities representing the nci’s share of the subsidiary’s dividend. So for W4a they get their share of post-acquisition retained and for the Statement of Financial Position the nci from W4a is shown in Equity and their dividend is shown as a current liability

  1. avatar says

    As per the solution in the lectures;

    Goodwill is 68,334
    Impaired 25% = 17,084

    Goodwill Impairment:
    Group Share: 17,084 * 72% = 12,300
    NCI: 17,084 * 28% = 4,784

    There is a difference in goodwill as well as impairment if calculated together and calculated separately.

    Please guide.

    • Avatar of MikeLittle says

      @zainy52, Ah! But we don’t calculate goodwill for the parent and for the nci as two separate exercises. I USED to, but Steve Scott (F7) and Graham Holt (P2) seem to insist that goodwill is calculated in a single calculation, so I have had to change my layout for Working 2 :-(. If the nci is valued on a full value basis, then they are charged with their share of goodwill even though that impairment may exceed the apparent goodwill attributable to them using two separate columns.

      Is that clear?

      • avatar says

        @MikeLittle,
        Thank you for the quick response.
        I was referring back to my F7 BPP notes (Exams in 2010). One of Exams focus point states:
        “The option to value NCI at fair value in introduced and revised IFRS 3, but it is just an option. Companies can choose to adopt it or to continue to value NCI at share of net assets. In the exam, unless you are directed to apply the fair value option, you should value NCI at share of net assets. It is likely that the examiner will specifically tell you this. If you are required to use the fair value option, the examiner has stated that there are three possible options:
        1) You may be given the share price of the subsidiary just before acquisition
        2) You may be told that the NCI is value at certain amount
        3) You may be given the amount of goodwill attributable to the NCI. In this case you would calculate goodwill & NCI under the traditional method and then add the goodwill to both of them.”

        I am wondering if option 2 “You may be told that the NCI is value at certain amount” is valid here since the question says:
        The directors values the NCI at $87,667 at date of acquisition.

  2. avatar says

    Hello,

    This has reference to Example1, Chapter1 regarding goodwill and impairment of goodwill calculation.
    If I calculate goodwill for group and NCI separately I get Group Goodwill 56,080 and NCI 12,254.

    Group 250,000 less (269,333 * 72%) = 56,080
    NCI 87,667 less (269,333 * 28) = 12,254
    Total remains same as per the video lectures = 68,334

    Impairment 56,080 * 25% = 14,020
    NCI 12,254 * 25% = 3064
    Again, Total remains same as per the video lectures = 17,084

    This gives overall goodwill 51,250 again same as video lectures. The change is reflected in NCI and Retained earnings
    NCI = 78,910
    R/E = 169,040

    Can you please guide

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