Consolidations – Simple Groups Introduction part c

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  1. avatar says

    you said fair value adj. is added to retained profit at W3 and when you show the R/E at acquisition, it comes from W2 that includes the fair value adjustment. this means we are adding the fair value above are going to be deducted on the lower side. that makes the net effect to nil. pls healp me. (pls see lecture at 11:52 minutes

    • Profile photo of MikeLittle says

      @tsemre, There are two ways of tackling working 3, and both come out with the correct answer. BPP and Kaplan ( and possibly others too ) show in working 3 Consolidated Retained Earnings just THE MOVEMENT on the fair valued assets. So, in the case of a depreciable non-current asset which had a fair value adjustment as at date of acquisition two years ago of say 10,000 and had a five year remaining useful life, at today’s date ( date of consolidation I would show in the top part of working 3 a fair value adjustment of 10,000 and separately the depreciation on the fair value adjustment of ( 4,000 ). In the lower half of the working I would show the retained earnings as at date of acquisition ( from working 2 ) as adjusted for the fair value adjustment of 10,000.

      So, yes, the 10,000 appears in my working 3 twice.

      BPP, Kaplan and possibly others too show only the 4,000 additional depreciation ( being 2 years’ worth of deprecation on the fair value adjustment ) and it’s shown as an adjustment in arriving at “today’s retained earnings” figure

      Both methods arrive at the same place – it’s just that I prefer my way

  2. avatar says

    At 11:52 minutes of this presentation, why do we add FV adjustments as part of the Retained profit at acquisition? Other textbooks and notes I have used only takes the Retained profit figure at acquisition and no FV adjustments. Please clarify me.

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