- This topic has 5 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
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- April 22, 2017 at 3:33 pm #383085
Hi Tutor, I have another question.I need help.
At the date of acquisition Savannah had 5 years remaining of an agreement to supply goods to one of its major customers.The agreement has been consistently renewed when it expires.The directors of Plateau estimate that the value of this customer based contract has a fair value of £1 million and an indefinite life and has not suffered any impairment.
The note gives information that Savannah had 5 years remaining customer contract but it does not say it has already finished or it does not say it has not been recorded at acquisition date so that the recognition criteria should be below?
AD DR PAP
1000 1000 — I think this is correct but can make mistake.AD DR PAP
– 1000 1000(Revaluation surplus)April 22, 2017 at 3:34 pm #383086AD DR PAP
1000 1000 — I think this is correct but can make mistake.AD DR PAP
– 1000 1000(Revaluation surplus)April 22, 2017 at 3:57 pm #383089The question, as you have typed it, states that “At the date of acquisition Savannah had 5 years remaining…”
So how can it satisfy your comment “it does not say it has already finished” … it says that there was 5 years remaining
Where’s this question from? It’s not the Plateau / Savannah question from ACCA’s December 2007 examination
I ask because I can’t help feeling that you have failed to give me all relevant information about this contract
In addition, can you let me know please what is meant by:
“AD DR PAP
1000 1000AD DR PAP
– 1000 1000(Revaluation surplus)” and, in particular, what is meant by the “AD” and by the “PAP” (and if this is a journal entry, does it really have two debits and no credits?)April 22, 2017 at 6:34 pm #383116I took it from Bpp test bank.
Ad(acquisition date) i have to recognise 1000 and DR(date reporting) 1000 and PAP(post acquisition period) no differen1000
If for example i did not recognise it at Ad i would write 1000 at DR which creats 1000 difference so revaluation surplus.
Also. I typed the note absolutely the same fom bpp.if there were note relating to this note i would definitely write it.April 22, 2017 at 8:29 pm #383123I believe that the implication is that the $1 million relating to the contract was not, as at acquisition date, recognised in the Savannah statement of financial position so the amount needs to be included within the subsidiary’s net assets as at date of acquisition as a fair value adjustment
There will be no amortisation implication because “and an indefinite life and has not suffered any impairment.”
OK?
April 22, 2017 at 9:08 pm #383126After much searching, I’ve found the question
You told me that you had given me all relevant information – you didn’t say that this $1 million contract did not appear on Savannah’s statement of financial position as shown in the question!
And that was very relevant!
It’s a fair value adjustment (as I guessed in my previous post) with no amortisation implication
It is therefore part of the fair valued Savannah net assets at date of acquisition and will appear as an intangible asset in the consolidated statement of financial position
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