Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › June 2012-question 1-Robby
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- August 17, 2016 at 2:00 pm #333774
Hello
Regarding the topic title, I do not understand the following and i am kindly requesting your assistance:
1.why in the answer, working 1 -Hail, the following is stated:
“On consolidation, there will be a reversal of the fair value adjustments to the investment held at fair value through profit and loss.”2.in working 2-Zinc, the following:
“Increase in fair value of equity interest (5·00 – 2·00 – 1·00)”3.in the question, notes 5 & 6 mention “the entity entered into a factoring agreement with a bank” and “Robby sold land to a third party” which implies a transfer of ownership however in the workings (BPP Text) it is mentioned that the risks and rewards of ownership were not transferred.
4.regarding the debt factoring in note 5, the working mentioned a credit to current liabilities of 3.6, i am wondering why is it not a credit to cash? (since the entry is being reversed)
5. In note 2 from the question Robby increased his controlling interest from 5% to 60%, however i did not see any entry to NCI or OCE in the answer.
I am looking at the question in the BPP Text, however from the ACCA website (which gives the same answers), here are the links to question and answer:
It would be greatly appreciated if the answers to the questions above are numbered similarly.
August 26, 2016 at 2:43 am #335222Hello
I’m not sure if this post was missed in error, so this message is to re-post it.
August 26, 2016 at 6:12 pm #335394Hi,
1. I think it should say “investment held at fair value through other comprehensive income” to match what it says in the question. Any gains made on the investment need to be reversed out on consolidation due to the single entity concept. If we can’t have an investment in ourselves then we can’t have any gains/losses either.
2. I’ve answer this one in another thread. If you look for hj’s one titled June 2012 it will answer this one for you.
3. On the debt factoring as we’ve agreed to reimburse any shortfall then we haven’t transferred the risks and rewards as we may still have to pay cash if the factor doesn’t collect the debts. Also with the sale of land, we’ve not transferred the risk and rewards of ownership as it’s highly likely we’d purchase the land back given that we’d be purchasing it back for much less than its market value.
4. We’ve received the cash, there is no paying it back until we have to do so. So when we received the cash we should have DR Bank (already done correctly) CR Liability (needs to be corrected).
5. We now have control so we consolidate from the date we gained control. We only have adjustments to NCI and the parent’s equity when there is a change in ownership after control is obtained, so if we went from 60% to 75% then we’d make the adjustment.
Sorry I missed the post previously.
Thanks
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