SOCI – Ammended Past Paper Question

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    gutsychyk
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    Please solve the question below and post your PATS,NCI & Owners Share, together with part a and b of the question

    PAST EXAM QUESTION (UPDATED TO REFLECT IFRS 3)
    Hosterling purchased the following equity investments.
    On 1 October 2009: 80% of the issued share capital of Sunlee. The acquisition was through a share exchange of three shares in Hosterling for every five shares in Sunless. The market price of Hosterling’s shares at 1 October 2009 was $5 per share.
    On 1 July 2010: 6 million shares in Amber paying $3 per share in cash and issuing to Amber’s shareholders 6% (actual and effective rate) loan notes on the basis of $100 loan note for every 100 shares acquired.
    The summarised income statements for the three companies for the year ended 30 September 2010 are:
    Hosterling Sunlee Amber
    $000 $000 $000
    Revenue 105,000 62,000 50,000
    Cost of sales (68,000) (36,500) (61,000)
    _______ ______ ______
    Gross profit/(loss) 37,000 25,500 (11,000)
    Other income (Note (i)) 400 Nil Nil
    Distribution costs (4,000) (2,000) (4,500)
    Administrative expenses (7,500) (7,000) (8,500)
    Finance costs (1,200) (900) Nil
    _______ ______ ______
    Profit/(loss) before tax 24,700 15,600 (24,000)
    Income tax (expense)/credit (8,700) (2,600) 4,000
    _______ ______ ______
    Profit/(loss) for the year 16,000 13,000 (20,000)
    _______ ______ ______
    The following information is relevant:
    (i) The other income is a dividend received from Sunlee on 31 March 2010.
    (ii) The details of Sunlee’s and Amber’s share capital and reserves at 1 October 2009 were:
    Sunlee Amber
    $000 $000
    Equity shares of $1 each 20,000 15,000
    Retained earnings 18,000 35,000
    (iii) A fair value exercise was carried out at the date of acquisition of Sunlee with the following results:
    Carrying Fair Remaining life

    Intellectual property 18,000 22,000 See below
    Land 17,000 20,000 Not applicable
    Plant 30,000 35,000 Five years
    The fair values have not been reflected in Sunlee’s financial statements.
    Plant depreciation is included in cost of sales.
    No fair value adjustments were required on the acquisition of Amber.
    (iv) In the year ended 30 September 2010 Hosterling sold goods to Sunlee at a selling price of $18 million. Hosterling made a profit of cost plus 25% on these sales. $7.5 million (at cost to Sunlee) of these goods were still in the inventories of Sunlee at 30 September 2010.
    (v) Impairment tests for both Sunlee and Amber were conducted on 30 September 2010. They concluded that the goodwill of Sunlee should be written down by $1.6 million and, due to its losses since acquisition, the investment in Amber was worth $21.5 million.
    (vi) All trading profits and losses are deemed to accrue evenly throughout the year.
    (vii) Hosterling Group’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose Sunlee’s share price at that date of $2.75 can be deemed to be representative of the fair value of shares held by the non-controlling interest.
    Required:
    (a) Calculate the goodwill arising on the acquisition of Sunlee at 1 October 2009. (5 marks)
    (b) Calculate the carrying amount of the investment in Amber at 30 September 2010 under the equity method prior to the impairment test. (4 marks)
    (c) Prepare the consolidated income statement for the Hosterling Group for the year ended 30 September 2010. (16 marks)
    (Total: 25 marks)

    ps. if you dont get the formatting of the question please consult past papers for help!


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    stellak
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    gutsychyk,
    i managed to solve the question.thanks for encouragements.
    PAT share =19,600
    NCI SHARE = 2,400
    Goodwill = 8,000
    Investment in Amber =21,500


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    gutsychyk
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    Thats great. Your answer matches BPP answers , you are on the right track. I have different answers. I have used fair value method
    Goodwill:
    Investment: 48000
    FV of NCI (no of nci shares 4000 x subs share price 2.75) 11000
    less net assets at FV at acquisition (50000)
    less Goodwill Impairment (whole) (1600)
    Total Goodwill 7400

    NCI
    nci value at acquisition (same as above) 11000
    add nci share of post acquisition reserves 2400
    less Impairment (nci share only) (320)
    nci share total 13080

    Total profit in CIS is 22000
    Investment in Amber is 21500


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    drose
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    Please note the qu. asked for G/w at DOA, no impairment to be deducted.Review.What amt. did you get for NCI (SOCI)?


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    gutsychyk
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    62000-36500-1000-2000-7000-1600(full impairment charged to subsidary) – 900-2600 = 10400 x 0.20 = 2080.
    Usually past papers they charge full impairment to parent so your nci soci gw will be 2400.
    The lectures I follow showed to transfer full impairment to subsidary,


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    stellak
    Participant
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    gutsychyk
    im still lost with your nci calculation.what was the NA at reporting date?maybe that will help me.


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    gutsychyk
    Participant
    • Topics: 19
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    I ll post my workings in a bit. please dont mind the mess !


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    gutsychyk
    Participant
    • Topics: 19
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    My Working

    heres my working, hope it makes sense.
    also the very last number 2040 of the scanned doc should be replaced by 2400.!!!!


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    gutsychyk
    Participant
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    okay my answer and calculation ( the way i do it ) is correct. so any one who follows lsbf should get these answers or something similar. I cant say other answers are wrong or right because I have not tried other methods.


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    gutsychyk
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    • Topics: 19
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    @drose said:
    Please note the qu. asked for G/w at DOA, no impairment to be deducted.Review.What amt. did you get for NCI (SOCI)?

    here he/she is right, impairment should not be deduted yet as they have asked for goodwill at acquisition. Impairment was subsequent to acquisition. If you do include impairment, its not wrong, so no mark will be deducted or if examiner is having a bad day 0.5 might be deducted.

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