ACCA F7 lectures Download F7 notes
This lecture is applicable for Paper F7 but is also a revision lecture for Paper P2
Group Accounts – Comprehensive example 1
When Ausra bought 75% of the Danute 50c equity shares of 31 March, 2011, the value of the Ausra $1 equity shares was $4.30 and the Danute shares had a market value of $1.30.
The terms of the acquisition were a combination of elements:
– for every 3 shares acquired Ausra issued 1 new share
– a payment of $1.21 for each 2 shares acquired payable on 1 April 2013
– a payment of $0.60 per share acquired immediately
The Ausra cost of capital is 10% per annum
Only the cash payment on 31 March 2011 has so far been recorded
On 31 October 2011, the respective Statements of Financial Position were:
1. At the date of acquisition, some of Danute’s inventory had a fair value $12,000 in excess of its carrying value. All of this inventory had been sold before the year end.
2. On 31 July 2011, Danute had sold an item of property, plant and equipment to Ausra realising a profit on sale of $36,000. Ausra 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 1 October, 2011 Ausra had despatched goods to Danute at a transfer value of $26,000. Ausra sells goods at a margin of 30%. Danute 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 Danute had sent a payment of $6,500 to Ausra, but Ausra only received it on 2 November 2011. Before any necessary adjustment, the intra group balance in Danute’s records showed an amount owing to Ausra of $11,500.
5. Goodwill is impaired by 25%.
6. Profits for the two companies for the year to 31 October, 2011 (before any adjustments necessary to be made) were respectively $70,000 and $60,000
7. Both entities have declared but not yet accounted for a dividend per share of 10c (Ausra) and 3c (Danute).
8. The directors valued the nci investment on a fair value basis using the market value of the Danute shares as a fair measure.
Prepare a Consolidated Statement of Financial Position for the Ausra Group as at 31 October 2011.
Hi Mr. Mike,
I have always enjoyed your classes and it is implied that all of them are useful.
It does not feel like taking it online.
Now, I hope you can help me with my below query.
Why do we make only the adjustment with respect to PPE transfer of 36k (while bifurcating profit on pre & post acq). Why not other adjustments with respect to profits? All the adjustments have date mentioned on it.
As a student facing an exam paper, what is the logical point that helps to decide which one to adjust and which one not?
Thank you! (I am taking IFRS certification for which I take help of these instruction classes)
Which other matters are clearly pre – or post-acquisition?
Surely it’s only the transfer of property that is post acquisition that affects the subsidiary’s profit split
OK?
That was never a lecture on share for share exchange lectures. It could a technical error or was never recorded.
No, but there is a comprehensive worked example from a past ACCA exam on pages 53 and 54 of the free course notes. The example is from the exam question Viagem and Greca, question 1 in the December 2012 exam
OK?
Is it because the transaction is not a normal business activity?
That’s exactly so – there are no other abnormal activities so the rest of the subsidiary’s figures can be simply time apportioned
OK?
One more question Mr. Mike. I refer to the Mini Exercise# 10 on Goodwill. When current year balances are given on SFP – Shares, Retained Earnings & Current year Profits. My understanding is RE does not include current year profits. I am confused as the solutions are on the contrary, please help!
Sir, i am a bit confused about the 11,500 owed to ausra by danute in note 4. Since it is being owed before any adjustments, isn’t the adjustment meant to increase the debt position of danute to ausra, thereby increasing the payable in danute and also increasing the receivable in ausra? I can’t seem to get my head around why it was subtracted from both instead.
What makes you think that Danute has not already recorded this debt?
And, if Danute HAS recorded it, why would we wish to increase the liability in Danute’s records?
OK?
I got it now Sir. Being a receivable to the group from the group, it’s meant to cancel out.
Thank you so much for the guidance.
That’s good – and now good luck in the exam
OK?
Great lectures. thank you!!!!
It’s not a big problem, but – parent company can issue any number of shares ( practically printing money) without regard of dilution or market capitalization …. but we have to worry about the PUP on inventory ?
It is a bit incongruous.
It was the same as F3. I can’t be the only one that is bothered by this.
Again, great lectures. Thank you.
As a practical point, the shareholders of a company have to give the directors the authority to issue shares
However, as a further practical point, this authority is normally given as a matter of routine and those shareholders that appreciate the issues involved are presumably the institutional shareholders (ie the BIG shareholders) and they either do or do not trust the board to make sensible acquisitions and share issues
the majority of shareholders probably don’t understand the matters involved so (probably) simply rubber stamp the resolution authorising these directors
But for F7? … don’t worry about it!
hello sir!
shouldn’t we adjust the additional depreciation of 9000 of the property plant and equipment that was sold to asura in asuras retained earning
shouldn’t we add it?
No, the adjustment is in the Danute retained earnings. I appreciate that it’s Ausra (Who is Asura?) that is having to overcharge depreciation but the current thinking is that the pup on the TNCA transfer AND the associated surplus depreciation should be adjusted net in the seller’s retained earnings
sir but doesn’t the buyer charge surplus depreciation so it should be adjusted in Danutes retained earning and pup in Ausra’s retained earning?
This was in my previous response …
“but the current thinking is that the pup on the TNCA transfer AND the associated surplus depreciation should be adjusted net in the seller’s retained earnings”
ok sir thank you
Hi Mike,
I am very grateful for this comprehensive exercise.
It is indeed all encompassing. It is as good as nourishing delicacies.
Dear Mr. Little,
These are fantastic lectures and I really loved Austra & Danute example, very well explained. Also, your humor which you occasionally inject makes studying very memorable and eases the study stress.
Thank you very much for your work and all OpenTuition Team,
Tanya
Thank you for those kind words
Dear Mike.
Sir we have dealt with only revaluation reserves ragrading to NCA.
In this case,
The entry is like
Dr NCA 1000
Cr RR 1000
But when the inventry is revaluated, how can i draw the entry?
Dr invetory 1000
Cr RR 1000
The entry above comes from my thought but i think it makes no sense, as you didn’t add the value of inventory to Current Asset value in Group CS of FP in Chapter 9 example 1.
Please kindly…. teach me how to draw the entry.
Cuz i rely on it and it’s quite logic.
Additionally, Kaplan book F7 that i was referring to has a critical error in the unrealised profit on NCA. I realized it because of u. I appreciate your answers that u gave me on previous Saturday.
I was really impressed with your answer cuz i expected u were not gona reply to me on weekends but u did.
So thank u for saving my time and reliving my suffer from unreliable text books.
Regard
Han
“The entry above comes from my thought but i think it makes no sense, as you didn’t add the value of inventory to Current Asset value in Group CS of FP in Chapter 9 example 1.”
The reason that the adjusted inventory figure does not appear in the consolidated statement of financial position is because … it had been sold by the end of the year
As for answering your questions on a weekend … I believe that all the tutors on opentuition answer questions – no matter what day it is
And that’s one very good reason why you should be recommending us to all your friends and colleagues!
🙂