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  1. Hi, sorry to bring this up again…

    P38 Q6

    Ivona bought 60% of the shares of Guido for $100,000 when the Guido retained earnings were $40,000. The Ivona directors have valued
    the goodwill attributable to the nci at $5,000. Goodwill has not been impaired since acquisition.

    What do i do with this goodwill of $5,000?

    I’m thinking this;

    Cost of Inv. 100,000
    NCI 48,000 (80,000+40,000 x 40%) + 5000 ??

    FV@DoA 120,000

    G/W 28,000 or 33,000 ?

    Thanks,

    • If the fair value of the net assets is $120,000 and the nci has 40% of that figure, then their appropriate share of net assets is 40% x $120,000 = $48,000

      But they also have attributable to them the $5,000 goodwill

      So the total value attributable to the nci is $53,000 ($48,000 + $5,000 goodwill)

      OK?

  2. HI, I have one question – in example 6 in chapter 7, in goodwill calculation/NCI, there is 32,000 shares x $1.65 each – where is it that $1.65 coming from? please explain – i can’t get it, unfortunately.
    Thank you for help

  3. Hi Mike,

    Notes:- ACCA F7 March-June’18 Examinations
    EXAMPLE 6
    Ivona bought 60% of the shares of Guido for $100,000 when the Guido retained earnings were $40,000. The Ivona directors have valued the goodwill attributable to the nci at $5,000. Goodwill has not been impaired since acquisition.

    My equation is matched at 275000 wherein answere as per OT is 283,000.

    Goodwill aded in RE of S, NCI is calculated on 125000 instead( 120,000*40%)+5000

    Please advice if this approach to solve the equation will give a marks in exam or not?

    • I assume by “equation” you are referring to the total figures for the Statement of Financial Position

      If my assumption is correct then, no, your approach is incorrect

      I really do not know what you are saying on this line “Goodwill aded in RE of S, NCI is calculated on 125000 instead( 120,000*40%)+5000”

      Why would you add an asset figure (a debit balance) of $5,000 nci goodwill into a credit balance of retained earnings?

      I’m sorry but I really do not understand what you are doing 🙁

    • I have downloaded the latest notes provided and and referring to example 6 on page 38 , but in the video at the beginning the sahres are being valued at 1.65 which i cant seem to find.

      • Are you looking at the answer to example 8 on page 167 instead of the answer to example 6 on page 165 where the value of $1.65 is not mentioned?

        Or does this reply of mine to a post in February 2014 answer it?

        “is it not simply the value of the nci (53,000) divided by the number of shares held by the nci (32,000)?

        It sounds like a throw-away line that I’ve mentioned as I was calculating the total goodwill.

        The $1.65 is not integral to the question – it’s simply a little bit of “extra” information that we can derive from the figures as they work out. In fact, the more correct value would be 53,000 / 32,000 = $1.65625”

  5. Hi,

    Pleae why do we have the goodwill impaired in the question Ivona and Guido splited between the parent and subsidiay and it wasnt splited in the Ausra question? It was all deducted from group retained earnings.

    Thank you

    • In Example 9 of Guido and Ivona on page 41, goodwill is impaired by 10%

      That impairment is, in all three situations in the lecture notes, allocated 90% to the parent and 10% to the nci

      IF the nci had been valued on a proportionate basis the entire 10% impairment would have been deducted from the consolidated retained earnings

      As it is in these questions, the nci is not being valued on a proportionate basis and therefore only 90% of the impairment is deducted from consolidated retained earnings. The other 10% is deducted in arriving at the figure for nci in working W4A

      This line in your question makes no sense!

      ‘the goodwill impaired in the question Ivona and Guido splited between the parent and subsidiay’

      The impairment may be split between the parent and the nci but a split between parent and subsidiary makes no sense

      The goodwill impairment in Ausra and Danute IS allocated on a share holding basis between Ausra and the nci

      OK?

  7. Greetings Mr. Little. In the example of Remigius and Ilona, where remigius acquired 75% of ilona, we calculated the value of the subsidiary assets by adding shares and retained earnings at acquisition (32 000+ 60000= 92000)

    In the example of Ivona and Guido, Ivona buys 60% of guido for $100 000. I calculated the value of subsidiary assets by adding shares + retained. Just like the example of remigius, i took the total value of the shares ($1.65* 80000= 1320000). This gives the total value of the company as = 132000 + 40000(retained)= 172000. Our nci figure is therefore 68800.

    Question= To get the value of subsidiary net assets at acquisition, are we not to add the TOTAL value of the shares to the retained earnings at date of acquisition/ your assistance would be appreciated sir.

    • Have you read the notes carefully? Have you listened to the lectures at all?

      The value (book value) of a company’s net assets = capital employed

      This is something you should remember from F3 days (or university if you were ill-advised and claimed exemption from F3)

      Capital employed is share capital + reserves.

      How can a company possibly control the MARKET value of its shares where that market value is determined by speculators, gamblers, and ordinary people that fancy a dabble on the stock exchange.

      If you and I struck a private deal to buy and sell 400 Telecom plc shares at a price of $20 each, does that mean that the value of the company has increased four-fold even though the price on the open market is only $5

    • Example 7 is not related to example 6 where the goodwill figure is given (in example 6)

      Instead example 7 illustrates the working W2 where the value of the nci investment is given.

      Similarly example 8 illustrates the working W2 where the value of the nci is based on the market value of the subsidiary’s shares as at date of acquisition

      Example 9 is asking you to rework the workings where you are told that goodwill is to be impaired by 10% – there is a brief explanation of what to do at the bottom of example 8, just before example 9

      If you’re still having problems, post again

      • im a bit unclear as to what to do with the $5000 goodwill attributable to the nci (eg. 6) should i add it to the calculation of the value of the nci investment?

      • We need this information in order that we can arrive at the value of the nci investment as at the date of acquisition

        Concentrating SOLELY on the nci (I show this in the video lectures) nci goodwill is equal to the value of their investment less their proportionate share of the subsidiary’s fair valued net assets.

        Agreed so far?

        We know the value of their goodwill – it’s given in the question

        And we know the value of their proportionate share of the subsidiary’s fair valued net assets

        Therefore we can calculate the value of the nci as at date of acquisition

        Ok?

  10. Dear Mike,
    I didnt know how to start f7 earlier, but once I saw your lecture I really enjoyed it and now I am continued with that. You are so confident on what you say, makes me confident too. You also make us keep smiling with your phrases and thats so funny as well!

    In this video I am curious how you got $1.65 per share at W2 of Example 6?

    Many Thanks

  12. I just want to say that I have always hated Group accounts and now thanks to these lectures I’m finally learning it the proper way and actually loving it too. The lecturer is so much fun too! 🙂

  13. Good Day

    Im trying to watch the F7 lectures but when i go into headings i find F3 lectures. at 1st i thought theres some error so i pressed play, and the content is from F3. then i thougth its just me, i looked at the heading again, its written ‘Other Reserves, Mid year acquisition’ but playing F3 lectures.. HELP please.

  15. Dear Mike Sir,

    Regarding the doubt of (Ivona & Guido) Page 40, Example 6 (Ch-7):
    Thanks for the clarification. I have now understood all the 3 cases of the nci investment valuation given in eg 6,7 & 8.

    Swati.

  16. Dear Mike Sir,

    In the question (Ivona & Guido) Page 40, Example 6 (Ch-7):
    What do we do of this information? ‘The Ivona directors have valued the goodwill attributable to the NCI at $5,000’.
    Where have we used this figure in solving this question?

    Here’s the full ques:
    Ivona bought 60% of the shares of Guido for $100,000 when the Guido retained earnings were $40,000. The Ivona directors have valued the goodwill attributable to the nci at $5,000. Goodwill has not been impaired since acquisition. At 30 June, 2010, the respective Statements of Financial Position were

    Many thanks,
    Swati Goyal.

    • Hi Swati

      OK, we need to know the value of the nci investment. (We need that in order to work out the goodwill on acquisition) Tell me the figure for the nci investment at date of acquisition and I’ll calculate the goodwill for you.

      Hear from you soon 🙂

      • Dear Mike Sir,

        Referring to:(Ivona & Guido) Page 40, Example 6 (Ch-7):

        I am a bit confused with two things actually:

        1) We have not used the amount ‘5000’ in the working 2 (goodwill). So, if we have not used it here, then how & where is this ‘5000’ used?
        2) Secondly, while calculating the ‘Value of nci investment’, we do: 40% of 80000 shares= 32000. Then 32000x $1.65. My question is. how have we calculated this ‘1.65’?

        Thanks,
        Swati Goyal

      • Hi, I’m not surprised that you are confused! You appear to be looking at answers to two different questions at the same time.

        Let’s deal with the $1.65 x 32,000 shares first. That’s actually part of the answer to example 8 on page 42 and has not much relevance to example 6 on page 40. Is that bit ok, now?

        Now, $5,000 goodwill not used anywhere in the answer! Well, it IS in my copy of the notes. And, what’s more, it’s exactly where you would expect it to be – in working W2 Goodwill on page 154.

        I suspect that you have been looking at the wrong answer again as you were with the $1.65 issue.

        Ok?

  19. Mr. Little

    I must say that this will be my first attempt at this paper and after following your lectures i am confident that i will do well. Your ability to simplify is amazing and I honestly wish you were my classroom lecturer here,

    Thank you thus far for making the puzzle worth building ,,,,looking forward to sharing good news when i get results in August …:)

  20. Hi there,

    I am confused as to why the Liabilities (160k + 190K) were not added to the Consolidated Statement of FP of the Ivona group (example 6). The proforma for CS of FP I have been following is this:

    Goodwill (W2) xxx
    Other Assets xxx

    the total of the above two amounts balances off the total of the following amounts:

    Share capital (parent only) xxx
    Retained earnings (W3) xxx
    Nci (W4) xxx
    Liabilities xxx

    Up till now, this hasn’t been a problem. But for the Ivona-Guido example, the ‘Liabilites’ at the end has been completely omitted and the statement balances without it. I am very confused right now. Please explain this!!

    Thank you 🙂

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