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Where a parent company owns 80% of a subsidiary’s shares, aggregate goodwill is $50,000 and the question says that goodwill attributable to the nci is calculated on a proportional basis.
The fair valued net assets are $320,000
How much is the nci investment valuation?
Arthur, loan notes are issued by companies that owe money. Another name for them would be “debentures” and debentures are defined in English company law as “the written acknowledgement of a debt by a company”.
In an F7 situation, there are two distinct ways in which the examiner can bring loan notes in to a question.
1) “On the acquisition of the subsidiary, the parent issued, as part of the consideration to be paid, a loan note payable in 3 years . The actual and effective rates of interest were X%. The basis of the issue was $100 loan note for every 80 $1 equity shares acquired”
Ok, we can work out how many shares were acquired, we can divide that by 80 and multiply by 100 to give us the value of the loan notes issued as part of the consideration. We can also discount that value for three years to get the present value of the obligation which is to be paid in three years time.
What does seem to confuse students is the question “to whom are these loan notes given?” ie who holds these notes.
In the situation described above, it’s the people who used to own shares in this company which is now our subsidiary. It is NOT the subsidiary that holds these loan notes
Ok with that one?
2) “After acquisition, the parent issued $100,000 loan notes, 75% of them were taken by the subsidiary” Here we have an asset and an obligation WITHIN the group and it needs to be cancelled. Cancel 75% x $100,000 obligation in the parent against $75,000 asset in the subsidiary
Ok with that one, too?
Let me know if there’s still a problem
Clunisd, does your question say that “goodwill attributable to the nci is calculated on a proportional basis” or does it say that “the nci is valued on a proportionate basis”
If you have posted the question correctly, the nci’s share of net assets is 20% x 320,000 = 64,000. In addition, they are entitled to 20% of the calculated goodwill = 20% x 50,000 = 10,000
In total, the nci at date of acquisition is valued at $74,000
If, however, your question was meant to read “the nci is valued on a proportionate basis” then the nci would simply be their share of the fair value of the subsidiary’s net assets at date of acquisition ie 20% x $320,000 = $64,000
OK?
Hi mr Little i got a question
Parent acquired sub on 1 April 2011 and the balance on subs retained earnings at this date was $1,800. On 1 october 2012 Parent acquired an Associate.
Parent retained earnings b/f $13,500
profit year to 31.03.2013 $ 3,375Sub retained earnings b/f $3,150
profit year to 31.03.2013 $2,025Associate retained earnings b/f $1,800
profit year to 31.03.2013 $1,350What figures are suppose to appear in the net assets lists at fair value at acquisition and at consolidation date under reserves for year ended 31 march 2013.
Your quick response will be highly appreciated.It seems to me that post-acquisition retained earnings of the subsidiary are $3,375 ($5,175 – $1,800) and the post-acquisition retained earnings of the associate are $675 (1,350 x 6/12)
Apply the parent’s percentage holdings to those two amounts, add on the parent’s own retained earnings of $16,875 and you have the consolidated retained earnings for the Statement of Financial POsition – subject to other adjustments like pups, extra depreciation, changes in fair valued assets, impairments of goodwill, dividends payable and receivable.
OK?
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