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hi mr mike. i met this situation in revision kit in consolidation retained
in date of acquision subsidiry has customer contract fair value 1000
i take it when calculate G W in fair value of S@DOA it is right but
when calculate consolidate R E you told us to deduct all value of S@DOA without shares
from post acquisition R E of S .finally i deal with customer contract 1000 as revaluation surplus
but in answer kit he didnt deduct customer contract in S REPLEASE HELP
The calculation of post acquisition retained earnings can be done in any number of ways. My “short cut” is to tell students that we have already calculated retained earnings at acquisition in working 2 when we were looking at the fair values of assets acquired. The danger is that students will take the full amount of those fair values so I also say “but not the share capital”
The Kaplan way is to take the fair values of the subsidiary “now” and deduct the fair values “then” ie at date of acquisition
Whichever way you choose to do it, what we are interested in is the movement in the subsidiary’s net assets
The fair valued contract will be included within the goodwill calculation as part of the fair value of asets acquired and also as a pre-acquisition element in working 3 consolidated reserves. Either include it in both or exclude from both
Ok?
yes mr mike i do this i calculate it in good will and pre-acqution retained
but sorry . in bpp kit he took customer contract in just good will but not in pre acquisition i dont know why
may be the customer contract will be not impairment and it will be in post and pre retained
i dont know .sorry mr mike i will write to you the point of question exactly.
– At date of acquisition S had five years remaining agreement to supply goods to customer . the agreement will renewed when expired. directors P estimates value of contract 1000 and an indefinit life and no suffered impairment.
he calculate 1000 in good will but not W3 retained earning why?
when asset revaluation he calculate the surplus in W2 and W3 why?
please help
Maybe because, as you say, it would have been included in both retained earnings “now” and also at the same value in retained earnings “then”
The reason why revalued property is included in both working 2 and working 3 is possibly because there has been a change in the value post acquisition – possibly because of depreciation.
An alternative way of dealing with that situation would be to include JUST the depreciation attributable to the revaluation surplus as a reduction in “now” retained earnings
Ok?
yes mr mike i understood this thanks
and i met the other situation of depreciation as you say
please mr mike give me small example how how can i calculate depreciation attribute to revaluation and deduct it from now retained earning and how i include all value of assets revaluation and depreciaion in retained earning ? please mr mike i want small compare between two situation i met this before and made for me disorderthanks mr mike for all
Remaining useful life at date of revaluation, say 5 years
Amount by which the asset was revalued, say $16,000
Annual depreciation attributable to the revaluation surplus is $16,000 / 5 = $3,200
That amount, according to “good practice” though not mandatory should be transferred within statement of changes in equity from revaluation reserve to retained earnings
Ok?
yes mr mike now ok
and 16000 will arise in W2 and pre acquistion retained earningIF the revaluation has been done as at or before the date of acquisition, yes, it will appear in working 2 and working 3. The “extra” depreciation will also appear in working 3
Ok?
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