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Dear,Mike
The parent Prodigal own 75% sub Sentinel and transfer an asset cost 4mil to Sentinel for 5mil, at the acquisition day , the useful life of asset is 2.5 yearMy answer is : Unrealised profit = 1 mil
Dr Retained earning of Prodigal ( cost of good) =1 mil
Cr cost of asset in book of Sentinel = 1 milExcess dep’ = (5-4)/2.5*6/12 =0.2 mil ( 6 month from acquisition to reporting day)
DR Accumulated Dep’ of asset in book of Sentinel =0.2mil
Cr retained earning of Prodigal ( group) =0.15 ( 75%)
CR NCI = 0.05 ( 25%)The problem arising here is when i check the solution in kit, they treat the whole unreal profit + reserve dep’ = 0.8 mil to the retained earning of Prodigal, and no effect on NCI like i treated.
So the NCI and retained earning of group in my answer is different with the answer in kit.( the consolidated of the income statement is same result in 2 different way)I learn the way to treat the transferred asset in the Emile woolf, so , which way is right?
In the examination, can I treat the asset like the way Emile woolf do?Which company made / recognised the profit? Prodigal, the parent. What interest has the nci in the subsidiary got in the results of the parent? None!
Therefore no affect on the nci calculation
It all comes down to “Which company recognised the pup?” because that’s the company whose retained earnings are affected when we make the pup adjustment
OK?
The asset is used by the subsidiary, so subsidiary suffer the dep’, i think we have to share it between the consolidated retained earning and NCI, why we have to bring the whole adjustment dep’ reserve to the only Consolidated retained earning.
I agree the asset is sold from Parent, so we don’t need to care Unreal profit to NCI, but the excess dep’ is charge to the retained earning of sub, so it indirectly affects to NCI.
I’m sorry for to be mouthful, but It’s un-logic when treating like that. Would you explain more clearly, please.Yes, I sympathise with your thinking. However, with effect from (I think I remember correctly) 3 years ago, it is now recognised that, as time goes by after the transfer at a profit, this is in fact the realisation of that pup to the extent of each year’s depreciation. Thus the adjustment for the “excess” depreciation is effected through the records / retained earnings of the company making the sale. That’s why I talk in terms of the “Net pup”
I have a bit problem with 41.Pandar (12/09)
Parent Pandar, sub:
It’ about The registration of popular internet domain which has a negligible cost and 5 years remaining. At acquisition day, the new fair value is 20 mil
I recorded Intangible asset and revaluation surplus
But why they don’t amortise this intangible asset, (i see it have finite useful life is 5 years)
Would you explain it for me, please!Hi Zaca
i think that you’ll find that I have recorded the answer to Pandar on this site. Check it out – I should ave explained about the revalued asset in that recording.
If you still have a problem after listening to the recording, post again
Hi,
After watching the video lecture you made, In the the step working with Domain, after calculating the Amortisation=2000, you just say ” I don’t know why, but i’m feeling” and then you move on to other step and in calculation COG , it doesn’t include the Amortisation,
Did i miss somethings?Ok, Zaca, I’ll check it out when I get access to the question next week. Do me a favour please – post the question again at the start of next week. When I check through the “Ask the tutor” pages, if I see that my name is last on a thread, I don’t look at it. If you post again on Monday, then yours will be the last name and I’ll be reminded about your question.
Thanks
Hi Zaca
I’ve looked at the question again! Surely we’re not going to amortise it. We are told that it has a five year remaining useful life so the temptation is to amortise over that 5 year period. But the question also states that it is renewable indefinitely at nominal cost. Well, if it has an indefinite useful life, amortisation would seem to be inappropriate.
If, at some time in the future, the directors determine that the domain intangible asset in fact DOES have a definable / estimatable remaining useful life, then the carrying value will be amortised over that estimated period.
OK?
Omg!, my photo book lost the word ” indefinitely”, it’s just ” inde”, so i didn’t pay more attention to it. Thank you alot. Awesome!!!
Dear, Mike
I got a problem here:
1) Tax loss carried forward, Assuming Parent acquired Sub, at the day of acquisition the Parent notice that the previous financial year, Sub have a tax -loss, P wants to utilise the advantage of tax loss and recognise the deferred tax asset .”Until the year ended, the group had not yet utilised any of these losses”
assuming tax refund = 10
My problem here, IF they had not yet use the losses, so we have to recognise:
Dr current asset / tax credit : 10
Cr tax credit ( i/s) :10
when consolidate we have current asset of tax credit :10but the answer i read, they net off with deferred tax and show off an reduce amount in long-term liability when consolidating
the balance sheet sill balance but if they don’t use the losses, why they have to net them off?2) The commision sales, A ,acting for selling good of B to earn commision
Assuming : revenue is 10, earn commision 3 and transfer back to B for 7 cash
so the revenue is unreal and Cog is unreal
I think we have to eliminate the unreal revenue 10 from sale and 7 from cog, add back commision to
CR: Other income, sale commision :3Why they treat like : Dr revenue 7 , Cr Cog 7 , still the same results but which the method is right, the method in answer don’t show the commision of sale and conceal it in revenue.
3) Construction contract last 2 year, first year ended, material unused is x, estimation cost to complete the contract in next year is y, actual cost to date is m
The total estimation cost to complete the contract is
(1)y+ m or (2)m+x +ySome books i read, with no more information, they show ” estimation cost to complete the contract in next year also included the unused material cost ” and give (1) result, material here is just for the purpose of calculating the amount due from/to customer
but in Bpp they show me the result (2), they sum all together,
which method is rightHi Zaca
1) The utilisation of the tax losses acquired is as certain as the deferred tax which is shown as a liability. The losses have not been used this year so, in that respect, they are deferred until next year and I can accept the appropriateness of setting off against the deferred tax liability
2) I suppose the treatment of the commission depends upon the nature of the agent’s business. If the agent is purely a selling agent for others, then the only source of revenue for that person / company is their sales commission. If that is the case, then simply removing 7 from revenue and from cost of sales would seem to be appropriate. However, if sales commission is just an incidental part of the agent’s income, then I would tend towards Dr Revenue 10, Credit cost of sales 7 and credit Other income – sales commissions with the 3 commission
3) The answer to this really depends on whether “x” material unused at the end of year 1 has been included within “y” (estimated cost to complete), or included in “m” (actual cost to date) or even whether it has been included in neither “y” nor “m”
When material is allocated to the contract, valued and recorded, the amount will include “x”. At the year end, the value of material as yet unused should be deducted in arriving at “cost to date”. In addition, estimated cost to complete may, or may not, include the value of the material unused from year 1
I don’t believe that I can give you a definitive answer to this – I need more information about the treatment of “x” with reference to whether or not it has been included within “y” or “m” or neither
Sorry
Dear, Mike
1) I still got a little bit of confused about problem involves to calculate the ” actual tax paid “”cash out flow”, if we dont’ use the losses this year, while we still net them off, the ” actual tax paid-cash out flow” will be reduce by an amount of losses be net-off
Does it effect the consolidated cashflow or maybe they will produced 2 seperate cash flow and consolidate them with non any affect. I know it reaches out the scope of F7 but a little bit of curious.2) I check the revision kit, and the problem involves to Pricewell (6/09)
The total revenue of the company is 234,500,000, but only a small of revenue 8 mil represents for acting like an agent. So It’s quite obviously the nature of business is not purely selling agent and is an incidental part of agent’s income. But they still treat like that. ???3) They don’t give more any information, lack of some important information, yout answer make me more confidence.
Have a nice day!
1) consolidated cash flows are, as you point out, beyond the F7 syllabus. To calculate the tax paid for a cash flow situation, open a T account, put in the brought forward figures from last year’s balance sheet (paying great attention to put them in the correct side of the T account),put in the tax charge from this year’s income statement, put in the figures to carry forward and the missing figure to make the account balance is ….. the tax paid (or received as a refund)
When I say “put in the figures brought forward and carried forward” I mean all the figures related to tax – whether they be deferred tax balances or current tax balances – put them into the T account
2) I would show it as a separate item of sundry income and not within the revenue amount
3) Good 🙂
Dear, Mike
Assuming
-Opening period : deferred tax : 800, current tax : 2500
-closing period : deferred tax : 1200, current tax: 0 , tax refund : 500
tax income : 700
(figures from 86 Deltoid)I think “tax provision” = (tax income) -movement in deferred tax asset-(tax refund)= (700)-400-(500)= (600) ( receivable)
actual tax paid = 2500-600=1900
problem here is : tax provision is (600) receivable, but actual paid is 1,900, so why they have a significant difference between estimation and actual, What is the under/over provision in this case. Could you give me a practical circumstance in real life about the under and over provision, please!
Hi again
Let me walk you through this Deltoid issue.
Open a T account.
Put in the amounts brought forward for both deferred tax and for current tax. The relevant amounts in Deltoid are 800 and 2,500 respectively and they are both brought forward from last year and shown as liabilities (credits) in the T account
Put in this year’s tax charge – in fact it’s a tax credit. Had it been a tax charge, we would have credited the tax T account and debited the statement of income. As it is, it’s a tax credit so we debit the tax T account 700 and credit the statement of income.
Now put into the T account the amounts to be carried forward into next year. In Deltoid, that’s a deferred tax liability and a current tax receivable. With the deferred tax, enter the amount of 1,200 in the debit side of the T account and for the current tax, enter the amount of 500 in the credit side of the T account.
Now we can add up both sides of the T account. The credit side adds to a total of 3,800 (800 + 2,500 + 500) and the debit side adds to a total of 1,900 (700 + 1,200)
In order to get the debits to balance with the credits, we need a further 1,900 entered on the debit side. That 1,900 represents the cash that must have been paid by Deltoid.
Now, your question asks why there should be such a difference between estimate and actual. I assume that you are referring to last year’s closing liability to current tax of 2,500 and the settlement of that liability by the payment of 1,900 this year. When last year’s financial statements were being finalised and audited, it was only available to the directors and the auditors to arrive at estimated liabilities. After publication of the figures, the revenue service and the company (or the company’s auditors) would be in correspondence concerning the tax computations.
As a result of those discussions, the tax liability for the profit for the accounting year ended 31 March, 2009 was adjusted to 1,900 and payment of that sum settled the liability
I don’t know where you have found the figure “tax provision is (600) receivable”!
Does this answer your questions?
I’m sorry, i make a mistake when call it “tax provision”, I mean, it is ” movement in current tax payable” for during the year.
Thank for very detail,I did understand in the wrong way, so 1,900 represent for the tax paid in this year but for the tax in the previous year. Am I right?I adjust the income tax expense in I/S for : movement in deferred tax, under/over provision, and the tax asset to arrive the “movement in current tax payable” =(600) ( Dr side)
open T account for current tax payable
Opening : CR 2500
movement:DR :600
cash out(b/l)DR:1900
closing bal: 0
Is this a right way?Well, you arrive at the same answer. But why not try it my way. Instead of trying to find (as a separate exercise) the “movement in current tax payable” and then using that figure in your T account, why not open a T account and put in the figures as I have detailed to you.
Trust me, it’s easier and you are less likely to make a mistake.
But it’s your choice
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