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Dear Mike,
in your notes f7 , p57
1. at the date of acquisition, some of Danute’s inventory had a fair value $ 12,000 in excess of it carrying value. All of this inventory had been sold before the year end.
in calculate retained earning
step 1 in Per Q, why no need to adjust this figure?——-don’t understand. cause in some other example, it also need to adjust.
in pre acq we used this figure.(64+10+12), this one I understand.
That’s exactly the point of doing working W3 my way – there’s no need to make any adjustment when writing the top line! It’s straight from the question. I can’t remember how I treated the fair value adjustment in the printed solution – there are two ways in which it can be done.
When allocating the 60,000 profit for the year to the pre- and post-acquisition periods, we could make the fair value adjustment in that working. The adjustment is to add 12,000 to the pre-acquisition profits and deduct 12,000 from the post acquisition profits.
The alternative (the way I think I have done it in the example solutions) is to make the fair value adjustment in working W3 as normal as part of the pre-acquisition profits (of course, it will also appear in working W2, the Goodwill calculation)
From your post, it seems that I have answered in the printed solutions in the second way. Why no adjustment? Why should there be? All that undervalued inventory has now been sold so the profit on the sale is already reflected in the “per q” profits
is that ok or are you still at sea?
From the question , the acquisition date is 31 Mar 2011. The statements of financial position is given on 31 Oct 2011.
but in 1. it says, all of this inventory has been sold before the year end. What date is year end?
Can we consider all sold out before 31 Oct 2011 or year end 31 Dec 2011?
(2) if all inventory has not been sold out , then what do you?
in your way of doing in all the examples,Need to adjust the per Q by deduct $16000?
“What date is year end?”
The financial year end! 31 October. Be prepared – it the exam, the year ends of the various companies throughout the exam are almost certainly NOT going to be 31 December
“Can we consider all sold out before 31 Oct 2011 or year end 31 Dec 2011?”
“Year end” in the context of accounting is the accounting year end and not the calendar year end
“(2) if all inventory has not been sold out , then what do you?
in your way of doing in all the examples,”In working W3, the “top half” the first two lines would be “per q” followed by “fair value adjustment” The fair value adjustment would be for the value of the $12,000 inventory still not sold – say $3,000. In the “bottom half” there would appear “- pre-acquisition retained earnings” and “- fair value adjustment”.
That fair value adjustment in the bottom half would be the $12,000 undervalued inventory as at date of acquisition
“Need to adjust the per Q by deduct $16000?”
What’s the $16,000? Never adjust the “per q” line – always pick the figure up from the question without any adjustment. Show the adjustments as separate items following the “per q” opening line
OK?
Dear Mike,
I found your way to do this , is the easiest to understand. There are other way to do it, but seems difficult to understand.
I only wonder, if I do exactly this way, will get partial mark from examiner, if I didn’t get final figure right ( like say , forget some adjust)?
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