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Hello dear Mike!
I would like to ask question. Hope this time it is the right place and right thing 🙂
Company1 has an associate, say 10%. And during the year Company1 buys more shares in the same associate, say additional 20% (still associate).
How this should be treated?
Don’t like the idea of a 10% holding being an associate (it COULD be, but unlikely in the exam)
So let’s start with a 25% holding increased to 40%
Share of associate’s profits after tax needs to be calculated on a time-apportioned basis and investment in associate will be original cost of 25% plus 25% of post acquisition profits up to the date of the second acquisition.
Then add on cost of further investment, add on 40% of post acquisition profits since date of second acquisition
And consider any impairments in the value of the investment at both date of second acquisition and date of financial statements year end
Ok?
Thank you sir, that’s clear.
In exams I met questions when acquisition/disposal fits with the end/start of month, so annual profits are proportioned (assumed profits arise evenly through the year).
But what do organisations do in real life? Especially when acquisition/disposal is in the middle of the month?I believe (but I could be wrong!) that they take it to the nearest month end
But why are you asking me what happens in real life?
I don’t live in the real World – you can look upon me as a virtual Mike that has no idea about the World beyond the groves of academe!
In my eyes you are like mediator between knowledge and uneducated inexperienced (yet) students 🙂
One more question, if you’ll let:
Can it be the situation (in virtual, and maybe in real life:)), when two companies has shares in Company3 (each 50%), and both companies will treat Company3 as subsidiary in their group accounts?No, that’s a joint venture!
Mediation complete (until the next one!)
Seriously, keep posting even though I have some outstanding now for longer than our two day target. I am a bit busy at this time of year and working off an iPad in a hotel room is not ideal.
But I’m getting there
Thank you Mike.
I definitely would review joint ventures. Next session:) Just realised that its not much time before exam, but its so much to study…
You inspire to be professionals! I cannot go to the exam with poor knowledge and just hoping for pass mark. I really want to be IFRS competent! 🙂
Thank you again and see you here )
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