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Hi,
I have question related to exercise Pedantic. Just watching your lecture(It’s really great by the way) and I dont understand discrepancies between yours computation and BPP’S answer to this example. So when working out retained earnings for subsidiary you add excess over carrying amount (which take place at date of acquisition) to retained earnings and then you deduct this excess as pre acquisition profits. On other hand BPP revision kit completly ignore excess over carrying value. They only deduct excess of depreciation. Od course final outcome is same 500. But why we exclude it from retained earnings? It take place at date of acquisition so it’ s not PRE ACQUISITION. Please explain it to me. Many thanksBecause I prefer to show the current position re the fair value adjusted matters in the top section of the working W3 and the position as at date of acquisition in the bottom section of the same working
BPP show only the movement ie just the depreciation
As the saying goes in the UK, there’s more than one way to skin a cat
Ok but how to treat this excess over carrying value if its not added to retained earnings. Non current asset are increased what about other site of CSOFP.
Technically the credit should go through a revaluation reserve but I’m sorry to say that I always put it through retained earnings. If you put it in a revaluation reserve then you must make sure to remember to take the parent’s share of the post acquisition movement into account on consolidation and also to credit the nci with their share of that movement
Ok?
I think I am somewhere confused.While computing retained earnings of subsidiary at the end of the year you DEDUCT (2000)excess over carrying value (as pre acquisition, this was included in numer 1500+3500+2000=7000). And I don’t understand why its deducted as pre aq and therefore not included in consolidated statement. Sorry for so many question but I understand it. Thanks for reply
With specific reference to a fair value adjustment, MY way of dealing with it in working W3 is to show the CURRENT position of the revalued asset in the top half of the working, and deduct the historice position (as at date of acquisition) in the bottom half.
BPP show just the difference ie the excess depreciation on the notional increase as a deduction in the “today” position
Kaplan show as a separate working the net assets at date of acquisition in one column and the equivalent values of net assets at consolidation date in a parallel column
Three different ways of arriving at the post-acquisition MOVEMENT in the net assets / shareholders equity
Does that make it any easier for you?
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