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On 1st may 20×3?company p purchases 60% of company s’s one million FR1 ordinary shares for FR71m. This was done at the start of this years acc period. The value of the NCI at date of aqn was FR29m using the fair value method.
At 1st May 20×3 the carrying value of S net assets was FR60m but the fair value of was FR70m. The excess in fair value was due to an unrecognised brand with a remaining life of 5 years at date of aquisition.
At 30 April 20×4 it was determined goodwill arising at aquisition of S had been impaired by FR4m. Goodwill impairments are charged to admin exp.
Rates:
1st may 20×3 = 5.0
30th april 20×4 = 4.0
Average for year = 4.6
My understanding here is that i need to translate all the entries on the profit and loss into the $ currency from FR. As it is profit and loss i will need to use the average rate to do this.My confusion is in regards to the workings i need to do. I have calculated the goodwill as FR26 and have then translated this at that closing rate for the sofp therefore $6.5m.
I then went ahead and calc the gain/loss on retranslation of goodwill and got the balancing figure of minus $12.63m to go to the other comprehensive income. Im unsure if this is right.
Also i am unsure what to do with the differrence of cv and fv of the net assets due to the unrecognised brand. Please explain what workings i need to do for this question. Im confused!
Thank you
If we paid 71 and nci is worth 29, that’s 100 in total compared with 70 fair valued net assets. In my book that’s 30 goodwill!
You’ll need to recalculate goodwill at the closing rates to get a revised figure for goodwill at the new rates.
Yes to other comprehensive income
Re the brand, it’s brought in for the purposes of calculating goodwill. You’ll need to impair it by 20% x 10 and that amount of 2 will be charged against the consolidated retained earnings and will reduce the value of the brand on the sofp by 2 from 10 down to 8
Is that enough or do you need more?
Hi Mike,
Thank you for the above. I also calculated the goodwill at 30 but due due to the note mentioned above regarding impairment of 4m i reduced it to 26.
Thanks
Hi mike,
Sorry to bother you with this question again.
The note above says at 30×4 it was determined goodwill was impaired by £4m at acquisition therefore would we reduce goodwill to 26 and charge the £4m impairement to admin exp as per the note?
Further to this the £2m from your note above, why have we done 20% of 10, is this depreciation? where would this go on the profit and loss? Would this also go to the admin expenses?
Sorry if the answer is staring me in the face!
Thank you
Hi, whoever you are!
The note does not say that “goodwill was impaired by 4 at acquisition”! It says that “goodwill at acquisition was impaired by 4”!!!
There’s a BIG difference
Yes, debit consolidated cost of sales
Depreciate an asset straight line over five years is 20% per annum so, yes, 20% of 10 is the additional depreciation element applicable to the 10 fair value adjustment that occurred at acquisition and, yes, it also is charged to cost of sales (normally) unless the question indicates that it should be charged elsewhere (eg to administrative expenses)
Hi Mike,
Please can you advise if my calculations look correct for the above.
Goodwill as advised above was FR30.
I then re-translated this at the closing rate of 4.0 = $7.5m
Exchange gain/loss
$1.5m gain which will go to OCI then allocated to the group at 60% and the NCI at 40%.
In regards to the brand mentioned above would this need to be included in the above calc? If so how?
If not do i just translate the figure of 2 and the impairment of 4 at the closing rate?
Thank you
Your calculations look fine to me
The brand also needs to be translated at closing rate, but the brand is included as an asset in the subsidiary and the translation difference will simply be lost in the working:
Opening net assets @ opening rate + translated retained earnings as calculated +/- exchange difference = closing net assets @ closing rate
Ok?
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