- This topic has 3 replies, 2 voices, and was last updated 9 years ago by
.
- Posts
Hi Mike,
Will like to enquire on an example from BPP revision kit.
The qns mentioned that “It is the policy of J Co to review goodwill for impairment annually. The goodwill in P Co was written off in full some years ago…..”
I do not understand the answers from BPP revision kit. Since it has been written off in full some years ago, I thought the retained earnings should have been adjusted for previously in the past for the impairment loss. However, the answers given was they adjusted for the impairment? May I know why it is so?
Many thanks for your help!
Regards,
JoannaIF (in upper case letters) IF you have copied the question extracts correctly, then my answer must be “No, I cannot explain it!”
If BPP have printed a solution that justifies the treatment, then I would be delighted (and forever grateful to you) to hear it!
It is extracted from Qns 39 (Pg39) from BPP Revision Kit – Preparation Question : Associate.
P is the subsidiary. S is an associate.
(E) It is the policy of J Co to review goodwill for impairment annually. The goodwill in P Co was written off in full some years ago. An impairment test conducted at the year end revealed impairment losses on the investment in S co of $92,000.
The answer given was :
To calculate goodwill at acquisition :Consideration transferred : $1,000
NCI : $660
Net Assets acquired:
Share Capital : $1,000
Retained Earnings at Acq : $200
Fair Value Adjustment : $400
($1,600)
———–
60
Impairments to date (60)
————-
Year end value 0
========Retained Earnings
They adjusted for goodwill impairments to date for P Co. This is the part which I do not understand.
Since they had been written off in full some years ago, I thought the retained earnings should already reflected the impairment loss previously. But I do not understand how come they still adjust for impairment loss for P ?Thanks!
Regards,
Joanna.Ah! Now I understand the question!
Have you watched the videos for F7? I go on about the “working W3 song” – do you remember that?
The song is the set of rules to follow when calculating consolidated retained earnings and it goes like this:
“H’s own plus
H’s share of S post-acq retained less
Goodwill impaired since acquisition, just our share”Do you remember that?
The last line “Goodwill impaired since acquisition, just our share” explains why we continue to deduct that goodwill that has already been written off. In your question, that’s the full amount of 60 assuming that the nci is measured on a proportionate basis so the full amount of the goodwill is attributable to the parent
The reason is that when goodwill is impaired, we deduct the amount of the impairment in the calculation for the consolidated retained earnings W3 but there’s no actual double entry in either the parent’s accounting records nor those of the subsidiary.
Why?
Because goodwill itself doesn’t appear in the accounting records either of the parent or the subsidiary! It’s an item that appears only during the consolidation exercise
OK?
- You must be logged in to reply to this topic.