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Plz explain why 1 mln is deducted from Pension expense. If Parent consolidates accounts, then shouldnt it also consolidate retirement obligations of subsidiary as a part of its all liabilities?
Thanks
Surely the $1m was a liability that was included in the net assets on acquisition – just the same as other liabilities – so it’s treated the same in their adjustment. The liability has increased not just by current service costs and interest costs but also because of the $1m taken over
I still don’t understand why they have excluded $1 mln from pension expense. $11 mln should have been adjusted in PBT. Why did they adjust only $10 mln?
Also, in PPE part – they have deducted subsidiarry’s portion of addition to PPE. Why? We have to prepare consolidated CF Statement, thus, all non-cash items should be added back/deducted. Why to exclude subsidiary’s portion?
Sorry for annoying.
Have you watched the lectures on P2 cash flows, acquisition / disposal of subsidiary?
When we acquire a subsidiary with all its assets and liabilities, we need to recognise the fact that, of the overall movement in the assets and liabilities of the group, some of that movement must be accounted for by the fair values of the assets and the liabilities acquired.
Take for example inventory.
Last year showed 50
This year shows 75
I acquired a subsidiary with inventory valued at 5
What’s the cash outflow?
Part of that increase of 25 is accounted for by the acquisition of the subsidiary. So the calculation of cash outflow is as follows ….
75 – (50 + 5) = 20 outflow
The $1m in the pension calculation is explained in the printed (official) solution
Hi again
In the same question. It states that government grant covers both job creation and capital expenses.
Capital exp part i understand. Means renovation of the ppe.
What do they mean by job creation? Why for this portion (half, as question states) we credit Revenue? Is it bcoz of amortizing deferred income against profit? Or is it bcoz wage expense is being reduced?
Thaanks!
It is because wage expense is being reduced. If the grant is against an expense item then, under the matching concept, it’s credited in the same accounting period as the expense to which it relates.
If it’s against a capital item, it’s also matched against the asset by deferring the income over the life of the asset or by crediting the asset account thus reducing the depreciation expense
OK?
Hi again
Could you plz explain me the concept of Indirect holding adjustment?
I dont understand why they deduct the NCI portion.
Thanks!!!
If the nci in the subsidiary is given their (say) 40% of the subsidiary’s assets (that the affect of crediting them with their share as at date of acquisition and then also their share of S post acq retained) you’re giving them their 40% share of the S investment in SS
But it’s easier to give them that share of SS by accounting for their TOTAL nci in SS so not just the direct nci but also the indirect nci.
But wait! The nci in S has been given their 40% of S that includes the S investment in SS and now that same 40% nci in S is getting their share of SS again through the total nci calculation in SS
That’s double counting and something has to go. The easy way is to deduct the S investment in SS as you calculate the nci in S
Better?
Yeah!! Thanks!
Ome more que on June 2013 sitting (Trailer):
Why FV increase in Trailer’s investment in Caller (310-280=30) arisen since date of control achieved, has been eliminated in Consolidated statements? They debited retained earnings as well.
No explanation is provided they just state it should be removed.
From memory it’s an unrealised profit isn’t it? If not, post again and I’ll have a look at the question
https://opentuition.com/topic/trailer-june-2013-q1-a-p2/
In the above link you have answered some students’ related questions.
My question is why we remove fair value increase in the consolidated statement?
From memory, isn’t it because it was a fair value pre-acquisition increase treated as a post-acquisition increase
The deduction from post-acq and adjustment to pre-acq is why the amount os deducted from retained earnings
If my memory is faulty, post again and I’ll have a look at the question
It is post acuisition Gain on Subsubsidiary (Caller) and when consolidating, they remove it from group reserves and credit from investment in subsidiary. Probably its anological to purp right? They eliminate that gain bcoz it is a gain obtained on thr entity in the same group.
One more question: why do we need to know FVA (fair value adjustment -usually being uplift in land or other PPE ) at the date of acquisition?
We do not make any adjustment with regard to this fva, when consolidating the accounts (unless fva leads to additional depreciation). So why do then we need this info in Notes?
@khayala19 said:
It is post acuisition Gain on Subsubsidiary (Caller) and when consolidating, they remove it from group reserves and credit from investment in subsidiary. Probably its anological to purp right? They eliminate that gain bcoz it is a gain obtained on thr entity in the same group.@khayala19 said:
One more question: why do we need to know FVA (fair value adjustment -usually being uplift in land or other PPE ) at the date of acquisition?We do not make any adjustment with regard to this fva, when consolidating the accounts (unless fva leads to additional depreciation). So why do then we need this info in Notes?
Of course we make the fair value adjustment in the consolidation. Where on earth have you got the idea that we don’t?
This asset that has achieved a fair value adjustment gain …… is this an asset transferred within the group?
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