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Hi Sir,
Just for confirmation, is the figure inputted in W3 Cons Ret Earnings in regards to unrolling of the discount always positive?
Also, just another question in regards to December 2014 exam question 3 (groups). I have created a pro forma and for W4a and W4b whereby I subtract the relevant % of goodwill impairment for both workings.
However in the December 2014 exam, the examiner’s answers subtract the full impairment amount for W4b and do NOT subtract any impairment in regards to W4a. why is this?
From the exam:
v) Plastik’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose Subtrak’s share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.
(vi) Due to recent adverse publicity concerning one of Subtrak’s major product lines, the goodwill which arose on the acquisition of Subtrak has been impaired by $500,000 as at 30 September 2014. Goodwill impairment should be treated as an administrative expense
I thought that when it is not proportionate, goodwill should be split across nci and the parent. Having looked at the cons retained earnings workings onthe December 2014 exam, it also seems they haven’t subtracted any impairment.
Could you please help explain this?
Kind regards,
Yazan“Just for confirmation, is the figure inputted in W3 Cons Ret Earnings in regards to unrolling of the discount always positive?” – yes, it’s a positive deduction from retained earnings – it’s like depreciation in that it’s deducted from profits – it’s an expense. Is that what you call positive?
I believe that they have! The 500,000 impairment of goodwill appears in administrative expenses in the statement of profit or loss and then the nci share of profit of 180 + the comprehensive income surplus of 120 is taken to the nci workings
Better?
The first part makes sense. Thanks.
a) In terms of the second part, I now see the goodwill impairment in W4B. However, for W4A in the answer booklet I only see two lines: “At date of acquisition” of 4500 and “Post-acquisition from statement of profit or loss and other comprehensive income” of 300. Should not the goodwill impairment of 500 be allocated to this according to % (i.e., 500 x 0.2 = 100)?
(The 300 only reflects the 2000 profit x 9/12 (post acq) x 20%.)
b) In terms of W3 consoldiated retained earnings, looking at the answer paper I now cannot see a goodwill impairment % adjustment. In my pro forma, after I have worked out the Total consolidated retrained earnings for P and S and added them together, i have written that goodwill impairment % (500 x 0.8 = 400 in this case) should be substracted to attain the final total.
Could you help explain what I am missing please? Is it due to the fact that it is an admin expense that we do not split it? :s
Kind regards,
YazanPlease disregard point b)! I have seen my error – the impairment has indeed been allocated to the parent.
So, wny hasn’t the 20% impairment been allocated to W4B?
“Should not the goodwill impairment of 500 be allocated to this according to % (i.e., 500 x 0.2 = 100)?” – it IS! By taking 500,000 off the profits of the year and then splitting the residual profit, is that not the same as splitting the profit and then splitting the 500,000?
The answer has done it the first way where you’re trying to do it the second way
OK?
Sorry I meant in regards to W4A! Apologies. I can see your understanding for W4B.
W4A nci SOFP is given as 4,800 but nci impairment of 100 has not been allocated to it. Why?
Because the 500,000 was taken out in arriving at the profit for the year. So those two lines in working W4A “share of post-acq retained less any goodwill impaired (just their share)” has been combined by writing off the goodwill within the statement of profit or loss
So their share of this year’s profits is already net of the goodwill impairment
Better?
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