- This topic has 14 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Wiley acquired 80% of Coyote on 1 January 20X8. At the date of acquisition Coyote had a building which had a fair value $22 million and a carrying amount of $20 million. The remaining useful life was 20 years. At the year end date of 30 June 20X8 the fair value of the building was $23 million.
Coyote’s profit for the year to 30 June 20X8 was $1.6 million which accrued evenly throughout the year.
Wiley measures non-controlling interest at fair value. At 30 June 20X8 it estimated that goodwill in Coyote was impaired by $500,000.
What is the total comprehensive income attributable to the non-controlling interest at 30 June 20X8?A $250,000
B $260,000
C $360,000
D $400,000Here is my answer:
#1: Post-acquisition RE of Coyote = 800 – 50 (Additional Depreciation) – 500 (Impairment of Goodwill) = 250
=> NCI Share of post – acquisition RE at 20% = 250 * 20% = 50.#2: Post-acquisition RR of Coyote:
At 30/6/X8, Carrying Value of building = 22,000 – 22,000/10 * 6/12 = 21,450
At 30/6/X8, Fair value of Building = 23,000
=> RR at 30/6/X8 = 23,000 – 21,450 = 1,550=> NCI Share of post – acquisition RR at 20% = 1,550 * 0.2 = 310
Therefore, total comprehensive income attributable to the NCI = 310 + 50 = 360
Here is BPP’s answer:
Profit to 30 June 20X8 (1.6m × 6/12) = 800,000
Additional depreciation on FVA ((2m/20) × 6/12) = (50,000)
Goodwill impairment = (500,000)
Other comprehensive income – revaluation gain =1,000,000NCI share 20% = 1,250,000 * 0.2 = 250,000
The answer of me and BPP is different, and I hope you can clarify who have the correct answer.
Thank you so much.2 errors from what I can see
1)
‘22,000 – 22,000/10 * 6/12 = 21,450’
Why divide by 10 when it has a 20 year life?
And don’t say it’s because it’s only half a year because you’ve done the half year adjustment with ‘6/12’2)
‘At the date of acquisition Coyote had a building which had a fair value $22 million’ and …
… ‘at the year end date of 30 June 20X8 the fair value of the building was $23 million’
So that’s a post-acquisition increase in the revaluation reserve of $1m
The half year’s depreciation on the revaluation to the building is charged to the retained earnings and doesn’t touch the revaluation reserve
Your answer should read:
‘#1: Post-acquisition RE of Coyote = 800 – 50 (Additional Depreciation) – 500 (Impairment of Goodwill) = 250
=> NCI Share of post – acquisition RE at 20% = 250 * 20% = 50.#2: Post-acquisition RR of Coyote:
At 30/6/X8, Carrying Value of building = 22,000
At 30/6/X8, Fair value of Building = 23,000
=> RR at 30/6/X8 = 23,000 – 22,000 = 1,000=> NCI Share of post – acquisition RR at 20% = 1,000 * 0.2 = 200
Therefore, total comprehensive income attributable to the NCI = 200 + 50 = 250’
Does that explain it?
Thank you,
I am sory because the first error is my typing mistake, and the final result would not be affected.
It could be: “At 30/6/X8, Carrying Value of building = 22,000 – 22,000/20 * 6/12 = 21,450”About the second mistake, I have confused in some areas:
I agree with you that: “The half year’s depreciation on the revaluation to the building is charged to the retained earnings and doesn’t touch the revaluation reserve”.
But I don’t touch the RR. In my perspective, the “new carrying value” of the building is decreased by 550 in the last 6 months of the year (22,000/20 * 6/12) in substance. Therefore, the new RR is the difference between the “new carrying value” and “the new fair value, namely 21,450 and 23,000 respectively.As a result, I still don’t understand why you said RR at 30/6/X8 = 23,000 – 22,000 = 1,000.
It could be equal = 23,000 – 21,450 = 1,550.Hope you can explain more for me.
Thank you so much.I mean that carrying value of the building at 30/6/X8 is less than 22,000 because it have suffered from the depreciation within last 6 months of the year.
The original carrying value of $20 million would be being depreciated anyway and already taken into account within the reported figures
The only depreciation adjustment would be for the 6 months depreciation on the fair value increase of 2,000,000
6/12 * 2,000,000 / 20 = 50,000
So as at the year end the notional carrying value would be 22,000,000 – 50,000 = 21,950,000
Now revalue to 23,000,000 = an increase of 1,050,000
So NCI is now 50,000 as originally calculated + 20% x 1,050,000 = 210,000
That gives a total of 260,000 and that’s answer B
I’m not sure where that leaves us!
Are you certain that BPP has selected 250,000 as their answer?
BPP selected option 250,000. That’s the reason why I feel very confused.
About your second explain, you gave me a different answer. Your answer has changed from 250 to 260.
Could I give you some doubts if your second answer is still incorrect.
Why did I say that?Because I don’t understand why you chose the carrying value of $20 million to depreciate instead of choosing the fair value of $22 million to depreciate in the last 6 months of the year.
(At date of acquisition, the building has a new value at $22 because their value has changed from carrying value of $20 to the fair value of $22)
For the sake of convenience, could you give me a source documents (such as line XXX in IAS xxx) to explain your choice.
Hope you can maintain your patience with me 😉
‘Because I don’t understand why you chose the carrying value of $20 million to depreciate instead of choosing the fair value of $22 million to depreciate in the last 6 months of the year.’
I didn’t
I depreciated the excess $2 million – depreciation on the original $20 million will already be contained within the reported figures
Yes, it’s a change from my original response because, as you correctly pointed out, I had missed the excess depreciation to bring the $22 million down by 6 months’ depreciation
I’m not sure that I can get to the BPP answer – $260,000 is looking favourite for me
I also think that the BPP answer is wrong.
1/ About your further explanation:
“depreciation on the original $20 million will already be contained within the reported figures”
Yes!
It has been included in the P&L, and we have to deduct this amount on the building value.
It means that we should deduct more 20mil/ 20 * 6/12 = 500,000
and the answer of you should be:
So as at the year end the notional carrying value would be 22,000,000 – 50,000 – 500,000 = 21,450,000Now revalue to 23,000,000 = an increase of 1,550,000
2/ My question here is:
Why you did not deduct all the depreciated amount of $22 million to get the carrying amount at 30/6/X8.## About your choice, you only deducted the depreciation adjustment for 6 months.
The base why I told that you should deduct all depreciated amount is:
At the date of acquisition, the value of building is $22 million, right?
Therefore, its carrying amount should be deducted by all depreciated amount from its value ($22 million).I’ve managed to get hold of a BPP to August 2016 revision kit
Can you give me the page number or the section in which I can find Coyote?
I used BPP Kit version 2016-2017.
Question 109, page 33.Do you have this book?
If not, I can send it to you.No, I don’t have the right edition
Please copy the question for me and be sure that you copy it exactly as it is written
Thanks
In #1, I copied exactly as it written, do you want to check again, I can send it to you by email.
Do you know, I do believe that you are correct with answer C, as per your original post
This looks like a BPP error
Well done!
- You must be logged in to reply to this topic.