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Hi, plz can you help me with this question?I’m able to do everything except I seem to have a problem with calculating the fair value of NCI in the calculation of goodwill.
P acquired 75% of the shares in Son 1 January 2007 when Shad retained earnings of $15,000. The market price of S’s shares just before the date of acquisition was $1.60. P values NCI at fair value. Goodwill is not impaired.
The statement of financial position of P and S at 31 December 2007 were as follows:
P S
$ $
Property plant and equipment 60,000 50,000
Shares in S 68,000 –
128,000 50,000
Current assets 52,000 35,000
180,000 85,000Share capital – $1 shares 100,000 50,000
Retained earnings 70,000 25,000
170,000 75,000
Current liabilities 10,000 10,000
180,000 85,000Prepare the consolidated statement of financial position of the P group.
You haven’t told me the basis of the P directors’ valuation of the nci as in …
“P values NCI at fair value …”
This would normally be followed by ” … and P considers the S share price to be a fair indicator of fair value”
25% x 50,000 shares x $1.60 = $20,000
Is that right?
That is right according to my book..thank you 😀
But every question in my book just says “P values NCI at fair value ” without any other indication on what the fair value is to be calculated upon..so basically i cannot take S’s share price to be in every question right?
But i want to know which amount to use..like in another question,i think when calculating NCI, they used the amount from pre-acquisition from share premium account but this was in relation to the topic of acquisition of a subsidiary during its accounting period..is this possible?
“so basically i cannot take S’s share price to be in every question right?”
Look at some of the past exams to see the ways in which the examiner gives this information
“they used the amount from pre-acquisition from share premium account but this was in relation to the topic of acquisition of a subsidiary during its accounting period..is this possible?”
I don’t understand your question
If your question is about whether or not share premium should be involved in calculating the nci …
… if the question states that “the S share price is considered by the directors to indicate a fair value for the nci …” or similar, then share premium is not separately taken in to the nci valuation
If a question states that “the nci is valued on a proportional basis” then their value is their proportionate percentage share of the subsidiary’s fair valued net assets
To arrive at the total of the subsidiary’s fair valued net assets we need to bring in the value of the subsidiary share premium account as being an integral element of shareholders’ funds and, of course, shareholders’ funds = net assets
OK?
Here is the question..and again,could u plz help with NCI in calculating goodwill?
Hinge Co. acquired 80% of the ordinary shares of Singe Co. on 1 April 2005. On 31 December 2004, Singe Co’s accounts shaoed a share premium account of $4,000 and retained earnings of $15,000. The statement of financial position of the two companies at 31 December 2005 are set below. Neither companies has paid any dividends during the tear. NCI should be valued at full fair value. The market price of the subsidiary’s shares was $2.50 prior to acquisition by the parent.
Hinge Co. Singe Co.
$ $
Property plant and equipment 32,000 30,000
16,000 ordinary shares of 50c each in Singe Co. 50,000
82,000
Current assets 85,000 43,000
Total assets 167,000 73,000Equity and liabilities
Equity
Ordinary shares of $1 each 100,000
Ordinary shares of 50c each 10,000
Share premium account 7,000 4,000
Retained earnings 40,000 39,000
147,000 53,000
Current liabilities 20,000 20,000
Total equity and liabilities 167,000 73,000Prepare the consolidated statement of financial position of Hinge Co. at 31 December 2005. There has been no impairment of goodwill.
Are you convinced that you have given me full information?
Is there nothing in the question like “The directors of Hinge believe that the share price of the Singe shares is a good indication of the fair value for the nci”?
Assuming that there is such a statement, the nci investment in Singe would be worth at acquisition date 4,000 x $2.50 = $10,000
If not, is there something that says that the nci are to be valued on a proportionate basis?
If so, their value as at date of acquisition would be:
share capital 10,000
share premium 4,000
retained earnings brought forward 15,000
retained earnings for 3 months this year 3/12 x 24,000 = 6,000Fair valued net assets at date of acquisition $35,000
Nci 20% x $35,000 = $7,000
Does that agree with the solution?
“Is there nothing in the question like “The directors of Hinge believe that the share brice of the Singe shares is a good indication of the fair value for the nci”?
Assuming that there is such a statement, the nci investment in Singe would be worth at acquisition date 4,000 x $2.50 = $10,000 ”
The working you have done is correct although they haven’t given a statement as you have done..bt how did u use the amount of $4,000? plz can you explain?
I didn’t – the same as I didn’t use the figure for retained earnings nor the 3 months’ worth of this year’s retained earnings
The question tells you (or at least it implies) that the share price is a fair indication for measuring the nci’s investment valuation
That share price is $2.50 so that’s the basis of the nci valuation
But the share price for Singe Co. is $10,000..so shouldn’t it have been $10,000 x $2.50?
But u used the amount of $4,000..so i want to know where you got it fromsorry for being annoying,but im really confused at this point
“But the share price for Singe Co. is $10,000..so shouldn’t it have been $10,000 x $2.50?”
The share price for Singe is NOT $10,000!
That’s the aggregate nominal value for the Singe shares that are in issue
That is, 20,000 equity shares with a nominal value of 50 cents each giving total issued share capital of $10,000
“But u used the amount of $4,000..so i want to know where you got it from”
Where exactly have I used $4,000?
“Assuming that there is such a statement, the nci investment in Singe would be worth at acquisition date 4,000 x $2.50 = $10,000 ”
This is what you wrote in a previous explanation..and the market price of shares was $2.50..and in the calculation of nci in goodwill,you multiplied $2.50 by $4,000 to get $10,000..so where exactly did that $4,000 come from?
ohh my bad..but still..that 4,000..its nt a nominal value..is it the number of shares in singe co?if so,how did u get it?
It’s the number of Singe shares that are owned by the nci
The Singe issued share capital has a nominal value of $10,000 and each individual share has a nominal value of 50 cents
that means that there are 20,000 shares
20,000 shares @ 50 cents each $10,000 nominal value of Singe issued equity share capital
And Hinge acquired 80% of the Singe shares … so 20% is still owned by the nci
And 20% of 20,000 shares = 4,000 shares and that’s where the 4,000 comes from
Incidentally, how did you expect a calculation of $4,000 x $2.50 to work? What IS the result when you multiply $4 x $3? 12$$?
Dear sir,
Supposing if the parent company (For IAS 16) follows revaluation model and the subsidiary follows cost model. Will the subsidiary (For consolidation purposes) change to revaluation model?
Is this what it means by having a uniform accounting policies?Thank you
Yes and yes
I would expect the parent to insist that the subsidiary adopts a policy consistent with that of the parent
Dear Sir,
In the notes (PG-27), it mentions that the investment in subsidiaries and associates in the parents financial statements is measured either at cost or according to IFRS 5 if held for sale – under IFRS 3
But under IAS 27, the investment is valued either at cost, IFRS 9 or IFRS 5 if held for sale. Same is mentioned in IFRS 10. (From Iasplus.com)
I’m confused if IFRS 9 is to be used in this senario.
Thank you
Is this the bit from IAS PLUS that has you concerned?
“An entity is required to measure an investment in a subsidiary at fair value through profit or loss in accordance with IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement.”
Yes sir. The part below is from IAS 27 under the heading Choice of accounting method.
”When an entity prepares separate financial statements, investments in subsidiaries, associates, and jointly controlled entities are accounted for either: [IAS 27(2011).10]
at cost,
or in accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments: Recognition and Measurement for entities that have not yet adopted IFRS 9),
or using the equity method as decribed in IAS 28 Investments in Associates and Joint Ventures. [See the amendment information below.]
The entity applies the same accounting for each category of investments. Investments that are accounted for at cost and classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are accounted for in accordance with that IFRS. Investments carried at cost should be measured at the lower of their carrying amount and fair value less costs to sell. The measurement of investments accounted for in accordance with IFRS 9 is not changed in such circumstances.”
Yesterday’s post at 2.45pm queried the applicability of IFRS 9
Does this extract not answer your query?
“If an entity elects, in accordance with IAS 28 (as amended in 2011), to measure its investments in associates or joint ventures at fair value through profit or loss in accordance with IFRS 9, it shall also account for those investments in the same way in its separate financial statements. [IAS 27(2011).11]”
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