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Hi Dear Tutor, I have a question.
The question has been taken from Becker revision question bank page number 125
On 1 April 2016, Polestar acquired 75% of the equity share capital of Southstar.Southstar had been experiencing difficult trading conditions and making significant losses. In allowing for Southstar’s difficulties, Polestar made an immediate cash payment of only $1.50 per share. In addition, Polestar will pay a further amount in cash on 30 september 2017 if Southstar returns to profitability by that date.The value of this contingent consideration at the date of acquisition was estimated to be 1.8 million but at 30 September 2016 in the light of continuing losses, its value was estimated at only 1.5 million.The contingent consideration has not been recorded by Polestar.Overall, the directors of Polestar expect the acquisition to be a bargain purchase leading to negative goodwill
Statements of p/l ended 30 September 2016
Southstar
loss for the year ended-4600Southstar
Statements of financial position at 30 September 2016
Equity shares of 50 cents each-6000
retained earning-12000Polestar
Financial asset:equity investments-16000Notes
At the date of acquisitions,the Fair values of Southstar’s assets were equal to their carrying amounts with the exception of a leased property. This had a fv of $2 million above its carrying amount and a remaining lease term of 10 years at that date.
Polestar has recorded its investment in Southstar at the cost of the immediate cash payments, other equity investments are carried at FVTPL at 1 October 2015.The other equity investments have fallen in value by 200,000 during the year ended 30 September 2016
1)working
Polestar
Equity investment b/f on 1 October 2015-16000
Equity investment c/f on 30 September 15800
loss on equity investment=2001st question-The loss(200) will go to p/l but if it was the loss of Southstar would it go to p/l as well?also, would NCI share be taken into consideration if profit attributable to NCI finding procedure?
Second question-in the question says that contingent consideration fall from 1800 to 1500 and the difference(300) will go to P/l as loss but if it was said that contingent consideration increased from 1800 to 2000, would the difference (200) go to p/l as gain?
Second question-in the question says that contingent consideration fall from 1800 to 1500 and the difference(300) will go to P/l as loss but if it was said that contingent consideration increased from 1800 to 2000, would the difference (200) go to p/l as gain?—–here i made mistake .despite it decreased why we add the difference 300 over GRE and P/l?
I paid attention now for the solution of this exercise and saw that it is added.
Thanks in advance
What you’re asking is “if it was the loss of Southstar would it go to p/l as well?” – if the subsidiary sees that one of its assets has fallen in value and makes a post-acquisition loss, do we take that loss to the subsidiary statement of profit and loss
Well, of course you do! Where else could you possibly take it!
“would NCI share be taken into consideration if profit attributable to NCI finding procedure?”
If the subsidiary makes a post-acquisition loss then of course the nci will be affected
“I paid attention now for the solution of this exercise and saw that it is added.”
Does this line mean that before you hit ‘submit’ you realised that the fall in the estimate for the contingent liability had in fact been added to results of the year and not deducted as you first wrote?
If so, why did you post the question!
???
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