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Q32 pass paper sept 2016 I do not understand how to calculated to get 15.3m
However,
a profit of $2·4m on the investment of $15·3m represents a return of 16% (and would be higher if the profit was adjusted
to a pre-tax figure) which is much higher than the current year ROCE (at 10·1%) of the group. This implies that thedoes this also would overstate 2016 ROCE
Another issue potentially affecting the ROCE is that, as a result of the consolidation process, Tamsin Co’s net assets, including
goodwill, are included in the statement of financial position at fair value, whereas Gregory Co’s net assets appear to be based
on historical cost (as there is no revaluation surplus). As the values of property, plant and equipment have been rising, this
effect favourably flatters the 20X5 ratios. This is because the statement of financial position of 20X5 only contains Gregory
Co’s assets which, at historical cost, may considerably understate their fair value and, on a comparative basis, overstate 20X5
ROCE.According to the consolidated statement f financial position, the nci’s investment is worth $3.6m
But that includes their share of this year’s subsidiary profit after tax and, according to the consolidated statement of profit or loss, the nci share of the consolidated profits for this year is $300K
So the nci as at date of acquisition must have been $3.3m
Gregory’s share capital has increased since last year as a result of issuing shares as the consideration for the acquisition of Tamsin (the question tells us that) and the increase in Gregory’s share capital is $6m
But there’s an increase also in Gregory’s share premium account from $zero to $6m
So the value attributable to the shares issued for the acquisition of Tamsin must have been $6 capital + $6 premium
That means that the total value of consideration + nci as at date of acquisition was $12m + $3.3m = $15.3m
OK?
This, from your post, makes no sense at all to me!
“This implies that the
does this also would overstate 2016 ROCE”
I can’t see a question in your final 10+ lines of post
Is there meant to be a question in there?
Hi mike
the examiner is saying that because there is no revaluation of property plant & equipment it has overstated the ROCE for 2015 but it would have also overstated the 2016 ROCE too for this part of the answer in September 2016 #32 for ROCE
Another issue potentially affecting the ROCE is that, as a result of the consolidation process, Tamsin Co’s net assets, including goodwill, are included in the statement of financial position at fair value, whereas Gregory Co’s net assets appear to be based on historical cost (as there is no revaluation surplus). As the values of property, plant and equipment have been rising, this effect favourably flatters the 20X5 ratios. This is because the statement of financial position of 20X5 only contains Gregory Co’s assets which, at historical cost, may considerably understate their fair value and, on a comparative basis, overstate 20X5 ROCE.
“because there is no revaluation of property plant & equipment it has overstated the ROCE for 2015 but it would have also overstated the 2016 ROCE too”
But this is surely the case whenever PPE is not regularly revalued and prices are rising
Natoya, you’ve done it again! There’s no question neither in the first paragraph nor in the second
What is it about the examiner’s answer that you’re not happy with?
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