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“How to calculate Subsidiary’s net assets in this question?”
On 31 July 20X7 P acquired 60% of the 100,000 $1 ordinary shares of S for a sum of
$240,000. S had accumulated profits at 1 January 20X7 of $200,000 and during the year
to 31 December 20X7 made a profit of $60,000.
What is the figure for purchased goodwill attributable to the equity owners of P that
should appear in the consolidated statement of financial position at 31 December 20X7?Are you using a current edition of the Kit? The reason I ask is that these days, it is very strange to be asked for the ‘goodwill attributable to the equity owners of P’.The current rules mean that the goodwill that appears in the consolidated statements is the total goodwill – i.e. the total value placed on the shares at the date of acquisition less the total share capital plus reserves at the date of acquisition.
Since the amount paid for 60% of the shares was $240,000, the total value of all the shares is 240,000/60% = $400,000.
The share capital is $100,000, and the reserves as at 31 July are 200,000 + (7/12 x 60,000) = $235,000. (So the net assets at the date of acquisition = 100,000 + 235,000 = 335,000
Therefore the goodwill arising on consolidation is 400,000 – 335,000 = $65,000.
I do suggest that you watch my free lectures on this. The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
January 2013 Edition Kit.
Sir they calculated goodwill attributable to the equity owners of P as:Cost $240,000
Net assets acquired:
Share capital $100,000
Opening accumulated profits $200,000
Profits to 31 July (60,000 x 7/12) $35,000
$335,000
Group share (60% × 335,000) $201,000
= Goodwill (240,000 – 210,000) $39,000The total goodwill arising on consolidation (the goodwill appearing on the SOFP) is $65,000 as I explained before.
Since the parent owns 60% of the subsidiary then 60% x 65,000 = 39,000 is the goodwill attributable to the equity owners of P.
However, I ask you again, are you using a current edition of the kit? Under the old rules, asking for the 39,000 was sensible. However the rules changed several years ago and it is 65,000 that appears on the consolidated SOFP.
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