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i am having problem in understanding one part of this question, in this question subsidiary had a product under a brand name. At the date of acquisition this brand was valued at 250k and had a remaining life of 10years. the subsidiary was acquired 2 years before. i wanted to ask how this will be accounted ? is this another good will that parent is acquiring under the brand name with amortisation to apply for 2 years ? and why will this amount will go to the net assets of subsidiary at acquisition along with its amortisation.
also i needed to have your comments if in the workings section, a working of net assets is also done as at the date of acquisiton and at the reporting date of the subsidiary. will it really help in this paper and the advanced paper after if i adopt this working as fair values will be adjusted in this working along with depreciation and it will spare from separate workings shown in retained earnings and goodwill for pre and post acq reserves.
It is said in the question that,
fair value of spearmint is 250k dollars at the date of acquisition and it is not shown in financial statemnt.
to find goodwill we need fair value of net asset of subsidiary at acquisition so we have to add fair value of subsidiary.
why amortise based on fair value? i dont knowThe brand is an asset at the date of acquisition, but is not recognised by the subsidiary. It therefore needs to be recognised at fair value as at date of acquisition and then amortised over 10 years. So, at date of acquisition, an amount of 250 will be added to the fair value of assets at date of acquisition. Then, 2 years later we need to adjust again ( because the subsidiary has not made any adjustments for this brand ). This time, the adjustment will be to recognise the brand at 250 less two years’ worth of amortisation. So, on the SoFP, an asset will appear amounting to 200k.
Kaplan tend to show the subsidiary net assets in a working showing the fair value of the assets as at date of acquisition and, in the second column, those same assets at fair value as at reporting date. Yes, it works. Personally, I don’t – you can see the way I do if you check out the OT videos.
The Kaplan figures BOTH appear in the other workings. The fair value as at date of acquisition appears in the goodwill calculation. The fair value as at reporting date LESS the fair value as at acquisition date appears in the post acquisition working for consolidated retained earnings and in the working to calculate the non-controlling interest.
So, in summary, yes, the working IS needed, one way or another. Kaplan do it the one way, I do it the other!
so it is an intangible asset ? actually i am just mixing it up with goodwill, else i got the point.
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