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Hi Mike,
The patent identified at acqn with FV= $4m and useful life = 4 years. But this has not recognised in FS.
The accounting treatment for it:
1. Recognise Intangible asset in SOPF@CV = 4-1=3 (ok with this)
2. adjustment the sub’s net asset list (ok with this step)
3. BUT the post acqn amortisition caused problem for me.
In the answer:
The amrotisition $1m:
Deducted from other equity component at 70%*1= (0.7)
Why this need to be done like above? what’s the accounting logic of it?From my opinion, the post-acqn depn/amortisation are adjusted like below:
Deduct from net asset list of Sub
Deduct from group sopf –> PPE /intangible asset.
It seems there is nothing to do with the group RE or other component equity.Thanks in advance and waiting for your reply.
Is it not the deferred tax implication of the, presumably, 30% tax applied to the “revaluation” of the previously not-recognised asset?
Hi Mike,
Thanks for your quick reply. Afraid there is nothing to deal with deferred tax in this Q.
There is a very similar question in kaplan revision kits–it is about trade nameKaplan revision kits Q1 Glove
In kaplan kits Q1 answer–> w7:
The accounting entry:
Dr group retained earning 0.8m
Dr NCI 0.2m
Cr trade name 1m
But when you check W5
The accounting adjustment are:
Other reserves + 0.8m
RE -0.8m
Where is the 0.2m?
And also the +0.8 in Other reserve is disagreed with the accounting entry in W7 above.If you were in the exam, how will you treat the intangible asset identified at acqn but not yet recognised in FS?
What’s your accounting adjustment for the FV and amortisition?
Personally, I thought the answer which was given by kaplan kit and the examiner was too complicated. Is there is a simply way to deal with it?In my working 2 ( goodwill ) I include the fair value of the previously unrecognised asset as at date of acquisition.
In working 3 ( consolidated retained earnings ) I include the fair value of that same asset as at the date of consolidation and then, in the lower half of working 3, I include the fair value as at date of acquisition ( from working 2 ). In that way, my working 3 shows the post acquisition fall in value ( here, through amortisation ) and gives me the “correct” post acquisition retained figure for the subsidiary. From that figure we can then take the parent’s share and add to the parent’s own retained earnings and take the nci share to working 4A to calculate the nci on the Statement of Financial Position.
I don’t know if that’s better for you but it certainly seems easier to me
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