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need help with an online question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › need help with an online question

  • This topic has 3 replies, 2 voices, and was last updated 5 years ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • June 21, 2020 at 10:03 am #574395
    farhaanm
    Participant
    • Topics: 165
    • Replies: 73
    • ☆☆☆

    hello
    ACCA FR Chapter 23 Consolidated statement of financial position Questions Question 2 0f 10

    the question
    On 31 March, 2014 when Code plc acquired 65% of the 3,000,000 $1 equity shares of Dole
    plc, the retained earnings of Code plc and Dole plc were $2,720,000 and $1,940,000
    respectively and the market value of the Dole plc shares was $2,60

    The carrying amounts of the Dole plc net assets were approximately equal to their fair values
    with the exception of a parcel of land that had a fair value $650,000 greater than its carrying
    value.

    The terms of the acquisition were that Code plc would issue 2 new shares in Code plc for
    every 5 shares acquired in Dole plc and would pay $1.20 for each share acquired. In addition
    Code plc would issue a $100 7% Unsecured Loan Note for every 390 shares acquired

    The Code plc shares had a market value as at date of acquisition of $2.80. Code plc has
    decided to measure the non-controlling interest at fair value with the Dole plc share price
    being a reasonable indication of fair value

    At 31 December, 2014 the retained earnings of Code plc and Dole plc were $2,690,000 and
    $1,780,000 respectively. Goodwill is not impaired

    At what amount should the non-controlling interest be shown in the consolidated statement
    of financial position for the Code plc group as at 31 December, 2014? (Answer to the nearest
    $000)

    This is the answer:

    1,050,000 x 82.60 = 2,730,000
    retained earnings (1,940,000 – 1,760,000) x 35% = ( 56,000)
    nci @ 31 December 2014 1,050,000 x 82.60 =
    2,730,000
    retained earnings (1,940,000 – 1,760,000) x 35% = ( 56,000)

    I have calculated this:
    1,050,000 x 82.60 = 2,730,000
    but i cannot deal with the other information given in the question. I have tried relating to the explanation in the lectures and notes but to no avail. This is unlike the first question on the online test where i was able to remove the extra depreciation and therefore adjust the fair value of NCI aquisition.

    June 23, 2020 at 4:24 pm #574549
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    OK, so you’ve got the NCI at fair value at acquisition, so that’s a good start. I think your 82.60 should be $2.60 but that’s a minor point.

    To this you then need to add on the share of post acquisition profits, which is where the answer is right but looks wrong?!?!?! I think the (56,000) is correct but I think it should be calculated as follows:

    35% x (1,780,000 RE @ y/e – 1,940,000 RE @ acqn) = (56,000)

    Hope that helps clear it up.

    Thanks

    June 26, 2020 at 9:57 am #574725
    farhaanm
    Participant
    • Topics: 165
    • Replies: 73
    • ☆☆☆

    yes that is easy and i miss that. I guess that the other parts of the question does not affect REtained earnings
    . Am I right?

    June 27, 2020 at 4:05 pm #574818
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Don’t forget that the post-acquisition retained earnings will also be used in the group retained earnings calculation where the group will record its share.

    Thanks

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