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F7 Chapter 7 Questions

VIVA

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  2. Hi I’m a little confused with question 1

    For the fair value adjustment in the workings you’ve put “2.4mil / 8 / 3 = 100k” (surely x 0.3(30%) rather than / 3)?

    but even with that shouldn’t it be 30% x 2.4mil x 3months / 96months(total months in 8 years) = 22.5k

    Also shouldn’t it be a plus value since the building has been revalued upwards? An Asset has increased in value so therefore wouldn’t the NCI liability also increase?

    • ‘“2.4mil / 8 / 3 = 100k” (surely x 0.3(30%) rather than / 3)’ – the element ‘/3’ relates to the fact that it’s 4 months since the date of acquisition so ‘/3’ is really just a short cut of ‘*4/12’

      30% doesn’t come into the equation just yet, and it’s still 4 months that we’re looking at, not 3 months

      the value of the nci was based on the share price, not on asset values

      But the asset should be depreciated on its fair value so there is an extra $100,000 DEDUCTION to come from the subsidiary’s retained earnings

      OK?

  3. Is the calculation for Qs. 1 not “30% x 2,000,000 / 2 x 2.60” given that the question stipulates $2,000,000 50c shares? As this is the treatment in Qs. 8, I am confused as to why this calculation would be any different in Qs. 1. Perhaps you might clarify, many thanks in advance.

      • Hello Sir,
        What about question 7? There were 50.000 shares of 50c each, meaning 100.000 shares. Yet the NCI at fair value is calculated with 50.000 shares. Was there a mistake or am I wrong?

      • please correct me on question 7,this is my solution

        50,000/0.50=100,000 shares

        20% *100,000*1.15=23,000
        20%*(32,500-29,000)=700
        NCI=23,700

      • Where in the question does it say that the share capital was $50,000? The question says that we bought 80% of the 50,000 50 cent shares, not 80% of the $50,000 worth of 50 cent shares

        There are only 50,000 shares in issue … that’s what the question says!

  4. Hi Mike..

    Question 6-Reading plc and Orange Plc.
    The date of acquisition is given as 1 May 2013 and the year end is 31 August 2014. Don’t you feel the acquisition date should be 1 May 2014?because only then the Pre and post acq adjustments can be done

    • If Orange retained earnings at date of acquisition were $290,000 and the figure now is $310,000 surely from that information we can work out (with a calculator, of course) that the profits made since acquisition are $310,000 – $290,000

      However! I’m glad that you brought this to my attention because I see that I have made a mistake

      The excess depreciation charge has been calculated as just 4 months out of 12 months:

      $(40,000) / 4 x 4 / 12 = $3,333

      and of course it should be:

      $(40,000) / 4 x 16 / 12 = $13,333

      and the answer then becomes $258,667 or $259 to the nearest $000

      Thank you for finding that error

  5. Hi Mike,
    Can i ask why in the question 2, we dont add the fv adjustment 650K in the Dole’s share of post acquisition results?

    0,35*3000K*2,60$=2730K$ nci valuation @doa
    0,35*((1780-1940)+650)=207,9
    total 2730+207,9=2937,9

    thanks,
    aristea

    • Three reasons really:

      1) it’s not post-acquisition! It was a fair value adjustment as at date of acquisition and, if we had been calculating goodwill in working W2, we would have included that 650,000 at that stage

      2) we are told that the value of the nci at date of acquisitionis to be their shareholding multiplied by the Dole share value

      3 the value of the nci as at the date of preparation of the financial statements is calculated in working W4A as …..

      value at date of acquisition

      +

      their share of subsidiary post-acquisition retained earnings

      The value as at date of acquisition is 1,050,000 shares valued at $2.60 = $2,730,000 (we are told this!), and

      their share of post-acq retained is 35% x ($1,780,000 – $1,940,000) = $(56,000)

      So nci on the statement of financial position is $2,730,000 – $56,000 = $2,674,000

      OK?

      • Hi Mike, on question 3 why are we not reducing the ($56 000) by multiplying by 9/12 as this is a mid year acquisation? Should the first 3 months not be taken off and why not?

      • Hi Mike, Why are you multiplying the NCI share portion of 375k by $1.80 and not by $1.60 as per previous questions please? What am I missing here?

        Please excuse me if this question arose already. I read through the others’ questions below but I couldn’t seem to find a similar question.

        Thank you.

        Gail

  8. Hi Mike, firstly I would like to thank you for your great lectures and support.

    I know that the practice questions only require NCI figures but for better understanding I also have done W3 for all questions but could not work out for Q6 (Reading & Orange) and Q7 (Nice & Nancy) where fair values are lower than the carrying values. Would be kind to show me how to deal with these two questions to work out the figures for W3 please. Thank you.

  10. Please can someone help me get to the answer of £2674 for Code & Dole?

    NCI = 3,000,000 x35%x £2.60 =£2730000

    Retained earnings (this is where I am struggling!)

    Per question 1780000
    pre acqn 1/12/13-31/3/14 3/12 (445000)
    pre acqn (1940000)
    fv land 650000
    Total 45000 x 35% = 15750

    Giving NCI of £2714250 so missing something!
    Help plis?

  13. scone plc and august plc the answer could be wrong if accounted for fair value excess depreciation adjustment.

    nci at doa 500,000*0.2*2.1=$210000
    nci post acq (510-590)*0.2=$(16000)
    300,000fv excess / 40=$7,500 per year
    nci share of depreciation= 7,500*4/12*0.2=500
    becoz it’s an excess depreciation thus need to be deducted out

    hence nci in statement of financial position is
    210000+(16000)-500
    =$193500 should be the correct answer?

    • Having just calculated it again, the correct answer is not shown as one of the options. My calculation just now comes up with an answer of $258,667 (or $259 rounded)

      That’s $252,000 at date of acquisition + 20% x $20,000 post acquisition retained + 20% x the nci share of the fair value adjustment excess depreciation charged. Orange is charging depreciation on an asset that has a carrying value $40,000 greater than its fair value so has deducted excess depreciation of 1.333 years at $10,000 per annum = $13,333 too much deducted from retained earnings

      The nci is entitled to their share so we need to add 20% x $13,333 to the nci

      $252,000 + $4,000 + $2,667 gives us $258,667 or $259 rounded

      • You should not even be thinking about losing sleep over these exams!

        From all the correspondence I have received from you these past few weeks, it seems to me that you’re fine for this week. No worries

      • your notes are brilliant, i just regretted it i should google search “acca free lecture” earlier. anyway, I am sure I will definitely have a great year nxt year with all your notes, lectures and practice question, and most importantly your ask the tutor section. appreciate it you do it all for free

      • hi mike sorry to ask but how did you get $252,000 as value of NCI at date of acquisition? i got 600,000 shares x 20% x 2.15= $258,000. =(

      • I’m in the process of changing the question to read (correctly) $2.10 for the value of the shares as at the date of acquisition

        Sorry for the error 🙁

  17. flue plc & Preys plc question
    total of shares 4000,000
    fv nci= 4000000*0.3*2.6=$3120,000
    nci share of post acq earning= (720000-640000)*0.3=$24,000
    thus nci is 3120+24 = $3144,000
    but answer says $3114

    please help

  19. You’re absolutely correct. I’ve treated the movement as a profit and not a loss since acquisition. Probably what’s happened is that when I was typing the question I got the retained earnings figures transposed ($1,7.. Should have been at date of acquisition and $1,9.. at the year end

    Well spotted and thank you

  20. Hello Sir,

    I thought the fair value of the NCI (Dole) at acquisition was 2,730 ie 3,000 * 0.35* 2.6.

    At the date of acquisition, Dole retained earning is 1,940 and at the year end 1,780.

    This suggest to me it made a loss but the answers indicates profit.

    Please help

    • true and still u have to add back the interest charged{65/100*3000000}/390*100*0.07*9/12 to the post acquisition loss and add 35% to the nic at acquisition but still my answer is non of them

      • Here is my calculation:
        # shares- 65%*3,000,000 gives 1,950,000 shares
        issued shares – 1,950,000*2(new)/3(old) = 780,000 shares

        MV of Code’s shares = 2.80$ per share
        2.80 consist of 1 $ ordinary + 1.8$ premium ->>> ordinary -1*780k = 780k plus premium-1.8*780k=1,404k

        FV aje = 650k – diff in FV vs CV for PPE(it’s given in 2nd paragraph)

        Loss of 160k for Dole = diff between RE@YE14 1,780k & RE@31.03 1,940k

        So, totally add everything, Ordinary shares 780k +Premium 1,404k + FV aje 650k – Loss of 160k = 2,674k

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