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F7 Chapter 7 Questions

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    • It’s a misprint in the answer. If you have calculated the figure correctly and arrived at 2,674 then you would see that the figure of 1,780,000 as written in the question is what should have appeared in the answers for the wrong choices

      In fact, if you were to recalculate the printed wrong answers using 1,760,000 you would quickly realize that there was a misprint

      But thanks for pointing it out

  4. Thanks Sir! Got my NCI topic strong like it was never before i learned how to time apportion depreciation and add back when the revaluation value was lower.Thanks again you are the best.
    On a side note on question 7 you made a mistake the calculation should be based on 100,000 shares rather than 50,000 shares because nancy had 50000 50 cent shares(50000/0.5=100000).

      • Q1, Q7 and Q7 have exactly the same wordings, none of them has saying “worth of shares”, and yet on Q7 is treated differently?

    • 20000 50c shares is totally different from $20000 50c shares.

      The 1st instance is 20 000 shares with a par values of 50c, therefore the total value is $10000.

      The 2nd instance is shares with a par value of 50c valued at $20000, every $1 has 2 shares(at 50c each). So number of shares becomes 20000 x 2 or 20000 ÷0.5, which gives 40000 shares.

      When par value is $1 there is no problem because money value and number of shares is the same. The above applies to situation where par value is not $1.

      Hope it helps.

    • Fair value of the asset is $40,000 LOWER than carrying value but depreciation will have been calculated on carrying value so that means depreciation calculated on the $40,000

      Over 4 years, that’s $10,000 each year too much depreciation expense so that excess is added back to retained earnings

      Ok?

  8. On 1 January 20X6, Dargent Co acquired 75% of Latree Co’s equity shares by means of a share exchange of two
    shares in Dargent Co for every three Latree Co shares acquired. On that date, further consideration was also issued
    to the shareholders of Latree Co in the form of a $100 8% loan note for every 100 shares acquired in Latree Co.
    None of the purchase consideration, nor the outstanding interest on the loan notes at 31 March 20X6, has yet been
    recorded by Dargent Co. At the date of acquisition, the share price of Dargent Co and Latree Co is $3·20 and $1·80
    respectively.
    The summarised statements of financial position of the two companies as at 31 March 20X6 are:
    Dargent Co Latree Co
    $’000 $’000
    Assets
    Non-current assets
    Property, plant and equipment (note (i)) 75,200 31,500
    Investment in Amery Co at 1 April 20X5 (note (iv)) 4,500 – –––––––– –––––––
    79,700 31,500
    Current assets
    Inventory (note (iii)) 19,400 18,800
    Trade receivables (note (iii)) 14,700 12,500
    Bank 1,200 600 –––––––– –––––––
    35,300 31,900 –––––––– –––––––
    Total assets 115,000 63,400 –––––––– –––––––
    Equity and liabilities
    Equity
    Equity shares of $1 each 50,000 20,000
    Retained earnings – at 1 April 20X5 20,000 19,000
    – for year ended 31 March 20X6 16,000 8,000 –––––––– –––––––
    86,000 47,000
    Non-current liabilities
    8% loan notes 5,000 nil
    Current liabilities (note (iii)) 24,000 16,400 –––––––– –––––––
    29,000 16,400 –––––––– –––––––
    Total equity and liabilities 115,000 63,400 –––––––– –––––––
    The following information is relevant:
    (i) At the date of acquisition, the fair values of Latree Co’s assets were equal to their carrying amounts. However,
    Latree Co operates a mine which requires to be decommissioned in five years’ time. No provision has been made
    for these decommissioning costs by Latree Co. The present value (discounted at 8%) of the decommissioning is
    estimated at $4m and will be paid five years from the date of acquisition (the end of the mine’s life).
    (ii) Dargent Co’s policy is to value the non-controlling interest at fair value at the date of acquisition. Latree Co’s share
    price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling
    interest.
    (iii) The inventory of Latree Co includes goods bought from Dargent Co for $2·1m. Dargent Co applies a consistent
    mark-up on cost of 40% when arriving at its selling prices.
    On 28 March 20X6, Dargent Co despatched goods to Latree Co with a selling price of $700,000. These were
    not received by Latree Co until after the year end and so have not been included in the above inventory at
    31 March 20X6.
    At 31 March 20X6, Dargent Co’s records showed a receivable due from Latree Co of $3m, this differed to the
    equivalent payable in Latree Co’s records due to the goods in transit.
    4The intra-group reconciliation should be achieved by assuming that Latree Co had received the goods in transit
    before the year end.
    (iv) The investment in Amery Co represents 30% of its voting share capital and Dargent Co uses equity accounting
    to account for this investment. Amery Co’s profit for the year ended 31 March 20X6 was $6m and Amery Co
    paid total dividends during the year ended 31 March 20X6 of $2m. Dargent Co has recorded its share of the
    dividend received from Amery Co in investment income (and cash).
    (v) All profits and losses accrued evenly throughout the year.
    (vi) There were no impairment losses within the group for the year ended 31 March 20X6.
    Required:
    Prepare the consolidated statement of financial position for Dargent Co as at 31 March 20X6.
    (20 marks)
    End of Question Paper

    • This should be in the Ask ACCA Tutor forum!

      Dargent’s records show a receivable from Latree of $3 million and that includes the $700,000 despatched and invoiced on 28 March

      Latree has not received these goods until after the year end so has not included them within the inventory figure nor within Payables and Purchases

      Accelerate these goods notionally into the possession of Latree …

      Dr Purchases $700,000
      Cr Payables (Dargent) $700,000

      and include this $700,000 in …

      closing inventory of the statement of financial position and
      within the cost of sales calculation on the statement of profit or loss

      Write these 4 figures onto your question paper in the appropriate places

      The current accounts now reconcile

      We have made no adjustment to Dargent’s records and they started off showing a $3 million receivable from Latree

      Therefore, following this adjustment that we have just made, Latree’s payables will now also show a balance of $3 million

      That must mean that the figure shown as a payable before the adjustment was $2,300,000 and we have just increased that amount by recording the $700,000 relating to those goods in transit

      Those entries that we made can be considered this way:

      we have affected the cost of sales calculation twice … firstly we increased the amount shown in the question by debiting purchases with $700,000 and then we decreased that amended figure by increasing the closing inventory by that same $700,000

      So there was NO affect on cost of sales

      The net affect of the adjustment was an increase in Payables and an increase in Closing Inventory – both of these figures are amounts that appear on the statement of financial position

      In summary, we increased Latree’s current liabilities (payables) and we increased current assets (inventory)

      Finally, we need to make adjustment for the pup in those goods in transit (you will already have made the pup adjustment for the reported closing inventory of $2,100,000 where the unrealised profit is calculated as 40/140 x $2,100,000 = $600,000)

      Now we need to calculate this further unrealised profit in the goods in transit as 40/140 x $700,000 = $200,000

      The adjustment for both these pup amounts is to reduce Dargent’s retained earnings by an aggregate amount of $800,000 and reduce combined inventory by that same $800,000

      OK?

      In future, if your question does not relate to the specific questions on a page, please open a separate thread in the Ask ACCA Tutor forum

    • hello Sir,
      in the loan note consideration in the DArgent question ,in the answer on BPP text book why is it (20, 000 x 75%x 1000/1000 ), why is it 1000 / 1000. i dont understand where they got 1000

  10. Understood thanks.. I scored 7/8 on This chapter. .
    Just as a question of interest.
    When they say.. $50 000 50c equity shares. Does it means the shares were 100 000
    And when it says .. 50 000 50c equity shares .. then it will be $25 000 equity shares. .

  11. Hi, Why is it that in question 1, we deducted only 100,000 from the retained earnings figure, I understand that the 100,000 is the depreciation not charged, but why didn’t we deduct 2,300,000 or have we assumed that the fair value adjustement of 2,400,000 for building was already in the books as at 31 December 2014, hence we only had to takeout 100,000.

    Thanks

    • That $2,400,000 building fair value adjustment is not in the records of the subsidiary! If it had been, then the depreciation figure would have been correct

      The 4/12 of the year x $300,000 annual depreciation is therefore $100,000 additional depreciation of the fair value adjustment

      No “or have we assumed that the fair value adjustement of 2,400,000 for building was already in the books” we have not assumed this. On the contrary we know that it hasn’t been included as an adjusted figure in the subsidiary because the depreciation calculation would have taken this into account

      What HAS already been taken into account in our calculations is that the nci share of that fair value adjustment is already reflected within the share price of $2.60 per share so, when calculating the nci at the year end, all we have to do is take their share of the adjusted subsidiary post-acquisition profits and add to their investment value as at the date of acquisition

      Is that OK?

      • I do understand but in solving example 11 of chapter 7, we added the NBV balance (cost less two years accum. depreciation) of the depreciable non current asset to the subsidiary’s retained earnings per the question (in working 3). My question is in this case say I was solving working 3, then Shouldn’t I have:

        F P
        Per question 690,000 720,000
        F.v of building 2,300,000 (yours had (100,000) here)
        Pre acquisition (3,040,000) (Yours had (640,000) here)
        Post acquisition 20,000 (and not (20,000))

        Thanks in advance

      • Hello Mike,
        please could you help me, I get the same as Daniel in the lecture example 11 of chapter 7 you did it a different way so now I’m confused, Please help!!

        in the lecture it works it out as the below:

        per question 690,000 720,000
        pre acq (640,000)
        FV adj 2,400,000
        Deprecation (100,000)

        Post acq 690,000 2,380,000

        30% 714,000
        NIC at DOA 3,120,000
        3,834,000

        please could you let me know which way I should be doing it 🙁

        thank you

      • Rebecca, we’re told that, at date of acquisition the nci has a value of 1,200,000 shares @ $2.60 each = $3,120,000

        The pre-acquisition retained earnings per the question were $640,000

        At the year end the retained earnings had risen to $720,000 but there needs to be $100,000 deducted as extra depreciation (4 months @ the rate of $300,000 per year)

        So those year end retained earnings fall to $620,000 and that means that there is a post-acquisition loss of $20,000

        The nci share of that loss is 30% = $6,000

        So at the year end the nci is valued at $3,114,000 ($3,120,000 – $6,000)

        OK?

        And it’s example 1 (ONE) not 11!

  12. Hi Everyone,

    Re Question 1:

    Can you please help to explain, why should the excess revaluation of $2,400,000.00 has not been add to to retain earning of Prey Plc in order to caculate 30% of NCI:

    NCI %30 :
    Per question 720
    Revaluation reverse 2,400
    less Depr/n (100)
    _____
    3,020
    less pre acq (640)
    ______
    post 2,380

    Share NCI 30% 714
    Hence NCI in CS of FP: 3120 + 714 = 3,834

    Many thanks for your help!

      • Dear sir,

        can you please elaborate “with the Prey’s plc share price being a reasonable indication of fair value”.

        AND

        I still not understand why you didn’t ADD the FA value of 2,300,000.00 {2,400,000-100,000} after depreciation deduction. Because in video lecture, he explained like that. please clarify.

      • What elaboration is needed? If we know how many shares are owned by the nci and we know the market price of a share, then when we multiply the number owned by the nci together with the individual price per share we arrive at the nci investment valuation. What elaboration is needed?

        The question specifically tells us that the share price is a reasonable indication of the value of the nci investment. Why would I now go adding onto the assets as at acquisition date the value of the $2,400,000 fair value adjustment in order to calculate the value of the nci investment? The question tells me that value!

        Apparently (although it isn’t specifically stated so in the question) the market in Prey’s shares has taken account of the fair value difference when compared with Prey’s assets at carrying values and the share price has been influenced by that assessment made by the stock market

        As for your comment “Because in video lecture, he explained like that” it’s most likely that exact same scenaria will not be met in exam questions. If I explained something in a lecture in a particular way, it’s because the way that I showed fitted the circumstances of the example that I was illustrating

        This is a problem faced by students that wish to memorise steps instead of trying to understand the logic behind what is happening

        Understand the logic and the steps come naturally

        OK?

      • sorry my mistake I wrote it incorrectly it is $2,000,000 / 0.50 (as they are only cent shares) = 4,000,000 shares x 30% = 1,200,000

        If you are paying $2,000,000 and each share is only 0.50cent that means for every $1 you are getting two shares does that happy?

        when working my answer out I completed it like the lecture instead of the works they show above, these were my workings

        $2,000,000 / 0.5 = 4,000,000 shares x $2.60 = $10,400,000 x 30% = $3,120,000

        Asset dep= $2,400,000 / 8 = $300,000
        4/12 x $300,000 = $100,000

        Retained earning
        pre 640,000 – 620,000 (720,000 – 100,000 Asset dep) = -$20,000 x 30% = -$6,000

        then final part $3,120,000 – 6,000 = $3,114,000

        ( I hope this helps, I wish they would go into more detail on the answers)

      • I think its a mistake.I got 1400000………also the depreciation i got as 90000, but thats a rounding issue
        It said 2000000 of 50c shares which is 1000000

      • Richard, $90,000 instead of $100,000 is not a rounding error! How can you arrive at $90,000 when all you have to do is take 4/12 of $300,000? (4 months out of 12 is 4/12 = 1/3 and 1/3 does not equal .3!)

        There is no mistake in the answer

        “It said 2000000 of 50c shares which is 1000000”

        No it didn’t! It said $2,000,000 50cent equity shares and that means that there are 4,000,000 shares, each with a face value of 50 cents giving a total share capital value of $2,000,000

  16. Referring to question 6, could you please explaine why should an extra depreciation 3, 333 be added not extracted?

    NCI at acquisition: 252 000
    Post -acqn share of profit:
    310 000
    (290 000)
    ———————————-
    20 000
    (3 333) extra depreciation
    ———————————-
    16 667 x 20% = 3 333.4
    ———————————
    255 333.4

    Thanks for reply.

  18. So confused right now with question 8. In every other question the solution was to ADD the calculated depreciation amount to post acq. retained earnings. Why is the 500 subtracted from retained earnings in question 8?

  19. Hi Again

    For question 6 when calculating the revaluation amount you’ve put 40k / 4 / 3 = £3,333

    Where did the 3 come from? shouldn’t 1st may to 31 august be 4 months so should be 40k / 4 / 4(quarter of a year) = £2.5k?

    Also shouldn’t it be deducted from retained earnings not added because its been revised down?

    • since when has 4 months been a quarter of a year?

      ‘4 months so should be 40k / 4 / 4(quarter of a year)’

      depreciation has been calculated on the carrying value of the subsidiary’s assets but these are overvalued so the subsidiary has charged too much depreciation

      That’s why we need to add back the $3,333 – because it has been overcharged

      • Hi Mike

        Thanks for the help. Looks like I’ve got a lot more studying to do but i think i get it now

      • Hello,

        But aren’t there 16 months from 1 May, 2013 to 31August, 2014? Shouldn’t we adding back the depreciation for all the 16 months?
        ($40000 / 4years /12 months * 16 months= $13 333)

        And a big thank you for the lectures, Sir!

  20. Hi Sorry a lot of questions!

    on question 5 second paragraph it says “building had a fair value 300k in excess of the carrying value”

    But on the answer its been calculated as a depreciation so shouldn’t it be ” building had a carrying value 300k in excess of its fair value”?

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