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F7 Chapter 8 Questions

VIVA

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  1. sir,
    for question 4 the nci is coming to be 477000
    25%of 1200000 multiplied with 1.59
    right?
    and for the deferred payment can you please explain the step? as in why is it 2 divided by 100

    • That nci line should be multiplied by 2 because the shares are only 50 cent nominal value

      Share Capital of $1,200,000 50 cent equity shares means there are 2,400,000 equity shares and the nci have 25% of those @ $1.59 each

      “and for the deferred payment can you please explain the step? as in why is it 2 divided by 100”

      It’s multiplied by 2 for the reason stated above (50 cent shares) and it’s divided by 100 because the payment is $106 for every 100 shares acquired

      OK?

  2. Hello,
    Im confused as to why we calculate the discount factor in Q3 for furthur cash consideration and we do not calculate it in Q2 for the same cash consideration.
    Is it because in Q3 the date of furthur cash consideration is mentioned (30 April 2015?)

    Thank you.

    • There’s nothing in question 3 to suggest that the cash payment is deferred so, yes, it’s because (in question2) the payment date is given

      If you were to discount the cash payment date in question 3, by how many years would you want to discount it?

      38 years? 218 years? If no date is given you have no choice but to accept that it is payable immediately

      OK?

    • “and the second time 1905 * 2/5*1.2.”

      I believe that you mean 1,950 * 2/5 * 1.2

      However, that is still incorrect

      The question is based upon the number of shares acquired by Spice and that is 65% * 3,000,000 = 1,950,000 shares acquired

      For every 5 shares acquired in Ogre, Spice will issue 2 Spice shares and these shares are worth $2.60 each …

      … so we have the line 1,950,000 / 5 * 2 * $2.60 = $2,028,000

      Then we have the cash element of the acquisition cost and, again, this is based on the number of Ogre shares acquired … and we know already that Spice acquired 1,950,000 Ogre shares

      So now we have the line 1,950,000 * $1.20 = $2,340,000

      Better?

  4. For chapter 8, Q2,… What if it was a fv of building… Are we going to add subtract it from goodwill just as we subtracted that of land. For example
    Shares 3000 +1940+650
    What of the 650 was for bulding
    After calculation the depreciation and pro-rate to the months… Are we going to subtract the figure to get goodwill

    • The 650 would be added in when we calculate goodwill arising on acquisition and would increase the value of the building in the subsidiary’s records

      It follows that there would be additional depreciation to be charged on that fair value increase in the value of the building but no adjustment is now going to be made to the goodwill that we calculated on acquisition

      OK?

  5. Hello!
    Regarding Q1: discount factor is applied twice because two years have gone since the date of acquisition?
    If so, don’t understand why a discount factor is applied twice as well in Q8…

    Thanks in advance!

      • I am sorry! Not 8, I meant 4 – the last question of this chapter. I was doing the previous chapter in the same time. There are 8 questions, therefore I made this mistake. Sorry again!

        Aneway, could you help me with 1st and 4th q-s of this chapter, please?
        Could you explain the way of applying the discount factor? Why are you doing it two times?

        Thanks in advance!

      • You have already explained discount factor. However, I am asking not about that. Regarding Q1: discount factor is applied twice because two years have gone since the date of acquisition? If so, why it is also twice in Q4?

      • But at date of acquisition, the date when the goodwill calculation would be done, the payment date was two years hence and therefore the deferred payment needed to be discounted for those two years

        OK?

  8. Good day

    Chapter 8 Q1 & Q4

    Q1:Why 1/1.10 appears twice & Q2 Why 1/1.06 appears twice?

    It there any better formula than duplication of the same figures?

  10. Hello Sir,
    On question 1, Ryan and Lowe, why do we multiply 75% x 24 million x 2 / 3 by $4.20 and not by $3.18, the price of a share in Lowe , since we acquire control over Lowe?

    • Please, if you want to guarantee that I shall see your questions, in future post them on the F7 Ask ACCA Tutor page

      Now, ask yourself this …. what was the value that Ryan paid to the former Lowe shareholders in order to persuade them to sell their Lowe shares to Ryan?

      …… and that’s why we use $4.20 and not $3.18

      OK?

      • I see, it makes sense now. In the future i will post the questions in the right section.
        Thank you for your quick reply.

      • Spice and Ogre? Why no time apportionment? Because you’re told what the retained earnings were at date of acquisition, not at last year end

      • We are told that retained earnings are at the date of acquisition, but they don’t change in the middle of year, am I right?

        Do we need to assume that if there is an acquisition than it is possible that Ogre has made a new financial statement and has calculated ret ears once more after three months after beginning of accounting period?

        It is a little bit confusing….

      • The confusion is possibly because we normally have to time apportion this year’s retained earnings in a mid-year acquisition question

        In this question we are told what the retained earnings figure was as at date of acquisition instead of the more normal route of being told the profit for the year during which acquisition took place

        OK?

    • Cost 1,950 x 2/5 x $2.60 = 2,028,000
      1,950,000 x $1,20 = 2,340,000
      1,950,000 / 390 x 100 = 500,000
      nci 1,050 x $2.80 = 2,940,000
      Total $7,808,000

      Shares 3,000,000
      ret ears 1,940,000
      Fair value adjustment 650,000
      Total $5,590,000

      Goodwill $2,218,000

      OK?

  17. QUESTION 4 Sored plc and Raised plc

    goodwill my cal comes to 551,while answer is 449

    w2 gw
    cost of investment
    total shares acq = 0.75*2400000=1800000
    amt to paid 106 for 100shares acquired
    106/1.06 (discounted rate)= 100 thus pay 1800000*100/100=$1800,000
    2) share exchange 1800000/7*5*$2.3aprox $2957,000
    3)fv nci doa =0.25*2400,000*1.59=$ 954,000

    total =1,800+2,957+954=$5711,000

    share cap=$1200,000
    pre aq earnings=$3,760,000
    oa adjust = nil

    total=1200+3760=$4960,000

    Goodwill=5711-4960=$751,000
    gw impairment – 200,000=$551,000

    what did i done wrong why the answer is 449 (102 different)

  20. Q2:the retained earnings of O 1,940,000 is pre鈥攁cq retained earnings?

    ..
    I still failed to calculate 2378 in the end…
    Oh, help me..
    My calculation:

    Consideration: (2/5*$2.6+1.2+100/390)*3000*65%

    Nci :3000*25%*$2.8

    鈥擣V of ONA@DOA
    Sh 3000
    ret ears 1940

    Therefore GOODWILL is 2028

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