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F7 Group Accounts: Comprehensive Example
Agne acquired 72% of the equity shares of Dace on 30 June 2009 for $250,000.
On 31 August 2009, the Statements of Financial Position were:
1. At the date of acquisition, some of Dace’s inventory had a fair value $16,000 in excess of its carrying value. All had been sold before the year end.
2. On 31 July 2009, Dace had sold an item of property, plant and equipment to Agne realising a profit on sale of $20,000. Agne was depreciating this item over its remaining useful life of 4 years. It is group policy to charge a full year’s depreciation in the year of purchase, and none in the year of sale.
3. On 29 August, Agne had despatched goods to Dace at a transfer value of $26,000. Agne sells goods at a mark up of 30%. Dace had sold a quarter of these goods by the Statement of Financial Position date.
4. The current accounts did not reconcile at the year end because Dace had sent a payment of $5,000 to Agne, but Agne only received it on 3 September 2009. Before any necessary adjustment, the intra group balance in Dace’s records showed an amount owing to Agne of $12,000.
5. Goodwill is impaired by 25%.
6. Both entities have declared but not yet accounted for a dividend of 5c per $1 share.
7. The directors valued the nci at $87,667 at date of acquisition
Prepare a Consolidated Statement of Financial Position for the Agne Group as at 31 August 2009.
why Retained earning was not time apportioned while calculating the Good Will
@haidernchd, It was. The 40,000 brought forward was entirely pre-acquisition, so not time apportioned. The 24,000 this year is time-apportioned in the workings – 19,333 pre-acquisition and 4,667 post-acquisition
Mike,
Have to say a BIG thankyou – your explainations and especially the W1/W2/W3/W4 and PUPs breakdown of the calculations make so much more sense to me than the way my lecturer taught me. I feel a lot more confident tackling consolidate statements now.
Thanks
Kerry
@kerrymcd13, that’s good – let’s hope it works for you in December – I’ve already got everything crossed! Have you told all your fellow students about opentuition?
@MikeLittle,
My exam is actually tmw morning – Im finishing off my degree through the Uni of South Africa, and our final paper on Consol FS (ACN3704) is more similiar to P2 than F7 really iro of group complexity – wish I had started on OpenTutution sooner instead of battling on with the explainations giving by UNISA. But nonetheless its great when those pieces of the puzzle finally make sense and you go “aahh now i get it” 🙂
Many thanks again to great online lectures, you do a really great job!
When we calculate proft for the year in goodwill,why do we need to subtract “on TNCA tranfer” 20000 in order to get ‘normal profit’,isn’t Dace had sold the item and realise the profit on 31 July 2009(after the date of acquisation,30June2009) and thus is not related to fair value of SNA@DOA?
@zubang5933, Yes, ok, you’re right – the $20,000 was sold after the date of acquisition and therefore is not apart of pre-acquisition profits. Agreed!!
Now, tell me, of the $24,000 profit for the year, how much of that WAS pre-acquisition? I would be fascinated to know how you arrive at the correct answer WITHOUT deducting 20,000 somewhere in your workings 🙂
@MikeLittle, oh I see,so it means that the profit for the year comprises of the 20000,is that right?
@zubang5933, yes, that 20,000 + 4,000 “normal” trading profits
@MikeLittle, Thank you very much.
Hi?Mike where is the september 2008 comes from(we use it to calculate 10 month pre acquisation),because I can’t find it on my note.
Thanks.
@zubang5933, What’s the Agne company year end? And on what date did Agne acquire the shares in Dace?
@MikeLittle, I have thought about it for a while,the Agne company year ends at 31 Aug 2009,so do we use it to derive at september 2008 as the opening date?
@zubang5933, we certainly do 🙂
@MikeLittle, Thanks.
thank you mike
@niko123, Welcome
the lecturer started his answer from the last paragraph, my question is : if he started from the 1st paragraph will he get the same result or different one.
i tried it myself but became a bit confused.
@niko123, No, the answer will be the same! Most times, the paragraphs in a question are not interdependent. That is, you can prepare a working for each paragraph in isolation, and then fasten your whole answer together. I tend to start with the last paragraphs because they tend to be the most straightforward and require the least effort / thought
Please help I still dont understand why the TNCA profit of 20,000 is being added back on the 2 months’ profit. And also how the fair value adjustment of 16,000 has been treated.
@mkamuna, 20,000 is added back to the 2 months’ profit because the question specifically says that the 20,000 profit arose from a ( one-off ) sale to Agne in the post acquisition period ie in the 2 months
16,000 fair value adjustment of 16,000 means that the profits for the first 10 months are understated ( if closing inventory value increases, so also does the profit figure increase ). So, at the end of ten months, as at date of acquisition the inventory value needs to be increased by 16,000. Now, that closing inventory at the end of 10 months is also the opening inventory at the start of the final 2 months. That increase in opening inventory represents an increase in the cost of those 2 months’ sales.
Effectively, we’re moving 16,000 profits from the final 2 months into the first 10 months
Better
where did the 15000 dividend payable come from??
@babyjane,
300 shares of Agne x 0.05 cents= 15
that is dividends declared in Agne. Hope am not wrong Mike
@mmonie, You’re correct mmonie. What surprises me is why babyjane couldn’t find it! The question clearly says that both companies have proposed a dividend of 5c per share, and that’s the ONLY thing it says about dividends. So what was the problem babyjane? How come you couldn’t see that?
On PUP in TNCA, the way the calculations have been arrived at are very confusing. I thought the idea of removing 20,000 from TNCA is to bring back the value to cost and then consequently removing the ‘fake’ profits in the books of the seller? In the books of the buyer, Agne
is definetely overcharging Dpn, instead of the normal 20,000 , it’s 25,000.This means profits are reduced by 5000 and consequently TNCA by 5,000. So why netting off these figures (20,000 -5000) in the books of the seller only ? Please someone help.
@221522152215, recent change in rules! The justification is that the 5,000 is actually realised over the period the buyer uses it. So, as each year goes by, the relevant excess depreciation is realised and so the pup is reduced
In this example,Pre-acquisition dividend can’t be subtracted from cost of investment because it is argued that there is no justification that profits do accrue evenly throughout the year.But in this very same example, when calculating pre-acq profits for 10 months, it is assumed that profits have accrued evenly throughout 12 months. Can somebody explain please? I really don’t understand the explanation in the lecture.
great question.
Very helpful but too complicated, if it took him 30min to answer 1 question, what will happen in the exam?
practice, practice, practice 🙂
very few people get everything right.. so do not worry.
it is in the question,the botton line.see it seriously.
where did he get the 87667 from. I do not see that in this question.
@agairish, I don’t have the question anywhere near me at the moment, but I believe I’m correct in saying the figure ( is it the value of the nci? ) is given right at the end of the question. I may be wrong – if so, post again on “ask the tutor” page
@agairish, thanks Mike
why am i missing something?
according to the lectures in working of NCI
share of post acq is added
but here the tutor has less the amount.
please?
@rawasia, u r rite bro , v add share of post acq in W4……. but here its a loss !!! wat u r confusing were all profits that v used to add … if nci takes its share of profit than it must also take its share of loss i-e in this case (20.333) .
why was the nci added to the cost of investment
@micheleacain, In order to calculate the goodwill correctly in Working 2
While looking /listening to the ans for this qn our excellent tutor has written some figures together but do not understand the basis at all.Why has the cost of the acquition by Agne obtained by adding the value of investment by Agne to the value of NCi??Thought you handle the two separately???Why can’t i just take the figure of 250000 from the qn?
Please help here
@acnca, Steve Scott ( and Graham Holt at P2 level ) has indicated that there is a “correct” way to calculate goodwill and therefore a “correct” layout.
That’s why it is done the way it is in the video
great..
i can hear voice but cant see example
and i have got updated version of flash too
please help I cannot access the comprehensive example.I can only hear voice but could not see what was going on.