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  2. Dear Mr Mike

    1.Why would you not deduct the extra depreciation of 12 from the groups retained earnings especially if they have not been accounted for by the subsidiary.
    Would it not be prudent to account for the depreciation expense due to FV adjustment.
    2. If there is a FV adjustment in the subsidiary then should we not create a revaluation reserve when consolidating and decrease it by the excess depreciation.
    Hope for a reply!

    Much obliged

    • IF I’m on the correct question, is the extra depreciation not 9 (36 / 4)

      The 9 IS accounted for by reducing the selling company’s retained earnings by the NET pup (if I’m on the correct question)

      I suppose it depends what the fair value adjustment relates to. Yes, I could see the argument that says it’s a revaluation. Frankly, I’m not so sure that it matters whether you include it within retained earnings or show it separately as a revaluation reserve

  3. apart from learning the drill of 4 workings
    there are also things to learn which are based on accounts knowledge
    but you did not cover all of them, and left to students effort.
    Am i right. and u want to practice us to do.?

    • Yes, that’s it. You can find the figure for pre-acq, when preparing W3 Cons Ret Ears, by looking in W2 Goodwill. The FV of SNA @ DOA in W2 comprises S’s share capital, share premium and (basically) retained earnings as adjusted for fair value adjustments.

      The thing you must be careful about, though, is that you don’t pick up for the pre-acq figure the full fair value SNA. The figure you need for W3 is just the Retained Earnings figure as adjusted for the fair value changes

      Is that clear?

  6. Hi Mike,
    thanks for your time and efforts on this.
    Could you please explain why in the case of shares valued say at $1.50 just before acquisition, this valuation is not included in the W2 calculation of the FV of SNA at DOA( i.e the $1 shares will now be included as $1.50) rather you stick to the Balance sheet value, but then, you use the revalued NCA in that same calculation, why not stick to the book value also. However, this newer shares figure is included in calculating the NCI’s value @ DOA

    • The market value of shares has NOTHING to do with the company – it’s dependent upon supply and demand in the market and on market sentiment. The market value information is there only for the purposes of valuing the nci on a full, fair value basis.

      The fair value of the subsidiary’s net assets is their book, carrying value as adjusted for any fair value re-assessments and the book value of net assets is the same as the company’s figure for shareholders’ equity

      And shareholders’ equity is share capital + reserves

  7. Is it okay only to listen to these lectures and not read the text book? I hardly have any time left. After listening to these lectures, am planning to practice the exam questions. please reply.

    • Be careful of this approach. I was in the same situation as you for Dec-12 session, I used only these lectures (but practised not enough) and I failed.
      However, for F5 it was ok. I passed using only opentuition resources.

    • Sue 30,000/5 =6000 annually. Bought at the start of 2008 so at end of 2008 is one year & at the end of 2009 is another. We’re consolidating at the end of 2009. The asset is depreciated for two years 30000-(30000/5*2)= 18000. Carrying Value at the end of 2009 is $18k

  10. Hi Mike,
    I have a question regarding the Exampole 11 in chapter 7. I am listining your lectures and also using BPP book and just see that they do FV adj in W3 a bit different. And as much as yours explanation seems to be logical to me, the way they show in BPP book is easier to remember and no make mistake, but I do not fully understant why this can be that way.
    Would you mind to have a look and explain it to me.
    W3) D R
    per question 360000 100000
    FV adj (32000) (*) see below
    pre acq (20000)
    post acq 48000

    DOA Movement YE
    INventory 20000 (20000) –
    NDNCA 15000 – 15000
    DNCA 30000 (12000) 18000
    Goodwill RE SOFP

    The question is why this negative 32000 can be put in RE like that? hope my question makes sense.
    Thanks,
    Beata

  17. An Excellent lectures which have quite good improvement compared to the previous version of these notes. Only question is – what about Associates? Why there are no examples on how to do the consolidation with associates? We know that in exam besides subsidiary we will have to include in the consolidation Associate as well 馃檪

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