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  1. Sir,
    if in a proportionate method..the value of goodwill impairment is not applicable to the subsidiary and the whole of the amount will be deducted under retained earnings ..
    am I right in the above statement?

    • No – “the value of goodwill impairment is not applicable to the subsidiary” surely should read “the value of goodwill impairment is not applicable to the non-controlling interest”

      Then you’re ok

    • Having read your post, I looked at the video from 12.04 to 13.00

      I’m about to go to bed, but I’ve no idea how I shall get to sleep … ever again

      Good luck in your exams

      Any other student reading this forum post, please be warned – watching this video may be damaging to your health

      • Sir, some people just don’t know how lucky they are to have free lecturing videos. There’s always naysayer out there. I love watching your lectures and I found it very easy to understand as well. Thank you so much for your hard work and dedication!!!

      • Hello sir,
        I wanted you to know that your lectures and explanations are extremely helpful. And your sense of humor makes them really interesting and less stressful since paper f7 it’s a difficult one. I am fully enjoying your lectures , thank you 馃檪

  6. Mike,

    Regarding Example 11. Following along, in working 2 – Goodwill, I include the Fair value adjustments to get the proper goodwill figure. So far so good. In Working 3 – Consolidated Retained Earnings I directly add the fair value adjustments to retained earnings (less depreciation of DNCA, inventory as per question). Im with you so far.

    My question is, how would working 3 change, and what else would I need to change to my workings so that I may put the fair value adjustments in revaluation reserve, and still calculate the correct retained earnings and other figures for my CSoFP?

    • Sorry Mike, I tried looking back to previous questions/comments, and am just a little more confused than I was before.

      Is there any chance you can give me a brief description of how the the workings differ between your method, and the revaluation reserve you mention in the video?

      • For working W3 open a separate account specifically for the fair valued / revalued asset and put the fair value adjustments through that account rather than through the retained earnings

        But I don’t understand why you cannot simply put the fair value adjustments through retained earnings as I have done

        Isitin some way offensive to you to include revaluation Gaines along with retained earnings?

        It’s quick, it’s easy and it’s not worth worrying about even though technically the revalued fair value increases should be included as revaluation reserves

      • I greatly appreciate these lectures, as they are both engaging and interesting. I am also able to learn the material better than, and quicker than just reading study texts. Its not offensive, and was more oriented to satisfy my curiosity of the comments you made during the lecture.

        Thanks again for your response, Mike.

        Sean

    • You need to put them through the goodwill calculation too

      And if you’re talking about fair value adjustments as at date of acquisition, the only thing affecting the consolidated retained earnings is any post-acquisition change in that fair value adjusted asset.

      Yes, I know! I put through the fair value adjustment as at consolidation date, and the (for example) depreciation on that adjustment since acquisition, and the fair value adjustment as at acquisition date.

      But, if you think about it, the real effect of those three is simply to put through the (for example) depreciation on that adjustment post acquisition

      Nevertheless, I shall continue to put through all three elements

      Is that clear?

  8. Hi Mike,

    Firstly just to say, thanks for the lectures, they are a huge help.

    I have a question which relates to the fair value adjustments in the retained earnings. Your example makes perfect sense to me and I used this approach to try to answer question 2 part c of the December 2014 specimen paper. In that question you have to create an extract of the Equity section of the consolidated statement of financial position, however in the answer that is provided by ACCA they have not adjusted the retained earnings for the fair value adjustment of the item of plant. So now I am confused, unless I have misunderstood their question I cannot see the difference.

    Guidance would be much appreciated, as I am now worried I will get this wrong in the exam. Please let me know if I need to post the actual question here, I was hoping you may be familiar with it.

    Many thanks,

    Michael

  9. Dear Mike

    Many thanks to you and Open Tuition for your support.

    I was trying to do example 11 of page 46 of the course notes using revaluation surplus. However, I just can’t seem to get to the bottom of it.

    Could you please show me how?

    I am not a great student, but would like to learn.

    Regards
    Samoar

  10. Hi Mike, How did we arrive at $18,000 for the depreciable non-current Asset over 5 years. plus can u please explain a real life example of a non-depreciable current Asset and their features and accounting procedures, entries

  11. Dear Mike,
    You are so funny 馃檪

    Here what I am after to:
    1/ Why we didn’t take 12000 in w3: DNCA ?

    2/ This doesn’t relate to this, but in notes i.e goodwill attributable to NCI on acq was $2000. So how we can deal with this? Will we just put it on NCI value in w2?

    Many Thanks

    • Hi

      1) I keep getting “Blocked plug in” on my computer so I can’t play the video

      Please let me know the chapter and question name

      2) “Will we just put it on NCI value in w2?” Yes. The nci for working W2 is their proportionate share of fair valued net assets at date of acquisition PLUS the $2,000

      OK?

      • Hi,

        1/ I am talking about example11 i.e IFRS 13, ch # 7.

        Here I talked about w3 of DNCA. I asked why we will not take $12000 of $30000 by depreciating over 2 years.

        2/ This doesn’t relate to any example, but it is on page 40 above the example 6 of ch 7.

        I asked that “goodwill attributable to NCI on acq was $2000”. So how we can deal with this? Will we just put it on NCI value in w2?

        Many Thanks

      • Because by the year end there has been two years’ worth of depreciation on the $30,000 (expected life of 5 years as at date of acquisition, two years have passed so only 60% of $30,000 still in the subsidiary as at consolidation date)

        OK?

  12. In the above question which is example 11, if we have to show the revaluation reserve separately it comes to a negative figure .

    Non Depriciable NCA 15000
    Depriciable NCA 18000
    Total 33000

    Less Fair Value Adjustments on Acquisition
    Inventory 20000
    Non Depriciable NCA 15000
    Depriciable NCA 30000
    Total 65000

    Gross Total (32000)
    Our Share 70%
    Revaluation Reserve (22400)

    How will we show this in the consolidated SOFP?

    PS: I’m going to follow the method you showed in the lecture as it is a lo easier to do and reduces my work but just wanted to know how it would be done.

    • Hi

      I’m not sure what you are trying to achieve here! On acquisition, the fair value adjustments will be notionally entered into the subsidiary’s records – in the case you quote, the double entry will be Dr the depreciable and non-depreciable TNCA by their respective amounts and notionally credit the revaluation account.

      As time goes on and we depreciate the assets of the group for the purposes of consolidation, the double entry is Dr the Profit or Loss account and Cr (effectively) the depreciable TNCA

      At no stage in that second journal entry have I mentioned making an entry into the revaluation reserve!

      Ok?

  13. Sir, i cannot understand what is done in working 3- con. ret. earn. why do we have to add the non-depreciable non-current assets -15,000
    Depreciable non-current assets- 18000?
    i didn’t get the logic.

    • Kaplan and BPP take a different approach to this mini-topic. They calculate the fair value of net assets at date of acquisition and at date of consolidation. The difference is post acquisition movement in subsidiary’s reserves.

      Personally, I don’t like that method!

      My way identifies the retained earnings “today” as amended by any fair value adjustments to the subsidiary’s figures and compare that total with the subsidiary’s fair valued retained earnings “then” also as amended for any fair value adjustments to the subsidiary’s figures.

      This second value, subsidiary’s retained earnings “then” is found in working W2 Goodwill

      The “then” figure is shown as adjusted for the fair values of the inventory (now sold), the non-depreciable non-current assets and the depreciable non-current assets

      If we are to be able to compare like with like to discover the post acquisition retained earnings, we need to adjust the retained earnings figure “today” by those same three adjustments

      Inventory – all sold, so no adjustment

      Non-depreciable non-current assets – presumably (in the absence of contrary information) still owned but, because it’s non-depreciable, they are shown at their original value of $15,000

      Depreciable non-current assets – again, in the absence of contrary information, we still own these assets. But what is their value “today”. It’s $30,000, 5 year life, two years since acquisition, therefore $18,000 notional book value

      Does that explain it for you?

      • MR. Mike,

        in 11 eg; you haven’t taken 20,000 fair value of inventory, assuming that all have been sold.but,

        1. since, we calculate the good will solely for consolidation purpose and as of DOA. don’t we need to take them. because, the inventory has direct impact to the console retain earnings and console inventory

        2. in my previous studies (CMA -Sri Lanka) We accounted total good will and total good will impairment only in CSOFP and not adjusted in to NCI. as there are arisen for consolidation purpose only.

        Please adcise….

      • If I’m thinking of the correct example, we are preparing financial statements 2 years after acquisition

        What is going to be the fair value of inventory 2 years after acquisition?

        Maybe your previous studies were before the revision of IFRS 3 or maybe the nci was value on a proportional basis

      • Dear Mr. Mike,

        noted you comment for eg.11 with thanks…..Can you pls clarify further,

        I’m very clear on Fair value adjustment for Fixed assets and other assets…..
        further I’m very clear on your view too. after two years later…..the stock has to be sold out fully. it’s ok, Sir
        But,since we calculate good will on the date of acquisition and since there is a fair value for inventory rather than the book value as of DOA…..shouldn’t it be adjusted when calculating the good will….as same as fair value adjustment for fixed and other asset ….

        or else….are there different accounting treatment for fixed assets and inventory

      • Are you really certain that the inventory fair value hasn’t been used in calculating the goodwill? I’m 100% certain that it HAS been incorporated into the goodwill calculation.

        I suggest that you check it again!

  14. Dear Mike Sir,

    I want to know if ‘Complex Groups’ (A owns 60% in B and then B has a 60% share in another company C) are in DipIFR syllabus. I am preparing for DipIFR for December 2014.

    Many thanks!

    Regards,
    Swati

  16. Hello Mike,

    I know this is very basic but HOW did you get 18k of depreciation for the 2 years? On the answers at the back of the course notes, the total depreciation (30k) is multiplied by 60%. How did they arrive at that? I mean, 2 years comprise 40% of the 5 years through this calculation:

    (2/5) * 100 = 40%
    Which means the depreciation that occurred during the 2 years is 12,000.

    How did you arrive at 18,000?

    Sorry, I dont mean to waste anyone’s time by asking a silly question but I am really stuck at this!

    Thanks.

  19. Hi mr mike . i want ask about revaluation assets in consolidation F S

    On 1 January 20X7 Hardy owned some items of equipment with a book value of $45,000 that had a fairvalue of $57,000. These assets were originally purchased by Hardy on 1 January 20X5 and are being
    depreciated over 6 years.
    hardly is subsidery
    i know 12000 revaluation will put in GW calculation and TNCA in CoFS completly .
    but i dont know how can i deal with dep in CoRE and TNCA
    please help

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