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Pls sir, how did you come about the 9 receivables. Am confused over there. Thank you sir
90% of the dividend proposed by the subsidiary (£10,000)
Thank you Sir Mike.
You’re welcome
Dear Mike Sir
I have a doubt in associates calculations.
Investment in Associate
Cost of investment xxx
+ % sh. of post-acq reserves xxx
(-) Impairment (xx)
By doing that working what should I understand? I get confused because cost of investment is an expense and share of post-acq reserves is income, so how can it be added i.e., expense + income? I know I am wrong,but I don’t know how to think it the right way.
Cash-in-transit is another difficult area. Cash-in-transit has to be reduced from receivables and cash is to be increased. By doing this it means that cash is assumed to have been received and therefore cash increases and receivables reduced. Am I right?
After the above adjustment is made, a certain other amount is reduced from current asset and current liability as intra-group? Why is this done? Also is intra-group and inter-company the same?
Please help me Sir.
Cost of investment is NOT an expense. It’s the purchase of an asset – Dr Asset Cr Cash
Share of post-acq retained – you say it’s a credit. What’s the other entry – the debit? If you can’t work it out, let me know.
Cash in transit – a difficult area? Why? “By doing this it means that cash is assumed to have been received and therefore cash increases and receivables reduced. Am I right?” Yes
“After the above adjustment is made, a certain other amount is reduced from current asset and current liability as intra-group? Why is this done?” Because after we’ve made the adjusting entry for errors, cash and goods in transit, the two accounts (typically receivable in parent and payable in subsidiary) should now be equal and opposite.
But when we consolidate, we add the receivables to the receivables, we add the payables to the payables.
And if we haven’t cancelled the intra-group balances, then we shall be showing within total receivables an amount receivable from ourselves and which is included within total payables. And we cannot show “ourselves” owing “ourselves” money. That’s why we cancel.
“Intra-group” and “inter-company” are the same in this context. If it’s a quote from me – I was careless – I should have been consistent with the expression “intra-group”
Thank you Sir Mike. But
“Share of post-acq retained – you say it’s a credit. What’s the other entry – the debit? If you can’t work it out, let me know.” Is Bank supposed to debited?
Debit investment in associate, credit consolidated retained earnings
.
I don’t understand where does the 9 come from in the dividend part?
Hi Sir, may i asked if it wasn’t a proposed dividend but actual dividend paid out in cash before consolidation date, do we still eliminate the dividend expense in the subsidiary with the dividend income in the parent company? Eg. like intercompany sales and purchases.
Meaning the double entry will be:
Parent
Dr Cash
Cr Retained Earning (Dividend Income)
Subsidiary
Dr Retained Earning (Dividend Expense)
Cr Cash
Am I understanding this correctly?
In the parent’s OWN figures, the dividend income from the subsidiary will be shown within investment income.
Similarly, the dividend paid by the subsidiary will be shown in the subsidiary’s own statement of changes in equity
On consolidation, the income from the subsidiary will be omitted
So far as the subsidiary’s figures are concerned, we consolidate this year’s subsidiary PROFIT AFTER TAX ie before the deduction for the subsidiary’s this year dividend
In summary, I think your solution is incorrect!
Sir, may i asked how will you account for the double entry for elimination of the dividend paid out if we are only adjusting the parent’s investment income in consolidated income statement?
Sorry but i am still not very clear with it.
Dividends paid do not appear in the income statement
We consolidate the subsidiay’s profit after tax in the consolidated income statement.
In the balance sheet, we consolidate our share of the subsidiary’s post acquisition RETAINED earnings ie net of the subsidiary’s dividend payments.
There really isn’t a debit and a credit involved – it’s a “consolidation adjustment”
So the ignoring of the intra-group dividend received is not achieved by “debitting” anything at all
Is this not explained in the video lecture? I’m sure that I cannot have given any indication about debitting nor crediting any accounts when eliminating the dividend income from the subsidiary
MINI EXERCISE
10 GOODWILL
7
Should Retained Earnings be 4500 instead of 600?
No, the answer is correct. Calculate the retained earnings brought forward and you’ll see that that’s 600, as per the answer
MINI EXERCISE
10 GOODWILL
Q2 – PYOTR & SUZANNA
Should the 4 months of retained earnings be 82.5*4/12 = 27.5m instead of 4.5m as per answer!?
No, you seem to be time apportioning the accumulated retained earnings from when the company was vreated. Surely we should only time apportion this years fgure. That’s why Mike always shows the figure brought forward and then the time apportioned this yearfigure
MINI EXERCISES
8 TAXATION
5
Again, this is what I was hoping the answer to be!
Dr SofCI tax (current) 4.5
Cr Current Liabilities 4.5
Dr Deferred tax 2.8
Cr SofCI tax (deferred) 2.8
MIN EXERCISES
8 TAXTION
2
This is what I was hoping the answer to be!
Dr SofCI tax (current) 18.7
Cr Current Liabilities 18.7
Dr SofCI tax (deferred) 10.00
Cr Deferred Liabilities 10.00
MINI EXERCISES
6 NON CURRENT ASSETS
5
Should we also have:
Dr Finance Costs 1248
Cr OUFL a/c 1248
(15600 @ 8% = 1248)
No. We do need to credit the line which states “Finance lease payment (paid on 31 March 2010)” with 6,000 and debit Finance Costs – finance lease interest with 1,248 and debit Obligations Under Finance Lease Account with 4,752
MINI EXERCISES
6 NON CURRENT ASSETS
4
Any particular reason as to why 20million was only amortised and not 26million?
I don’t see where you have got the figure 26 million! However, I believe that you are asking why we do not amortise the expenditure on the new project which started on 1 October, 2008.
The 1,400,000 is pure research and is correctly written off to cost of sales. Then 3 months x 800,000 (2,400,000) is development expenditure, but there’s no certainty of project viability so the 2,400,000 is again correctly expensed to cost of sales. Then 6 months x 800,000 (4,800,000) is spent after confirming viability. However, IF you had read the question carefully, you would have seen that the question states “The project is still in development at 30 September, 2009”
Now, to get back to F3 level, the concept of depreciation / amortisation is to match the expense of writing off an asset against the revenues which those assets have helped to generate. And because this project is still in development, then it has not yet started to help in revenue generation. And that’s why we don’t amortise it!
MINI EXERCISE
2 INTRA-GROUP PUP
Why in all the examples involving an Associate Company that the changes are made to the Associate even though on some occasions it is the seller and on other occasions it is the buyer?
If you listen to the video lectures, that point is explained. The simple answer is ….it’s the easier way to deal with the problem of eliminating the group’s share of the pup which arises when a parent sells to an associate or an associate sells to the parent
MINI EXERCISES
6 NON CURRENT ASSETS
ANSWER 3
Do we assume land has not changed in value?
Assuming no change in value of land, then buildings have increased by 6000 in value.
Therefore, should we DR Buildings 6000 instead of DR Buildings accumulated depreciation?!
Also, should the investment adjustment be 1016 instead of 1000?
Thanks again
A revaluation of an asset which is being depreciated should firstly be debited to accumulated depreciation and only after nullifying the Accumulated Depreciation Account should there be the surplus debited to the asset account.
As for the Investments at fair value, it does appear that you may have spotted a typographical error which NO-ONE else has discovered. If you check the ACCA website and find the Dexon question (probably June 2009) hopefully you’ll find that the investments value should be 12,500 and not 12,700
OK?
Value @ 1 April 2008 20 (land) 165 (building)
Deprec. 11
20 154
Revalue. 6
20 160
Therefore shouldn’t it be?
Dr Dep 11
Cr Acc Dep 11
Dr Build 6
Cr Rev Res 6
MINI EXERCISES
6 NON CURRENT ASSETS
ANSWER 2
Should we also see an adjustment for plant?
Dr Depreciation (128-32)*18/12*12.5% 18,000
Cr Acc. Depreciation 18,000
Why 18/12????
“Trial balance extracts for year ended 30 September 2008”
“Accumulated depreciation to 31 March 2007”?!?!
You’ve done it again! It looks like another typographical error – unspotted by anyone for 4 years! It surely should be 30 September 2007 and not 31 March 2007. Again, check out the ACCA website, past F7 exams, probably December 2008, question 2 – called Llama
MINI – EXERCISE
6 NON CURRENT ASSETS
ANSWER 1
Should the depreciation expense be 4000 instead of 5000?
No, I don’t think so. 175,000 / 35 year’s useful life = 5,000 par annum
There should be (good practice, but not a requirement) an annual transfer (through Statement of Changes in Equity) of an amount representing the “excess” depreciation caused as a result of the revaluation. That transfer will be deducted from Revaluation Reserve to Retained Earnings. In the Kala example, that transfer would be 1,000 each year so maybe that’s where you’re finding your 4,000 figure
If not, or if you’re still not happy, let me know
So we being prudent here? if this was the opposite then it would be taken as a one time hit in the SOCI? As ithe revaluation is positive then it is gradually released into Retained Earnings. Therefore for the remaining 35 years, assuming all stays constant, we would continue to DR Retained Earnings with 1000 and CR SOCI with 1000?
Er, no! The annual transfer will be to CREDIT Retained Earnings and Debit Revaluation Reserve
If it were a revaluation downwards (normally called an impairment!) that WILL be a one-time hit to the Statement of Income
OK?
Ooops! Got my Dr and Cr wrong way round!
Sorry wgk – not only did you get your debits and credits the wrong way round. You also got the Accounts wrong. For example, where does “Credit Statement of Comprehensive Income” fit into the answer?
Where does “Credit Statement of Comprehensive Income” come from?
The model answer states:
Dr Revaluation reserve 1000
Cr S of Comp Inc 1000
U made this chapter soooooo easy! Thanks. Gotta meet u one day Mike… To say THANK YOU
I’m already looking forward to that meeting 🙂
At 02:49, why was 50,000 deducted? Would we not deduct the ownership % i.e. 50,000*90%???? Please help.
Have you understood ANYTHING from the previous 3 chapters and particularly how we calculate goodwill on acquisition?
Can I ask you to look at this again and, if you still have a problem, post your question on the “Ask the tutor” bit of the F7 forum and I’ll get back to you
I do not understand the figure 9 in receivables and retained earnings could someone please elaborate, thank you.
@ai1989, I know for a fact it is dividend receivable but where does it come from?
@ai1989, What about 90% of Kristina’s dividend?
@MikeLittle, OH oh I got it since laimonas has acquired 90% shares in kristina, he would get 90% of 10,000 dividend proposed by kristina…… right and btw I have been listening to F4 and F7 lectures and they seem like a lifeline thank you very much mike.
You are the best tutor for f7. It is clear and understandable.Thanks for your efforts.