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November 1, 2014 at 11:16 am
If an associate makes say 17000 profit for the year ending 31st Dec 2013. And X acquired 22% of the share capital at a cost of $26,000 on 30th June 2013. Also the $26000 given represents the value of the share of the net assets. Therefore I’m assuming there is no goodwill. However I’m confused as to how the Share of X’s retained earnings in the associate will be calculate
January 23, 2017 at 8:22 pm
If it is an associate the calculations would be done using equity accounting and not consolidation for goodwill as the company has only “significant influence” in policy decisions and does not “control” to make it a subsuduary
October 29, 2014 at 5:05 am
1. If NCI was not valued on proportional basis will they get a portion of the negative goodwill?
2. If negative goodwill is impaired will NCI get a portion of the impairment if it is not valued on proportional basis?
October 29, 2014 at 8:09 am
2) How can you impair negative goodwill?
November 3, 2014 at 6:48 am
Thanks for the prompt response Sir.
August 26, 2014 at 12:47 pm
Thank you very very much Sir Mike. I understood now. Very well explained. Words are short to explain how well you have been explaining the concepts. At the highest, I have only thank you to say. Because of your explanations, i am motivated to ask more doubts and study!!
Thank you for being such a good tutor. I thank God for this.
August 26, 2014 at 12:54 pm
You’re welcome – and keep those questions coming!
August 26, 2014 at 11:33 am
If you spend money and buy a car, is the car an asset? (Unless it’s a Reliant Robin)
August 26, 2014 at 11:43 am
Sir, could you pls. explain a little more?
August 26, 2014 at 11:59 am
Goodwill is an asset of the subsidiary. It is sometimes defined as “the value of old established customers returning” During the day-to-day existence of a company the directors and employees are trying to win more business and they do so by building a reputation in their market.
And then along comes a predator in the form of another company that wants to take over the existing company with its good reputation.
But that good reputation is not reflected by any figure or line item within the financial statements. The company knows it exists and the auditors know it exists. The bank knows it’s there and the taxman knows all about it. The shareholders and the buying company are fully aware that the good reputation exists. But there’s no amount shown in the financial statements.
It is, therefore, and unrecognised intangible asset of the subsidiary.
And the predator is going to buy the shares of the subsidiary from the subsidiary’s shareholders. But to make it an attractive offer that the shareholders will find difficult to refuse, the predator says:
“We’ll offer buy your shares and we’ll not just pay you the market price nor the asset valuation per share amount. NO! We’ll pay you a premium over that asset value, a surplus above that market value. And why? Because we recognise the fact that your company has a good reputation and that reputation is not reflected within your financial statements. So we shall offer to buy that unrecognised intangible asset at the same time that we are offering to buy the right to control all the other assets”
And the shareholders (or shareholders holding a majority of the subsidiary’s voting power) are impressed with this offer and sell their shares to the predator.
Now, how does the predator reflect the fact in the predator’s own financial records?
Debit various assets and credit the liabilities taken over (say debit net assets) of $5million in made up round figures and credit cash with say $6million ie the amount actually paid
But that’s a double entry that doesn’t balance – we’re missing a $1million debit representing the extra payment to buy the “good reputation”
And that “extra” amount has bought “Goodwill” and that’s why goodwill is an asset
August 26, 2014 at 11:27 am
hi Mike sir This is a basic question but would like to ask you however. how come positive goodwill is an asset? the co. pays higher than it should and it is certainly not an asset. Please clarify.
April 21, 2014 at 8:31 pm
Hi Mike, if there is an impairment of goodwill, how would you treat it? Will it be deducted from the W2 before arriving at the final goodwill/(bargain purchase) figure, and in W3 and in NCI calculation?
April 21, 2014 at 9:10 pm
Sorry Mike, I found out the answer in your previous lecture.
August 22, 2014 at 3:25 am
Am new here. I really appreciate what you guys are doing, kudos!.
Also, please which textbook is being used for F7.
Awaiting your response.
August 22, 2014 at 7:06 pm
I don’t use any text book. All the worked examples are from the course notes that are freely available on this site. There are some worked solutions to some of the past examination questions (masquerading as “revision notes”) but certainly no textbook
You WILL definitely need a revision kit from one of the reputable publishers but to buy a study text is a choice I shall leave entirely to you!
January 19, 2014 at 4:27 pm
hi mr mike why you added goodwill to retained earning ? is it loss and deduct retained earning?
January 19, 2014 at 4:34 pm
Hi, I had the same question but checked the prevous posts and found ginduja21 in September 2012 asked the same question on this thread. Check it out!
January 19, 2014 at 5:45 pm
yea i get it . thanks biggles
January 19, 2014 at 5:46 pm
but if there was impairment of goodwill how can i do it?
January 19, 2014 at 6:12 pm
How can you impair negative goodwill?
January 19, 2014 at 6:14 pm
You could reassess and reduce (or incraese) the value of the negative goodwill – but who would want to? Its treated as an income / profit in the year of purchase and why would you want to reduce that?
January 19, 2014 at 9:06 pm
yes you right please biggles from where can i get f7 books for exam 2014 free?
January 20, 2014 at 8:10 am
Maybe ask your friends who have past? I dont know – i’ve had to buy mine
October 1, 2013 at 9:24 am
hi mike just confused a little – working 3 ( consolidated retained earnings )can also be for other types of reserves like – revaluation reserve?. We can get a question with consolidating other reserves like share premium or revaluation reserve. If yes please send a worked example to clarify. Thanks
October 1, 2013 at 7:25 pm
Technically you should keep revaluation reserve separate from retained earnings. You are unlikely at F7 (and P2) to have a situation where there is any post-acquisition share premium movement
September 21, 2013 at 10:32 pm
Just started using these lectures and I must say, thank you very much for such quality material made available to us for free.. This doesn’t mean I won’t ask questions later..lol.
September 13, 2013 at 1:29 am
why not we add premium of 1500 in CSoFS. Is it not like shares?
September 13, 2013 at 5:40 am
Because it’s pre-acquisition – it’s included in the goodwill calculation in working 2. Incidentally, the shares in the subsidiary also are part of the goodwill calculation and they too are NOT added into the CSoFP
September 13, 2013 at 9:39 am
thnks sir, oh yes sir, sorry i am slow. but this time i will pass my exam because of your lectures
August 23, 2013 at 4:55 pm
How come when Mr Little is away from the screen and talking, I can still see stuff being written on the screen, are there ghosts in the classroom O.o! lol!
July 4, 2013 at 9:03 pm
May 8, 2013 at 2:11 pm
um, what happened to the media player? it was fine yesterday, how come its shrunk now? cant even view it on full screen..
April 28, 2013 at 4:38 pm
Pls how did he get the 23,500 as the pre acquisition in working 3 of question RObertas and INgrida
April 28, 2013 at 4:40 pm
Thanks. Have figured it out
January 30, 2013 at 10:41 am
How do we figure out if the 1500 wasn’t pre acq. share prm.?
January 30, 2013 at 7:40 pm
Because share premium arises on the issue of shares and, in F7 ( and probably also in P2 ) there WILL NOT BE a share issue post acquisition by the subsidiary
August 23, 2013 at 4:54 pm
I had the same question in mind, glad I read the comments before asking. The explanation makes sense! Thanks Mr Little!
January 12, 2013 at 5:09 am
Why do we not have share premium in subsidary incorporated into CS of FP?Beacause it was formed before acquisition?what’s the treatment for new share premium,that is generated by subsidary issuing new share after acquisition?
January 12, 2013 at 5:11 am
January 30, 2013 at 7:38 pm
It won’t happen! ABSOLUTELY NOT at F7 and most probably not at P2 either
October 31, 2012 at 4:43 pm
Where in the Balance Sheet do you add the Fair Value Adjustment (20,000)?
January 30, 2013 at 7:37 pm
To whichever asset ( or liability ) which was the subject of the fair value adjustment – so long as it’s still in the possession of the group
September 14, 2012 at 11:34 am
why we have to add 6000 (goodwill) to retained earnings?
September 14, 2012 at 4:10 pm
@ginduja21, because it’s like a “profit” – it’s called a bargain purchase. We USED to have a complicated way of crediting negative goodwill to the retained earnings over a number of years, but that method has now gone.
September 14, 2012 at 11:27 am
what is the wrong if i apply the goodwill in negative value?
September 14, 2012 at 11:31 am
I’m not sure what your question is! Can you re-post and make it a bit clearer?
April 29, 2012 at 12:07 am
How did that 25% of 28000 come from? I got the point about 25% but 28000 figure? Is it from FV of SNA @DOA???!!!
June 3, 2012 at 6:31 pm
@s1234, yes its the SNA @ DOA…..25%* [3000+1500+20000+(7/12 * 6000)]
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