Hello quick question. Since we paid a premium of $8000 for the shares of S because of the pre aquisition retained earnings, why are we not entitled to said premium of $8000 post acquisition. In my head we paid an extra $8000 to get an extra $8000 as retained earnings? Obviously this is incorrect from my side but could you please tell me what I am missing out on. Thanks in advance.
A quick question, why did we subtract the pre-acquisition retained earnings of S to calculate consolidated retained earnings. Didn’t P pay extra (8000) to make those earnings theirs?
Sir, Why you did’t take investment cost and share capital of S in consolidated SOFP? ex:1 **I read other comments also, but I couldn’t understand the reason. Please clear my doubt sir…..
The consolidated SOFP is showing it as thought it is just one big company. Instead of showing the investment in S we are showing the assets and liabilities of S.
We are showing the statement as if it was just one big company owned by the shareholders of P. S’s share capital is replaced by the net assets of S (and you will remember from earlier lectures that the share capital of any company is equal to the net assets of the company).
Hi John. this might be a silly question but I do not understand why you leave out the investment of 10,000 in this question? I hope you can let me know.
I have following confusion which i am trying to clarify:
1) In example 1 – While consolidating, we did not added up share capital of subsidiary company (10,000) to the parent company. Parent company’s share capital stood at (25,000) before and after the consolidation. Does it mean that the (10,000) share capital of “S” was already included in the share capital of “P”? If this is the reason then i got the logic else please explain otherwise. And if it was already included in 25,000 share capital of P, then why we were showing investment of 10,000 separately in un-consolidated account of P?
2) In example 2 – We have eliminated the previously carrying retained earning of “S” (8,000) while consolidating the retained earnings of both the companies. It may be possible that “S” may have declared the dividends of all 8,000 after it was acquired by “P”. Or if not, then may be it can declare in coming next months. My question is, how long this 8,000 will keep on eliminated for how many years? Can there be any event in future which let that 8,000 not to continue further?
hey, sir i am still unclear about why we are not showing the investment amount and share capital of subsidiary in the consolidated sofp, because the justification you provided that we are bringing the net assets of subsidiary is confusing, because then why are we bringing the retained earnings of subsidiary?? Thanks
Sir, you say that we ignore the share capital of the subsidiary company in the Consoliated SoFP; my understanding is that the “share capital” of the subsidiary company is represented by its assets and liabilities in the Consolidated SoFP, is this correct?
What you write is true. But what I say in the lecture is that we do not show the share capital of the subsidiary in the consolidated accounts precisely because we are replacing it with the net assets.
Dear John, About the consolidated accounts, we do a fair value adjustment when the fair value is higher than the carrying value, what about when the fair value is lower than the carrying amount? do we do an adjustment (negative one) as well? Thanks.
Thank You so much for the Fantastic teachings. I appreciate it. I have a quick question. I work in a subsidiary company that is involved in selling contents to the Parent at a Mark-up of 5% and VAT of 5% and the Parents company Pay for this service. First question is, while computing the Net VAT to be remitted to the tax authority, is it proper to deduct the VAT that happened as inter-company sales or just concentrate on the VAT output tax charged to other companies
Second During consolidation, how do we treat the VAT element in the PUP and Profit made from sales.
Is it even right to charge VAT in the first place for inter-company transactions.
Please do not ask this sort of question as a comment on a lecture. The VAT treatment is not examinable in Paper FA – you need to ask in the Paper TX Ask the Tutor Forum.
SwissCheese says
Hello quick question. Since we paid a premium of $8000 for the shares of S because of the pre aquisition retained earnings, why are we not entitled to said premium of $8000 post acquisition.
In my head we paid an extra $8000 to get an extra $8000 as retained earnings? Obviously this is incorrect from my side but could you please tell me what I am missing out on.
Thanks in advance.
verweijlisa says
Very easy to understand, I was able to work out the solution to Q2 before you laid it out. Thank you so much!!
deolp says
Hello, are these videos also applicable for the FAR exam within the ACA professionals?
Ziggystardust says
Hi John,
A quick question, why did we subtract the pre-acquisition retained earnings of S to calculate consolidated retained earnings. Didn’t P pay extra (8000) to make those earnings theirs?
Thank you.
Imranarafat69 says
Sir, examples you are doing from which book?
John Moffat says
Our freely downloadable lecture notes (as it stated at the start of the lecture!!).
MuhammedSaleem says
Sir,
Why you did’t take investment cost and share capital of S in consolidated SOFP? ex:1
**I read other comments also, but I couldn’t understand the reason.
Please clear my doubt sir…..
John Moffat says
The consolidated SOFP is showing it as thought it is just one big company. Instead of showing the investment in S we are showing the assets and liabilities of S.
hermela says
Hello sir, I don’t understand why you neglect to add the investment on s and why you pick it us P’s assnt also why you don’t add the S’s share capital
John Moffat says
We are showing the statement as if it was just one big company owned by the shareholders of P.
S’s share capital is replaced by the net assets of S (and you will remember from earlier lectures that the share capital of any company is equal to the net assets of the company).
kartik123456 says
Hello,
Can you please explain the reason for adding retained earnings if Net assets = Share Capital + reserves?
John Moffat says
Retained earnings is a reserve
Asif110 says
Great thanks
Anna.yermal says
Hello John,
thank you so much for videos. I am not strong in English, but I understood i passed FA! Thank you so much for your work.
John Moffat says
Thank you for your comment and many congratulations on passing 馃檪
arahnsathananthan says
Hi John. this might be a silly question but I do not understand why you leave out the investment of 10,000 in this question? I hope you can let me know.
John Moffat says
We are replacing the investment in the subsidiary with the assets of the subsidiary.
shakir7385 says
Hi Mr. John. Great effort as always.
I have following confusion which i am trying to clarify:
1) In example 1 – While consolidating, we did not added up share capital of subsidiary company (10,000) to the parent company. Parent company’s share capital stood at (25,000) before and after the consolidation. Does it mean that the (10,000) share capital of “S” was already included in the share capital of “P”? If this is the reason then i got the logic else please explain otherwise. And if it was already included in 25,000 share capital of P, then why we were showing investment of 10,000 separately in un-consolidated account of P?
2) In example 2 – We have eliminated the previously carrying retained earning of “S” (8,000) while consolidating the retained earnings of both the companies. It may be possible that “S” may have declared the dividends of all 8,000 after it was acquired by “P”. Or if not, then may be it can declare in coming next months. My question is, how long this 8,000 will keep on eliminated for how many years? Can there be any event in future which let that 8,000 not to continue further?
ivie2019 says
39000+7000=46000, not 45000
ivie2019 says
ohhh sorry, I copied the exercise wrong 馃檪 thats why it didnt matched with me at the very end
taurusrichkid says
1.What adjustments do we make for Share premium? Shall I consider only for the parent company or both?
2. Are equity shares equal to share capital?
abdur12345 says
hey,
sir i am still unclear about why we are not showing the investment amount and share capital of subsidiary in the consolidated sofp, because the justification you provided that we are bringing the net assets of subsidiary is confusing, because then why are we bringing the retained earnings of subsidiary??
Thanks
John Moffat says
You will know from the very earliest FA lectures that net assets are equal to share capital plus reserves.
abdur12345 says
Thanks sir
i would like to thank you for your teaching, may God bless you
haddock says
Sir, you say that we ignore the share capital of the subsidiary company in the Consoliated SoFP; my understanding is that the “share capital” of the subsidiary company is represented by its assets and liabilities in the Consolidated SoFP, is this correct?
John Moffat says
What you write is true. But what I say in the lecture is that we do not show the share capital of the subsidiary in the consolidated accounts precisely because we are replacing it with the net assets.
francihco says
Dear John,
About the consolidated accounts, we do a fair value adjustment when the fair value is higher than the carrying value, what about when the fair value is lower than the carrying amount? do we do an adjustment (negative one) as well?
Thanks.
Ik says
Thank You so much for the Fantastic teachings. I appreciate it.
I have a quick question. I work in a subsidiary company that is involved in selling contents to the Parent at a Mark-up of 5% and VAT of 5% and the Parents company Pay for this service. First question is, while computing the Net VAT to be remitted to the tax authority, is it proper to deduct the VAT that happened as inter-company sales or just concentrate on the VAT output tax charged to other companies
Second During consolidation, how do we treat the VAT element in the PUP and Profit made from sales.
Is it even right to charge VAT in the first place for inter-company transactions.
Thanks
John Moffat says
Please do not ask this sort of question as a comment on a lecture.
The VAT treatment is not examinable in Paper FA – you need to ask in the Paper TX Ask the Tutor Forum.