Group SPL – Group profit on disposal – ACCA Financial Reporting (FR)
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Hi Sir. I have a question.
This is a question from BPP.
On 1 January 20×8, Lentil Co acquired all of Chickpea Co’s 100,000 $1 shares for
$400,000. The goodwill acquired in the business combination was $60,000, of which 40% had been written off as impaired by 31 December 20X8. On 31 December 20X5 Lentil Co sold all of Chickpea Co’s shares for $680,000 when Chickpea Co had retained earnings of $215,000.
My solution is
Proceed 680,000
Non control interest 0
Net asset at disposal (100,000+215,000)
Goodwill (36,000)
= 329,000
But the answer in BPP is 280,000(680,000-400,000)
Could you please help me?
Thank you!!
[Sept 24 – June 25 – Edition Q276] The requirement of the question was, what amount should be included in the individual entity financial statements of Lentil Co?
Individual Statements, we don’t use the Group proforma:
Use instead the one the tutor started with at the start of the video:
Proceeds – (less) Investment.
Value of investment is $400’000, and Proceeds are $680’000.
$680’000 – $400’000 = $280’000.
I feel bad because this is ACCA at its core – confusion and therefore don’t forget rule number 1: READ the question!! Best of luck friend!
Thank you.
Just for understanding, we have added NCI share before deducting 100% sale proceeds from N.A and Goodwill to arrive at Group Profit or Loss. Doesnt this profit or loss further get distributed between Group and NCI?
No, we consolidate if we have control (ie, we own shares in the subsidiary); the rule is the parent company MUST consolidate. If we’ve disposed of them and have a disposal date, and a figure for proceeds, then we no longer have to consolidate anything. Obviously, if you’re working out the proforma for P/L on Disposal, the parent no longer has control. Therefore, no allocation, etc.
Also, we don’t deduct proceeds from Net Assets + Goodwill, its the other way around.
It’s Proceeds + NCI – (Net Assets at Disposal + Goodwill)!!!
This “Profit or Loss on Disposal” is added to the face of the SoP/L under Discontinued Operations, like tutor said.