Basic group structures - Basic consolidation example - ACCA (SBR) lectures
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58 Comments
W
Watson·
On Example 3 the Net assets were 3,400 which is comprising of:
Retained Earnings = 600
OCI = 400
Excess = 400 (which is the balance of the non-depreciable land) -
Question isn`t Non-depreciable land part of OCI meaning that at acquistion the total OCI should be 800 meaning the movement of OCI since acquisition is -175 (625-800)
My question why 400 due to revaluation of land was not taken into account while calculating the other components of equity??
A
Abhijith·
For the 1st part of the question, why didn't we impair the goodwill, by the depreciation value of the PPE, i.e $9million, as it's clearly mentioned that the goodwill is related to that PPE.
M
MALAVIKA·
In computing the FV of net assets, we haven't included depreciation in the fair value of PPE , i.e 320/8=$40 ?
B
Bez·
i think its been depreciated already to get to 320 its 40 for 2 years hence 400-40-40 =320
F
Farhaan·
The little moments of silence in between the questions is hilarious???, Great way to keep us engaged, superb lecture again Sir.
A
AadhithytaSupporter·
hhaha yes, have u passed?
E
Emelia·
How do you determine when to use the net asset formula to calculate group retained earnings or group other components of equity?
L
Leah·
Are the answers to the examples available anywhere else apart from the lectures?
S
Savariamma·
In example 3 of BASIC GROUP STRUCTURES chapter, while calculating the group other components of equity can you please advise why are we doing the following adjustment [80% x (625 – 400)] for P’s% of S’s post-acquisition OCE.
Can we not take the $400 million directly which is the post-acquisition OCE.
C
Cristal·
The $400 million is what Han had before Luke bought it. The increase ($225 million) happened after Luke’s acquisition, so only this increase affects Luke’s group equity.
If we used $400 million directly, we would be ignoring the fact that this amount was already part of Han’s net assets when Luke bought it.
O
OYELOKIKI GEORGE·
The 30% represents NCI share of post acquisition profit and the 70% represent Parent share of profit acquisition profit
H
Hasina·
So if Rey Acquired 60% and everything else stayed the same would the NCI be 40% of 1850?
E
Ezekiel·
My own query is how did we arrive at this 8/10 ) 8 tenth we applied on the 400, I got the 400 on the retained earning movement.
N
no1lover·
Finn was acquired on Jan 1st 2014. We are preparing the accounts for Dec 31st 2015. That is 2 years. The asset had a useful life on the 1st Jan 2014 of 10 years. Two years later (Dec 31st 2015) they have a remaining life of 8 years. Hence 8/10.
J
Jerry·
Hello sir
I learned a lot from this lecture, but I have a question when calculating the NCI and RE, with the matrix, the change of NA is calculated, but why the change can be used as the post acquisition RE and post acquisition profit?
P
parag·
this is the same query for me too.
We were used to calculating the movement in retained earnings and posting that as post acquisition profit.
Once reason could be that we are doing the calculation in Year 2.
But still a bit confused.
O
OYELOKIKI GEORGE·
I guess it’s the same thing, if you call it post acquisition or change..it’s thesame..the change from acquisition till Consolidation
A
Aaron·
Why do you take 30% of 270 in nci to calculate sub's post acqn and 70% of 270 in Retained earnings?
H
Hassan·
On Acqn SFP date Change
SC 1,000 1,000
RE 600 1,000 400
FV Adj 1,800 1,800
Total FV 3,400 3,800 400
Post Acqn RE =$400m
Its what i got. The FV Adj relates to a non-depreciable land, so-no depreciation.
trying to see if i can do the exam in June23
A
Adam·
hello
how to calculate retained earning in example 3
H
Hassan·
On Acqn SFP date Change
SC 1,000 1,000
RE 600 1,000 400
FV Adj 1,800 1,800
Total FV 3,400 3,800 400
Post Acqn RE =$400m
Its what i got. The FV Adj relates to a non-depreciable land, so-no depreciation.
trying to see if i can do the exam in June23
G
Gnoii·
Sir,
why don't we decrease 40M depreciation when consol RE?
Thank you, Sir.
K
Khang·
Hi Gnoli,
I think that because it is combined when you process in W2. 80m depreciation decreased included the 40M in which you mention
V
vasu·
see we took post-acquisition profit of subsidiary in WN-5, and while calculating post acq profit we have already considered the effect of 40M of depreciation so no need to deduct it separately in Consolidated RE, bcoz post acq profit, has already considered it.
J
Jerry·
hello, sir
I learned a lot from this lecture, but I have a question when calculating the NCI and RE, with the matrix, the change of NA is calculated, but why the change can be used as the post acquisition RE and post acquisition profit?
A
amanlalshrestha·
Can you please give me the answer for example no 3. for the good will part when done by porportionate to NA methode I got GW = 2680 and by another method I got the GW= 3350
A
amanlalshrestha·
by second method I got the gw= 2700
M
Mohammed·
Hello,
Might be a dumb question I’m sorry. But when you add the assets line by line in the group statement, for example the non current assets or inventory how comes you adding them straight totally for example for inventory you add 450 and 580, shouldn’t it be 70% of 580? when only 70% was acquired of Finn. Don’t you need to do 70% of Finns Assets why adding 100% of Finns Asset when only 70% acquired.
Thanks in advance
J
Junaid·
Dear sir,
I am unable to understand the workings and the example. It is maybe because I appeared in the F7 exam 4 years ago, and then I started working after F9. I have almost lost it all in these years and can't seem to remember anything from F7. What would be your advice in this regard? How should I prepare for the exam?
Many thanks
Z
Zura·
Great thanks, excellent tutor with detail explanations <3
S
Salwa·
Hello Chris , any last minute advice for paper Sbr?
Thank you for your support , OT lectures are really a life saver, kudos!!!
D
dazzah666·
As the investments shown on Rey's amount to 1540 and the investment in Finn was 1340 would we not also have the balancing 200 shown in investments along with the 205 from the Associate?
D
dazzah666·
Please ignore I can see why. Regards
N
nenny·
Please I am a bit confused on the treatment of the dividend declared by the Associate, why are we deducting instead of adding it to the investment in associate. And I expected to see the Bank debited with the 5m dividend income to correspond with the Investment in associate being credited with 5m.
H
Haoting·
I have the same query...why
P
P2-D2Tutor·
The dividend paid by the associate is paid out of its distributable profits, essentially its net assets. If the investor is receiving a part of these net assets as a dividend then the associate will no longer have the net assets in its books, and therefore we need to remove them by reducing the investment in associate by the dividend paid out.
In the individual accounts the parent will record the cash and dividend income, but when equity accounting, the dividend income is replaced by the share of profit of associate in the statement of profit or loss.
Thanks
Thanks
L
Lucie13Supporter·
Hi Chris
Following your answer to nenny, I understand that we need to record the cash dividend in P’s book but do we need to record the equity income in P’s book as well i.e. dr investment in associates, cr income from investment? Or the increase or decrease in equity income is only shown on the Group’s?
L
Lucie13Supporter·
Please discard my questions. I have got the answer.
T
Thao·
Hi Lucie,
I am also stuck in the same question, if we only consider about the distribution from associate:
Dividend received:
Dr: Cash 5
Cr: Associate 5
Profit received:
Dr: Associate 10
Cr: RE 10
But at the end the total RE from associate is 5. Please help. Thanks.
H
Hoàng Vũ·
Theo mình hi?u thì trong 80 ??ng l?i nhu?n c?a A mà P ???c ghi nh?n t?ng RE (Dr Associate/ Cr RE) thì ?ã có ngh?a v? chi tr? c? t?c trong ?ó r?i. Do ?ó, khi A th?c tr? c? t?c trong n?m (Dr Bank/ Cr Financial Income) thì ta ph?i ghi nh?n gi?m RE và Associate ?i (hi?u ??n gi?n RE và Associate t??ng ???ng 1 kho?n l?i ích mà chúng ta thu ???c t? l?i nhu?n công ty liên k?t). Bút toán:
1. Ghi nh?n l?i nhu?n c?a A tron n?m mà P ???c h??ng
Dr Associate 10 (t?ng tài s?n)
Cr Group RE 10 (t?ng ngu?n v?n)
2. Ghi nh?n gi?m l?i nhu?n c?a Group vì A ?ã "th?c hi?n 1 ph?n ngh?a v?" do chi tr? c? t?c:
Dr Group RE 5 (gi?m ngu?n v?n)
Cr Associate 5 (gi?m tài s?n)
-----------------------------------------------------------------------------
As far as I understand, out of the 80 profit of A that P is recorded to increase RE (Dr Associate / Cr RE), it is already included the A's obligation to pay dividends to P within it. Therefore, when A actually pays dividends in the year (Dr Bank / Cr Financial Income), we must record the reduction of RE and Associate (understand simply RE and Associate are equivalent to the benefit that we gain from profits from Associated Company). Entry:
1. Recognize the profit of A in the year P is entitled to
Dr Associate 10 (increased assets)
Cr Group RE 10 (increase in capital)
2. Recording Group's profit reduction because A has "partially performed its obligations" by dividend payment:
Dr Group RE 5 (reducing capital)
Cr Associate 5 (property reduction)
H
Hoàng Vũ·
Theo minh hieu thi trong 80 dong loi nhuan cua A ma P duoc ghi nhan tang RE Dr Associate Cr RE thi da co nghia vu chi tra co tuc trong do roi Do do khi A thuc tra co tuc trong nam Dr Bank Cr Financial Income thi ta phai ghi nhan giam RE va Associate di hieu don gian RE va Associate tuong duong 1 khoan loi ich ma chung ta thu duoc tu loi nhuan cong ty lien ket But toan
1 Ghi nhan loi nhuan cua A tron nam ma P duoc huong
Dr Associate 10 tang tai san
Cr Group RE 10 tang nguon von
2 Ghi nhan giam loi nhuan cua Group vi A da thuc hien 1 phan nghia vu do chi tra co tuc
Dr Group RE 5 giam nguon von
Cr Associate 5 giam tai san
N
nounrattanak·
Thank you very much for the clear explanation!!!
K
Kartik·
can you clear one doubt of mine regarding purchase consideration.
A acquired 70% OF B.
PURCHASE CONSIDERATION = 20 m shares
market price of a's share - 2 dollars
market price of b's share = 4 dollars
my question is why is purchase consideration calculated of market price of a's share and not b's market price while calculating goodwill.
fair value of consideration = 20*2 = 40?
M
MikeLittleTutor·
How much value did A have to pay to acquire 70% of B?
K
Kartik·
in the question it is given that finance director determined bargain purchase was 8 million dollars being purchase consideration of 40 million dollars less the fair value of identifiable net assets of 48 million dollars.
M
MikeLittleTutor·
Again, the same question! How much value did A hand over to acquire 70% of B
Incidentally, BOTH values are used in the calculation of goodwill ...
... because goodwill is essentially the difference between the value of the purchase consideration when compared with the fair value of the acquiree's net assets
OK?
A
aishabennett·
Q#2 Rey, Finn and Ben I have an issue with the depreciation, i dont understand why 2 yrs and not 1 yr as the date of acquisition was Jan 2014 and the date of the financial year is Dec 2015. Kindly explain i think that i'm overlooking something. Thanks
Z
Zalika·
Hey you may have figured this out already but:
1st Jan 14 - 31st Dec 14 = 1 year
1st Jan 15 - 31st Dec 15 = 1 year
So, its two years in total :)
K
korkoi1984·
Why did we not prorate the dividend for 6 months as we did for the associate profit from the time we acquired it
N
nenny·
Yes I need the answer to this question as well. Thanks
C
charlxm·
I have the same question - why are the dividends from the associate not prorated as well?
Alternatively, to get the post-acquisition profits from the associate, could we not take profits for the year LESS dividends, and take the parent's % of that? And then prorate that for 6 months.
i.e. ($80m - $20m) x 25% x 6mths/12mths = $7.5m
P
P2-D2Tutor·
Dividends are not pro-rated as they do not accrue over the period. A dividend is declared at a point in time and so only relates to that specific date, hence it is never pro-rated.
Thanks
A
aavdonina·
Hello! Thank you for the lectures! They are very helpful! Why in W5 when we take 70% of retained earnings, we take 70% of 270 (total NA post acquisition) and not of the line "retained earnings" post acquisition. We know that the total is 270, the share capital is 1000, not sure what to do with FV adjustments, so we could calculate the exact line retained earnings.
H
huang·
The remaining 30% are attributable to NCI
P
P2-D2Tutor·
Hi,
Thanks for the kind comments, it's always great to hear that people benefit from what we do here at Open Tuition.
As there are no other components of equity within the question we can just take the movement in net assets as the movement in retained earnings. If you wish the 270 comes from the increase in retained earnings of 350 (800 - 450) less the depreciation 80 on the FV adjustment that would go through retained earnings too.
Thanks
P
P2-D2Tutor·
Hi,
If you ignore adding them across then you would not lose any marks, but if you are a marginal candidate then it would work in your favour if you were to add them across.
Thanks
R
Rachel·
Hi,
Thanks for lectures they are very helpful.
Can you please let me know how you arrived at the acquisition share capital of 1000 in example 2.
Thanks.
P
P2-D2Tutor·
Hi,
I'm glad you find the lectures very helpful.
The acquisition share capital of the subsidiary will always be the same as the share capital at the reporting date. The reporting date share capital can be found in the statement of financial position of the subsidiary.
Retained Earnings = 600
OCI = 400
Excess = 400 (which is the balance of the non-depreciable land) -
Question isn`t Non-depreciable land part of OCI meaning that at acquistion the total OCI should be 800 meaning the movement of OCI since acquisition is -175 (625-800)
My question why 400 due to revaluation of land was not taken into account while calculating the other components of equity??
Can we not take the $400 million directly which is the post-acquisition OCE.
If we used $400 million directly, we would be ignoring the fact that this amount was already part of Han’s net assets when Luke bought it.
I learned a lot from this lecture, but I have a question when calculating the NCI and RE, with the matrix, the change of NA is calculated, but why the change can be used as the post acquisition RE and post acquisition profit?
We were used to calculating the movement in retained earnings and posting that as post acquisition profit.
Once reason could be that we are doing the calculation in Year 2.
But still a bit confused.
SC 1,000 1,000
RE 600 1,000 400
FV Adj 1,800 1,800
Total FV 3,400 3,800 400
Post Acqn RE =$400m
Its what i got. The FV Adj relates to a non-depreciable land, so-no depreciation.
trying to see if i can do the exam in June23
how to calculate retained earning in example 3
SC 1,000 1,000
RE 600 1,000 400
FV Adj 1,800 1,800
Total FV 3,400 3,800 400
Post Acqn RE =$400m
Its what i got. The FV Adj relates to a non-depreciable land, so-no depreciation.
trying to see if i can do the exam in June23
why don't we decrease 40M depreciation when consol RE?
Thank you, Sir.
I think that because it is combined when you process in W2. 80m depreciation decreased included the 40M in which you mention
I learned a lot from this lecture, but I have a question when calculating the NCI and RE, with the matrix, the change of NA is calculated, but why the change can be used as the post acquisition RE and post acquisition profit?
Might be a dumb question I’m sorry. But when you add the assets line by line in the group statement, for example the non current assets or inventory how comes you adding them straight totally for example for inventory you add 450 and 580, shouldn’t it be 70% of 580? when only 70% was acquired of Finn. Don’t you need to do 70% of Finns Assets why adding 100% of Finns Asset when only 70% acquired.
Thanks in advance
I am unable to understand the workings and the example. It is maybe because I appeared in the F7 exam 4 years ago, and then I started working after F9. I have almost lost it all in these years and can't seem to remember anything from F7. What would be your advice in this regard? How should I prepare for the exam?
Many thanks
Thank you for your support , OT lectures are really a life saver, kudos!!!
In the individual accounts the parent will record the cash and dividend income, but when equity accounting, the dividend income is replaced by the share of profit of associate in the statement of profit or loss.
Thanks
Thanks
Following your answer to nenny, I understand that we need to record the cash dividend in P’s book but do we need to record the equity income in P’s book as well i.e. dr investment in associates, cr income from investment? Or the increase or decrease in equity income is only shown on the Group’s?
I am also stuck in the same question, if we only consider about the distribution from associate:
Dividend received:
Dr: Cash 5
Cr: Associate 5
Profit received:
Dr: Associate 10
Cr: RE 10
But at the end the total RE from associate is 5. Please help. Thanks.
1. Ghi nh?n l?i nhu?n c?a A tron n?m mà P ???c h??ng
Dr Associate 10 (t?ng tài s?n)
Cr Group RE 10 (t?ng ngu?n v?n)
2. Ghi nh?n gi?m l?i nhu?n c?a Group vì A ?ã "th?c hi?n 1 ph?n ngh?a v?" do chi tr? c? t?c:
Dr Group RE 5 (gi?m ngu?n v?n)
Cr Associate 5 (gi?m tài s?n)
-----------------------------------------------------------------------------
As far as I understand, out of the 80 profit of A that P is recorded to increase RE (Dr Associate / Cr RE), it is already included the A's obligation to pay dividends to P within it. Therefore, when A actually pays dividends in the year (Dr Bank / Cr Financial Income), we must record the reduction of RE and Associate (understand simply RE and Associate are equivalent to the benefit that we gain from profits from Associated Company). Entry:
1. Recognize the profit of A in the year P is entitled to
Dr Associate 10 (increased assets)
Cr Group RE 10 (increase in capital)
2. Recording Group's profit reduction because A has "partially performed its obligations" by dividend payment:
Dr Group RE 5 (reducing capital)
Cr Associate 5 (property reduction)
1 Ghi nhan loi nhuan cua A tron nam ma P duoc huong
Dr Associate 10 tang tai san
Cr Group RE 10 tang nguon von
2 Ghi nhan giam loi nhuan cua Group vi A da thuc hien 1 phan nghia vu do chi tra co tuc
Dr Group RE 5 giam nguon von
Cr Associate 5 giam tai san
A acquired 70% OF B.
PURCHASE CONSIDERATION = 20 m shares
market price of a's share - 2 dollars
market price of b's share = 4 dollars
my question is why is purchase consideration calculated of market price of a's share and not b's market price while calculating goodwill.
fair value of consideration = 20*2 = 40?
Incidentally, BOTH values are used in the calculation of goodwill ...
... because goodwill is essentially the difference between the value of the purchase consideration when compared with the fair value of the acquiree's net assets
OK?
1st Jan 14 - 31st Dec 14 = 1 year
1st Jan 15 - 31st Dec 15 = 1 year
So, its two years in total :)
Alternatively, to get the post-acquisition profits from the associate, could we not take profits for the year LESS dividends, and take the parent's % of that? And then prorate that for 6 months.
i.e. ($80m - $20m) x 25% x 6mths/12mths = $7.5m
Thanks
Thanks for the kind comments, it's always great to hear that people benefit from what we do here at Open Tuition.
As there are no other components of equity within the question we can just take the movement in net assets as the movement in retained earnings. If you wish the 270 comes from the increase in retained earnings of 350 (800 - 450) less the depreciation 80 on the FV adjustment that would go through retained earnings too.
Thanks
If you ignore adding them across then you would not lose any marks, but if you are a marginal candidate then it would work in your favour if you were to add them across.
Thanks
Thanks for lectures they are very helpful.
Can you please let me know how you arrived at the acquisition share capital of 1000 in example 2.
Thanks.
I'm glad you find the lectures very helpful.
The acquisition share capital of the subsidiary will always be the same as the share capital at the reporting date. The reporting date share capital can be found in the statement of financial position of the subsidiary.
Good luck with the rest of the course.
Thanks