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Comments

  1. 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.

    • 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

  3. 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?

  4. 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

    • 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

    • 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

  7. 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.

    • 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

    • 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

    • 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.

      Good luck with the rest of the course.

      Thanks

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