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Basic group structures – SFP workings and adjustments – ACCA (SBR) lectures

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  1. Could you please clarify why the NCI at acquisition is added to the FV of consideration (as against adding it to what is being acquired) as though the investor is the one bringing the NCI as part of the purchase consideration?

    • My understanding says, NCI is added, because you are deducting the net assets value of 100% of subsidiary. When you purchase a subsidiary you buy 50% or more , through consideration. the other 50% is NCI = total 100% of Subsidiary cost (consideration) less FV of Net Assets, will provide goodwill for the entire subsidiary. I hope I am able to explain properly.

    • Goodwill is the value of a company (market valuation) in excess of the company’s net assets.
      i.e. Goodwill = Value of company – Net assets

      Remember NCI is what the acquirer did not buy. So for example, if acquirer buys 51% of the company, we assume:
      Value of company (100%) = FV of consideration (51%) + NCI at acquisition (49% balancing figure)

      Therefore:
      Goodwill = (FV of consideration + NCI at acquisition) – Net Assets
      ^ which is basically the proforma

      Related topic if you like to overlearn is ‘business valuation’ (recall from FR: net book value if the company is about to liquidate, market capitalization, etc.).

      https://www.investopedia.com/terms/b/business-valuation.asp

  4. Please if the subsidiary’s year end is more than 3 months after the parent’s year end, do you consolidate?

    Also, if it is within 3 months after, or 3 months before the parent’s year end, what do you do exactly? You mentioned something about adjustment, how is this done? Thank you.

  8. Hello sir,

    I want to know changes in fair value of net assets acquired after acquisition date’s journal entries. I noted that we can re-adjust retrospectively if that changes meet conditions. So, if fair value of net asset increase, should we re-adjust as debit in group’s non-current assets and credit in subsidiary’s post profit?

  11. Based on PUP, if associate sells to parent, why do we debit w5 when parent and associate aren’t consolidated? If associate is selling to parent, the profit sits with the associate isn’t it? And if that’s the case then the parents retained figures aren’t affected.

    Is this right?

    Thanks for your help.
    Sarah

    • Hi,

      It is a bit odd but regardless of the direction of the transaction, the entry is to debit the share of profit of associate (SPL) and credit the investment in associate (SFP) with the investor’s share of the profit.

      Thanks

    • Hi,

      We would normally take the entry to the inventory but as the inventory is in A’s books we cannot take it there as A’s inventory is not included within the group accounts. We therefore have to take the entry to the only element of the associate that is included within the group accounts, and that is the investment in associate.

      Thanks

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