Basic group structures - SPLOCI example - ACCA Strategic Business Reporting (SBR) lectures
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25 Comments
D
DilyaraSupporter·
Good evening!
Thank you for your lectures, I really appreciate listening to them.
I have the question, as many of others here it relates to $5m loss on ico sales. I understand the reason why this loss is not adjusted, additionally as in scenario was told that sale was for fair value of the goods. So if there were no ico sale, then this goods should be impaired to the fair value anyway. Though the question is: shouldn’t we reclassify those $5 million from CoS to administration expenses?
Thank you in advance.
J
Jitesh Kumar Mishra·
What about the treatment of loss of $5Mln (from following statement)?
{Vader sold goods to Maul for $20 million at fair value following the acquisition. Vader made a loss on the
transaction of $5 million and none of the goods sold had been sold outside of the group by year-end.}
J
Jitesh Kumar Mishra·
Got it. We make provision for unrealised profit (PUP) not for unrealised losses. There is no adjustment required, we need to treat it (assume it) as 'arm length' . thanks
A
aravieisallin·
I have this same doubt.
A
aravieisallin·
Thank you so much for the lectures sir. :) . Just have a little doubt
If Sale was made for $20m and a loss of $5m was made, shouldn't $25m be reduced from cost of sales instead of $20m?
Z
Zura·
Great. many many thanks.
L
Linnie·
Hi Chris,
First - Thanks for great lectures! Really appreciate them.
Now, I've watched all the group lectures and am working my way through my manual (BBP) and have just done a SPLOCI example, and there's a revaluation gain in it, and in the answer they have time proportioned the revaluation gain. So - are BPP wrong?? (the example has the figure net of deferred tax, does that make a difference?)
Thanks a million.
Best,
Linnie
W
wgk·
So the 6 million is the total impairment - related to both Parent and Sub?
If it is the total, is there any particular reason as to not split it between the Parent and the Sub across the two columns (4.8 and 1.2 respectively) - or is just a matter of convenience to put the 6 million in the Sub column?
D
donalister·
Hello Sir,
Thank you for the beautiful Lectures.
I have a question with regard to the sale of goods worth $20M from Parent to Subsidiary
I understand that we are reducing $20M from revenue because the Parents revenue is overstated to that extent.
But I don't understand why we are reducing $20M from the COS. We do not know when this transaction has taken place and assuming that this transaction has accrued evenly during the year, shouldn't we reduce $10M ($20M*6/12) from Subsidiary's COS?
P
P2-D2Tutor·
Hi,
The assumption is that the goods were sold in the post-acquisition period, so we adjust for the full $20 million.
If the sales had accrued evenly over the year then we'd adjust both the revenue and C'o'S by $10 million, being the six-months from the acquisition date to the reporting date.
Thanks
Y
yusuf4fl·
Hi Mr.Barlow,
Are you a fan of Star Wars, coz I keep seeing reference to it in your SBR notes examples! Like Vader, Maul, Ben, etc xD
P
P2-D2Tutor·
Most people my age have an affinity with Star Wars.........
B
bhatti91·
Thank you for the lectures!
Probably a stupid question but the Example say that the goodwill of Vader(Parent) is impaired. So why are we deducting it from subsidiary.
P
P2-D2Tutor·
Hi,
Glad you are enjoying the lectures.
The goodwill is measured using the fair value method and to ensure that the NCI get their share of the impairment we include it in the subsidiary's column.
Thanks
S
Susan·
Sir, In calculating the goodwill impairment, where did the 85 came?
P
P2-D2Tutor·
Hi,
It will be given in the question, but has been calculated using IAS 36, and you will see the detail of how to calculate a goodwill impairment in a later video.
Thanks
Q
Quintus·
Hi sir,
Could you confirm that inter-company unrealized losses are not eliminated for consolidation purposes? You said it is because of prudence and hence losses on inter-company transactions need to be recognized and thus not adjusted for. However, from the various sources that I found, both profits and losses have to be eliminated. In fact, I can't see how prudence should get in the way of consolidation, because if the goods are remaining in the group, surely we need to adjust our financial statements as if the sale had never happened? If we retain the losses, then we're not making a faithful representation because we're being overly prudent.
P
P2-D2Tutor·
Hi,
The unrealised loss will be recognised, assuming that it is at arm's length.
Thanks
W
wgk·
But the loss is within the group so should therefore be 'unrealized'!? That means the profits for the group are less than they should be!! I do not understand why prudence applies in such a scenario. And "none of the goods sold had been sold outside of the group by year-end".
E
emmanual·
Hi,
I have a question if we take nci at fv then we got full Goodwill and we need to deduct the NCI related Goodwill in group sploci and then its says 20% impairment in vader Goodwill so it means we need to deduct vader goodwill in impairment as well= 24*20%= 4.8.
Correct me if im wrong what we have to do?
Deduct only NCI Goodwill?
Or
Deduct impairment of goodwill of parent too?
Thank you.
P
P2-D2Tutor·
Hi,
In adjusting the subsidiary's column the NCI will automatically get their share of the impairment when we total S's profits for the year and give the NCI their share.
Thanks
T
tahzeeb·
Hi...the question says that Goodwill impairments are recorded in administrative expenses. I thought that we would need to takeout the $6m from admin expense first. Kindly correct me if my understanding is wrong.
P
P2-D2Tutor·
Hi,
An impairment is an expense, and so we need to add it to the other expenses to calculate the total administrative expenses,.
Thanks
R
Rajesh·
Thank you for your lectures,
Just had a question regarding this example problem,
The Impairment of Goodwill has been calculated in full i.e $6m , However the post acquisition period is only 6 months , so should we prorate it ? Please confirm if my understanding is right
P
P2-D2Tutor·
Hi,
Glad that you enjoy the lectures.
The impairment is calculated at the reporting date and is reflective of the value of the subsidiary at that point in time, it not reflective of what has happened during the year. Therefore we include it in full at $6m and do not pro-rate it.
Thank you for your lectures, I really appreciate listening to them.
I have the question, as many of others here it relates to $5m loss on ico sales. I understand the reason why this loss is not adjusted, additionally as in scenario was told that sale was for fair value of the goods. So if there were no ico sale, then this goods should be impaired to the fair value anyway. Though the question is: shouldn’t we reclassify those $5 million from CoS to administration expenses?
Thank you in advance.
{Vader sold goods to Maul for $20 million at fair value following the acquisition. Vader made a loss on the
transaction of $5 million and none of the goods sold had been sold outside of the group by year-end.}
If Sale was made for $20m and a loss of $5m was made, shouldn't $25m be reduced from cost of sales instead of $20m?
First - Thanks for great lectures! Really appreciate them.
Now, I've watched all the group lectures and am working my way through my manual (BBP) and have just done a SPLOCI example, and there's a revaluation gain in it, and in the answer they have time proportioned the revaluation gain. So - are BPP wrong?? (the example has the figure net of deferred tax, does that make a difference?)
Thanks a million.
Best,
Linnie
If it is the total, is there any particular reason as to not split it between the Parent and the Sub across the two columns (4.8 and 1.2 respectively) - or is just a matter of convenience to put the 6 million in the Sub column?
Thank you for the beautiful Lectures.
I have a question with regard to the sale of goods worth $20M from Parent to Subsidiary
I understand that we are reducing $20M from revenue because the Parents revenue is overstated to that extent.
But I don't understand why we are reducing $20M from the COS. We do not know when this transaction has taken place and assuming that this transaction has accrued evenly during the year, shouldn't we reduce $10M ($20M*6/12) from Subsidiary's COS?
The assumption is that the goods were sold in the post-acquisition period, so we adjust for the full $20 million.
If the sales had accrued evenly over the year then we'd adjust both the revenue and C'o'S by $10 million, being the six-months from the acquisition date to the reporting date.
Thanks
Are you a fan of Star Wars, coz I keep seeing reference to it in your SBR notes examples! Like Vader, Maul, Ben, etc xD
Probably a stupid question but the Example say that the goodwill of Vader(Parent) is impaired. So why are we deducting it from subsidiary.
Glad you are enjoying the lectures.
The goodwill is measured using the fair value method and to ensure that the NCI get their share of the impairment we include it in the subsidiary's column.
Thanks
It will be given in the question, but has been calculated using IAS 36, and you will see the detail of how to calculate a goodwill impairment in a later video.
Thanks
Could you confirm that inter-company unrealized losses are not eliminated for consolidation purposes? You said it is because of prudence and hence losses on inter-company transactions need to be recognized and thus not adjusted for. However, from the various sources that I found, both profits and losses have to be eliminated. In fact, I can't see how prudence should get in the way of consolidation, because if the goods are remaining in the group, surely we need to adjust our financial statements as if the sale had never happened? If we retain the losses, then we're not making a faithful representation because we're being overly prudent.
The unrealised loss will be recognised, assuming that it is at arm's length.
Thanks
I have a question if we take nci at fv then we got full Goodwill and we need to deduct the NCI related Goodwill in group sploci and then its says 20% impairment in vader Goodwill so it means we need to deduct vader goodwill in impairment as well= 24*20%= 4.8.
Correct me if im wrong what we have to do?
Deduct only NCI Goodwill?
Or
Deduct impairment of goodwill of parent too?
Thank you.
In adjusting the subsidiary's column the NCI will automatically get their share of the impairment when we total S's profits for the year and give the NCI their share.
Thanks
An impairment is an expense, and so we need to add it to the other expenses to calculate the total administrative expenses,.
Thanks
Just had a question regarding this example problem,
The Impairment of Goodwill has been calculated in full i.e $6m , However the post acquisition period is only 6 months , so should we prorate it ? Please confirm if my understanding is right
Glad that you enjoy the lectures.
The impairment is calculated at the reporting date and is reflective of the value of the subsidiary at that point in time, it not reflective of what has happened during the year. Therefore we include it in full at $6m and do not pro-rate it.
Hope that helps.
Thanks