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I am sorry but I cannot understand this point. In Pandar, it is specifically mentioned that intangible asset is NOT reflected in Salva’s Financial Statements, that is why we take it in the calculation of goodwill and Statement of Financial Position.
In the normal goodwill calculation, we take the Fair Value of Net Assets at acquisition and therefore, use the Equity section of Statement of Financial Position which is (total assets minus total liabilities) so why will we include intangible asset if it’s reflected in the Financial Statements? There will be doubling, no? I am not trying to make a point but trying to clear my concept regarding this matter. Waiting for your answer.Please do confirm this with your teacher. I am student myself and shared my workings. I do not represent Opentuition and not a teacher so there is a chance I might be wrong. I am unsure if I was allowed to answer the queries. There is no edit or delete button so now I think I just have to stick with it. I am not sure exactly how it works. Anyways, best of luck for your exams.
With all due respect, I was not trying to elevate myself to the status of “tutor” at all.
I just shared my approach to the question, therefore, I also included that I might be wrong. Moreover, I was waiting for your answer to check whether my approach is correct or not. However, I will refrain from commenting any further on this website. Acknowledged.P.s I said we will NOT take it in Goodwill calculation and I was NOT referring to Statement of Financial Position. I might be wrong again.
Deferred Consideration is the payment that is to be paid by the buyer after a pre-defined time period.
Contingent Deferred Consideration is the payment that is to be paid by the buyer ONLY if some events, which are specified in the contract occur within a pre-defined time period.
For example,
Cost of capital = 10%
P buys S for $300,000 on 1-1-15 andCase 1:
Deferred payment of $500,000 on 31-12-15,
Then $500,000 will be converted into Present Value i.e
Present Value of deferred consideration $500,000 x 1.1^(-1) = $454545
The unwinding of discount will be 454545 x 10% = $45455Case 2:
Contingent Deferred payment of $500,000 on 31-12-15 ONLY if Profit < $1000000,
Then $500,000 will be converted into Present Value i.e
Present Value of deferred consideration $500,000 x 1.1^(-1) = $454545
The unwinding of discount will be 454545 x 10% = $45455 (same so far)
BUT if condition is not met, Gain will be recorded then
DEBIT Contingent Constructive Obligation 500,000
CREDIT Profit and Loss/Retained Earnings 500,000
No impact on goodwill if condition not met though.
I hope it helps.Diluted EPS = [$644,000 + $60,000 (1 – 0.3)] / [10,000,000 + 4,800,000*]
= $686,000 / $14800000 = 4.63c*(1,200,000 / 1) x 4 = 4,800,000
You can post your answer in Ask your tutor section so they can provide you with an answer. That’s my answer. I hope it helps.
Read the question again, it is written there that “The fair values of the plant an the DOMAIN NAME have “not” been reflected in Salva’s financial statements”. Had the domain name already included in the financial statements, we would NOT include it.
1. The intangible asset you are referring to is probably “popular internet domain name”. It is written in the question that it is renewable indefinitely at a nominal cost, therefore, the amortization is not included.
2. Salva’s finance cost is 3000. Pandar invested “immediately after its acquisition of Salva” i.e on 1.April.20X9, therefore, Interest cost after the acquisition is 2000 (50,000 x 8% x “6/12”), which is intra-group and should be excluded. The remaining 1,000 (3,000 – 2,000) will be charged for six months = 1,000 x 6/12 = 500. So Pandar 1800 + Salva 500 = 2300.
I am giving F7 in December 2015 and tried to answer your question in best of my knowledge. I may be wrong.
Answer 2nd Question:
Sales 270000 [missing figure]
(VC) (200000) [20*10000]
CM 70000 [missing figure]
(FC) (46000) [Given in question]
Profit 24000 [Given in question]
Sale price = 270000/10000 = 27 is correct.Answer 1st Question:
MOS = (Budgeted Sales – Break-even Sales)/Budgeted Sales
20% = (5000 – Break-even Sales)/5000
1000 = 5000 – Break-even Sales
Break-even Sales = 4000
BREAK-EVEN means Contribution Margin equals Fixed Costs.
Budgeted Fixed Cost = Break-even Sales * Budgeted Contribution = 4000 * 25
= 100,000 Answer. (a)
