[cheeri]

Hi tutor,

I saw an question in F3 BPP Revision kit 26.1 as follow :
On 1 Jan 20X0 Alpha purchased 90,000 ordinary $1 shares in Beta Co for $270,000. At that date Beta Co’s retained earnings amounted to $90,000 and the fair values of Beta Co’s assets at acquisition were equal to their book values.
3 years later on 31 Dec 20X2, the SOFP of the 2 companies were :
Alpha Co ($) Beta Co ($)
Sundry net assets 230,000 260,000
Shares in Beta 180,000 –
410,000 260,000
Share capital
Ordinary shares of $1 each 200,000 100,000
Retained earnings 210,000 160,000
410,000 260,000

My question is : Why will the investment in Beta drop from $270,000 on 1 Jan 20X0 to $180,000 on 31 Dec 20X0?
Will this affect goodwill calculation?

[cheeri]

Hi
I have noticed that you have treated the wages paid to the owner as a deduction from profits. Shouldn’t it be treated as drawings?
Although the end effect will be the same to capital (add $100 to profits & less drawings $100), the logic is different.
Please confirm.

[Author]

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