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Thanks Kim,

I was not permitted to exam hall with my non-smart digital watch (a simple digital wrist-watch). It is a murky area: the back of the exam docket states:

“5(a) You are not permitted to use a dictionary or an electronic device or translator of any kind or have on or at your desk a calculator which can store or display text. You are also not permitted to use in your examination room an electronic communication device, camera, smart watch, any other item with smart technology functionality.. ”

Exam administrators considered this watch “an electronic device” and did not permit it.

Convincing them that although this is an electronic device, however, it is not a smart-device was a non-starter, since the docket printed regulations are so vague.

Edit: a simple electronc wrist-watch has menu items shown as text – Sun, December etc. Technically, it stores and displays text.

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Thanks for your time!

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They give the answer – just one WACC figure without workings – 11.9%

Here’s the full question (I only need WACC workings help):

This scenario relates to three requirements.

Froste Co has a dividend payout ratio of 40% and has maintained this payout ratio for several years. The current dividend per share of the company is $0.50 per share and it expects that its next dividend per share, payable in one year’s time, will be $0.52 per share.

The capital structure of the company is as follows:
$m

$m

Equity

Ordinary shares (nominal value $1 per share) 25
Reserves 35
60

Debt

Bond A (nominal value $100 20

Bond B (nominal value $100) 10
30

90

Bond A will be redeemed at nominal value in ten years’ time and pays annual interest of 9%. The cost of debt of this bond is 9·83% per year. The current ex interest market price of the bond is $95·08. Bond B will be redeemed at nominal value in four years’ time and pays annual interest of 8%. The cost of debt of this bond is 7·82% per year. The current ex interest market price of the bond is $102·01. Froste Co has a cost of equity of 12·4%. Ignore taxation.

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Thank you!

Does it really matter how a parent values the NCI for NCI’s own accounting?

I suppose NCI will value their non-controlling interest share in subsidiary at cost (or IFRS 9) in their books and be done with it, whatever the parent values NCI in parent’s own books, no?

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Thank you Mike!

I will not insist as I managed to locate the same article but in 2008 SA issue by the same author, which actually shows the calculation of this 10%. Here is the link if anybody is interested.

https://content.ll-0.com/accastudent/sa_aug08_scott.pdf

The only question I have thus far, is it useful to discern between NCI goodwill and parent goodwill when using proportionate method of consolidation (just like shown in the working ii of the Example 3 in the linked pdf)? Or is this example just explains this ‘anomaly’, where, say 25% NCI (by net asset share), has 10% goodwill (when calculated proportionately), but still suffers 25% goodwill impairment? And there is no use to split the goodwill this way for the exam?

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Hello Mike,

Any chance helping me with this sentence: “It can be calculated (though not done in this example) that of Savannah’s recognized goodwill (before the impairment) of $5m only $500,000 (ie 10%)..” Can you help with showing the calculation of this amount?

(from SA technical article here https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012/sa_jul10_F7_IFRS3.pdf):

The sentence appears in this paragraph is below:

“…FURTHER ISSUES
The original question contained an impairment of goodwill; let’s say that this is $1m. IAS 36 (as amended by IFRS 3)
requires a goodwill impairment of a subsidiary (if a cash generating unit) to be allocated between the parent
and the non-controlling interests in on the same basis as the subsidiary’s profits and losses are allocated. Thus,
of the impairment of $1m, $750,000 would be allocated to the parent (and debited to group retained earnings
reducing them to $29.55m ($30,300,000 – $750,000)) and $250,000 would be allocated to the non-controlling interests,
writing it down to $3.65m ($3,900,000 – $250,000). It could be argued that this requirement represents
an anomaly. It can be calculated (though not done in this example) that of Savannah’s recognised goodwill
(before the impairment) of $5m only $500,000 (ie 10%) [ ] relates to the non-controlling interests, but the NCI suffers
25% (its proportionate shareholding in Savannah) of the goodwill impairment.

Steve Scott is examiner for Paper F7”

[Author]

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