Forum Replies Created
- Posts
Thank you for your prompt response.
The question was correctly posted as I copied and pasted from a revision mock question paper. The “TD” entity was mentioned twice.
Sir, my question here is that, should transaction cost be deducted from debenture cost as treated in the question and why?
Solution from the mock paper
£500,000@95%=475,000- £5000 (less transaction cost)= 470,000470000*7% =32,900. 5000
470,000+32,900-20000=482,900
My calculation
500000@95%=475,000+5000 (add transaction cost being financial asset)
I.e 480,000*7%=33,600. 500,000@4%=20,000
Answer is 480,000+33,600-20,000=493,600
The only reason I did not arrived at the given answer is because I added the transaction cost .
Thank you for your time.
This is meant to be on ask the tutor. I apologised because it will be double posting
Thank you ever so much sir. Having read through your explanation, I realised that it shouldn’t have make any difference to post acqsn R.E so I went back to my calculation. There was a mistake on my part while adding up my figures. That was the cause of difference between my answer and BPP answer, not the fact that impairment loss was deducted from subsidiary RE.
My sincere gratitude for your time and effort, it is much appreciated. And do have a good evening.
Good day Sir,
I understand regarding the post thread, especially given my incomplete question. It looks like group account question.
Also, I do apologise for my assumption that you have the BPP study test with you. For more clarification, please find the full question is posted now.Question
The statements of financial position of J Co and its investee companies, P Co and SCo at 31 December 20X5 are shown below.STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20X5
Non current assets. J $’000. P $’000. S $’000
Freehold property 1950. 1250. 500
Plant and machinery 795. 375. 285
Investments. 1500. – –________. _______. _______
4245. 1625. 785Inventory 575. 300. 26
Trade receivable 330. 290. 370
Cash 50. 120. 20
______. ______. ______
Total assets. 955. 710. 655Equity and liabilities
Share capital – $1 shares 20000. 1000 750
Retained earnings. 1460. 885. 390
_______. ______. ______
3460 1885. 1140Non current liab
12% loan stock. 500. 100. .
Current liabilities
Trade payables 680. 350. 300
Bank overdraft. 560. – –
________. _______. ______
1240. 350. 300
_________. ________. ________
Total equity/ liab. 5200. 2335. 14401) J Co acquired 600,000 ordinary shares in PCo on 1 Jan 20×0 for $1M when the rest earning of P Co were $200,000.
2 At the date of acquisition of P Co, the fair value of its freehold property was considered to be $400,000 greater than its value in P Co’s statement of financial position. P Co had acquired the property in January 20W0 and the buildings element (comprising 50% of the total value) is depreciated on cost over 50 years.
3 J Co acquired 225,000 ordinary shares in S Co on 1 January 20X4 for $500,000 when the retained earnings of S Co were $150,000.
4 P Co manufactures a component used by both J Co and S Co. Transfers are made by P Co at cost plus 25%. J Co held $100,000 inventory of these components at 31 December 20X5. In the same period J Co sold goods to S Co of which S Co had $80,000 in inventory at 31 December 20X5. J Co had marked these goods up by 25%.
5 The goodwill in P Co is impaired and should be fully written off. An impairment loss of $92,000 is to be recognised on the investment in S Co.
6 Non-controlling interest is valued at full fair value. P Co shares were trading at $1.60 just prior to the acquisition by J Co.Required
Prepare, in a format suitable for inclusion in the annual report of the J Group, the consolidated statement of financial position at 31 December 20X5.My workings
After all the adjustment, the goodwill was Calt as follows:
$’000. $’000
Consideration transfer 1000
NCI. (1.60*400,000). 640Sub FV @ acqsn
Share. 1000
R.ear. 200
Asset adjust 400. 1600
________ ___________
40
Impairment loss. (40)–
NOTE 5 says, the goodwill in PCo is impaired and should be fully written off. I’m I right in imparing group goodwill ? Or is it referring to another goodwill in PCo.According to BPP, it was that goodwill impairment loss (40,000)that was deducted from PCo R.earning while I Dr it to group and NCI according to their percentage share.
That affected the post acquisition Ret earning for consolidated SOFPThank you.
Hello Sir,
Thank you for your prompt response to my question.
Regarding the thread title, the question posted is taken from BPP study test, chapter 10 ‘accounting for associate,. It is the last question solved on page 179. The requirement is to account for both associate and subsidiary. Although, the challenging part for me is on the impairment loss posted on the subsidiary retained earning.
I m sorry, I could not find the exam reference from the study test.
Thank you once again for your time.
Good day Sir,
Kindly help in the question below from BPP pg179. I understand figures are omitted from the stated SOFP, this is because my question is on note 5 and there will be no need for figures.
Question- The statements of financial position of J Co and its investee companies, P Co and 20X5 are shown below.
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20X5
Non-current assets
Freehold property Plant and machinery Investments
Current assets
Inventory
Trade receivables Cash
Total assets
Equity and liabilities Equity
Share capital – $1 shares Retained earnings
Non-current liabilities
12% loan stock
Current liabilities
Trade payables Bank overdraft
Total equity and liabilitiesNOTE:
J Co acquired ordinary shares in P Co on 1 January 20X0 for $1,000,000 when the retained earnings of P Co were $200,000.
2 At the date of acquisition of P Co, the fair value of its freehold property was considered to be $400,000 greater than its value in P Co’s statement of financial position. P Co had acquired the property in January 20W0 and the buildings element (comprising 50% of the total value) is depreciated on cost over 50 years.
3 J Co acquired 225,000 ordinary shares in S Co on 1 January 20X4 for $500,000 when the retained earnings of S Co were $150,000.
4 P Co manufactures a component used by both J Co and S Co. Transfers are made by P Co at cost plus 25%. J Co held $100,000 inventory of these components at 31 December 20X5. In the same period J Co sold goods to S Co of which S Co had $80,000 in inventory at 31 December 20X5. J Co had marked these goods up by 25%.
5 THE GOODWiLL IN P Co is impaired and should be fully written off. An impairment loss of $92,000 is to be recognised on the investment in S Co.
6 Non-controlling interest is valued at full fair value. P Co shares were trading at $1.60 just prior to the acquisition by J Co.Sir, the question says the goodwill in PCo is impaired. This I translated as impairment loss to be CR to goodwill in consolidated SOFP and Dr to retained earning of the group and NCI according to their shares. However, the solution from BPP Dr PCo retained earning with impairment loss and CR consolidated SOFP. Having looked at the question again, I thought if it is PCo goodwill, could it be the reason it was CR to its R.E. Then why is the other entry on consolidated goodwill if it is for PCo
Kindly shed more light on the entry please and explain the logic behind BPP entries.
Thank you for your time on this.Passed With 60%. Anyone interested in study buddy F7 for March sitting? Online study
Hello Farzana,
Hope you don’t mind me answering your question. The private journey in the question is not relevant because managing director of the company is regarded as employee. The rule says private use of an asset by employee has no effect on capital allowance computation. After all, the employee will be charge on his income tax for the benefit anyway. However, If the 40% mileage is for the business owner, then the 60% will be charge to reduce capital allowance to the proportion used.
Hope it’s clear enough. Wish you good luck in your exam.
Hello All,
Just to let you know the Tax tutor has answered my above question. It was the error on my part treating old question that was not updated.
Thank you for your prompt response. I saw the question from ACCA past question for December 2015.
Sir, regarding the above question. The chargeable gain made is bigger than the gain made on sales proceed. Since the base cost is cost of replacement asset – rollover available. Will it be correct to calculate negative rollover as follow???
It seems gain is not eligible for roll over, and no adjustment to base cost. Therefore base cost remain £143,000.
Good afternoon Sir,
This comes to say thank you for all your lovely lectures, they are very detailed and straightforward.
Sir, I have same question on joined owned asset of married couple as express by above student. It is in chapter 2, lecture 6. The question was a made up question written on the screen as follow:
Brad and Angelina are married couple. Angelina has income of £50,000 p.a which includes £5,000 of property income, jointly owned property with Brad. Brad only income is £5000 from the jointly owned property. No election has been made by them, would it be worthwhile to make election on the basis of 80/20% actual ownership share.
On this solution given, despite that Angelina income is £50,000, higher rate tax payer, the partner transferable personal allowance (212) was deducted from her tax liability.
According to your explanation and ACCA finance act 2015 article which you referred us to read, it says ‘transferable amount of personal allowance can be transfer to partner provided either partner is a basic rate taxpayer or non taxpayer’
My question is, is Angelina entitled to transferable amount of personal allowance as shown in the solution?
Thank you for your time on this, I look forward to you shedding light on the question.
Hello everybody,
Can someone help with how to use calculator for r raise to 4 equal 0.345 please. I understand that if its r is raise to 3, it’s cube of the number. When raise to 2, it’s square of the number. Then please explain how to calculate when raise to 4. Thanks for your help
Hello Sir John,
Thank you for your prompt response to my question. I have just manage to solve it now after several attempt.?
The question is in the BPP note and the answer was there however, it does not show the calculation.
Hello Sir John,
Trust you are good.
Could you please look into the question below for solution. The question is from BPPA new company has a non current asset of $460,000 which will be depreciated to nil on straight line basis over ten years. Net current asset will consistently be $75,000 and annual profit will consistently be $30,000. ROI is measured as a return on net asset.
Calculate ROI for yr 2 & 6.
Thank you for you time and effort on this.
Hello Sir Moffat,
Could you help with this question please. The question is from Student Accountant technical article achieve.
Example 2
Cat Co makes a product using three machines – X, Y and Z. The capacity of each machine is as follows:
Machine X Y Z Capacity per week 800 600 500
The demand for the product is 1,000 units per week. For every additional unit sold per week, net present value increases by $50,000. Cat Co is considering the following possible purchases (they are not mutually exclusive):
Purchase 1 Replace machine X with a newer model. This will increase capacity to 1,100 units per week and costs $6m.
Purchase 2 Invest in a second machine Y, increasing capacity by 550 units per week. The cost of this machine would be $6.8m.
Purchase 3 Upgrade machine Z at a cost of $7.5m, thereby increasing capacity to 1,050 units.
Required:
Which is Cat Co’s best course of action?SOLUTION
X. Y. Z. Demand
Current capacity per week 800 600 500* 1,000
Buy Z. 800. 600* 1050. 1,000
By Z & Y. 800*. 1,150. 1,050. 1,000
Buy Z, Y & X. 1,100. 1,150. 1,050. 1,000** = bottleneck resource
In order to make a decision as to which of the machines should be purchased, if any, the financial viability of the three options should be calculated.
OPTION 1
Buy Z
(Additional sales) = 600 – 500 = 100 units $’000
Benefit: 100 x $50,000. 5,000
Cost (7,500)
Net cost. (2,500)OPTION 2
Buy Z and Y
Additional sales = 800 – 500 = 300 units
Benefit: 300 x $50,000. 15,000
Cost ($7.5m + $6.8m). (14,300)
Net benefit. 700OPTION 3
Buy Z, Y and X
Additional sales = 1,000 – 500 = 500 units
Benefit: 500 x $50,000. 25,000
Cost ($7.5m + $6.8m + $6m). (20,300)
Net benefit. 4,700The company should therefore invest in all three machines if it has enough money to do so.
Sir, my questions is ‘where does the 500units which was subtracted from bottlenecks from each option comes from’ (under the additional sales). The rest of the calculation is clear enough.
Thank you for your time on this.
Thank you Sir John, you are the best lecturer I have heard in my entire life. I am clear with Farzana answer, my mistake was calculating idle time wrongly. Also, I apologise for posting question on wrong forum.
