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69% – first attempt.
Honestly, found opentuition notes not helpful (too condensed for this exam, you really need much more details to successfully pass) at all and lectures were a good introduction into the topic and concepts.
From there on out used BPP Book from 2015 to look up theory and just practiced BBP Revision Kit constantly and cross-checking with the book where I went wrong with my answers. And do it all again.
Couple days prior exam reviewed my notes made during question practice and skimmed through the book quickly on often the concepts that pop up way too often.
Was it the one where the second question was to restate the total assets for consolidation?
Weren’t the tax expenses already given and the deferred tax was supposed to be ignored where applicable?
In order to arrive at profit for the year you always have to consider pre-acquisition Retained Earnings, i.e. Profit for the year = RE post acquisition – RE @ acquisition.
As to why, the RE for the year end is cumulative figure right? So you have to remember that if you take the full RE for the year you will be double counting pre acquisition RE of the subsidiary since this figure was allocated to Goodwill calculation at acquisition (cause that’s how we calculate it, by including Net Assets and RE is part of it).
And only after arriving at pure profit post acquisition you go on with other adjustments necessary to figure out Group consolidated RE.
Hi,
Sorry if I was unclear, I’ll try to break it down a bit.
The SPLOCI @ 31.03.X1goes like this:
Profit for the year 66,000
OCI:
Revaluation (after acquisition) 1,000
Loss on FV of equity instrument (400)Total comprehensive income 66,600
For GW calculation, net assets are therefore:
As represented by:
-Equity shares 160,000
-Investment in equity instrument (2,200 – 400*6/12) 2,000
-Retained earnings @ 1.10.X0 (66,000*6/12) 33,000My main argument is RE above, we should take Profit for the year figure as basis for calculation, not Total CI, because we already factored in the accruing of equity instrument FV change and the revaluation from SPLOCI, as given in the question narrative, got revalued after business combination: “during the post-acquisition period Sentinel Co’s land had increased in value over its value at the date of acquisition…”. That means it shouldn’t be a part of Goodwill calculation, should it?
So I get your point: “To get the full net assets figure we must incorporate the profit for the year and other comprehensive income, which when combined is the total comprehensive income figure.”
But in the context of this question the OCI is something that comes in after merger (land) and we consider accruing of other equity component (equity instrument), so then bringing 66,600 into Net Assets is not correct.
Thanks!
P2-D2 wrote:Hi,
Hi, not to write the whole question I want to clarify my understanding. My logic is:
Total comprehensive income will be included into the calculation of Net Assets, but we have it split into components including RE and Equity Investment (OCI). Assuming FV of Equity investments is distibuted equally over the year we make an adjustment for the figure @ acquisition (6/12) which means if we now take full Comp. Income into net assets (66,600 – which is figure for the YE after bizcom) it will not make sense as we already removed effect that happened after acquisition. In addition the land revaluation included there also happened post acquisition. That then would mean that we adjusted for all the Comp Income, we have equity and we should take only profit for the year to finally arrive @ Net Assets.
Where am I going wrong?
Thanks!
It can be if it is identified as an intangible and valued upon acquisition/bizcom.
It cannot if it’s internally generated.
P2-D2 wrote:Hi,
That’s right, but it’s a double entry:
Dr Share of Profit of Associate
__Cr Investment in AssociateHi,
The quetion on the kit is:
”On 1 July 20×7, Spider acquired 60% of the equity shares capital of FLY and on that date made a $10Mn loan to FLY at a rate of 8% per annum.
What will be the effect on group retained earnings at the year end date of 31 December 20×7 when this intra group transaction is cancelled.
A) RE will increase by $400K
B) RE will be reduced by $240K
C) RE will be reduced by $160K
D) There will be no effect on group retained earnings.From the above it would follow that the answer is C, i.e. interest expense in S and interest income in P will be eliminated on consolidation, but it will effectively change the RE of each of the companies and hence P’s share of S’s RE will also change and from above (as explained) that would give decrease of $160K:
Let’s say that, before cancellation, S had retained earnings of $3,000 and F had retained earnings of $1,600
Without cancellation, the consolidation would be $3,000 + 60% x $1,600 = $3,960
Following cancellation S now has $2,600 and F has $2,000
The consolidation now will be $2,600 + 60% x $2,000 = $3,800
And that is a decrease of $160But my book answer bank suggests answer D – no effect on group RE.
What I am trying to understand is first which is right obviously and if we argue it’s decrease of $160K, I guess I am missing context in terms of which steps are taken to arrive at it. Meaning, the cost/income on loan is cancelled on consolidation, so everything else being equal there will be no change to profit and hence RE. So is it then correct to say, that what has an effect is one line adjustments to reflect share of P and NCI after bottom line and with the same being reflected in equity in SFP?
I am sorry if it is obvious, just trying to get the logic right all the way through.
Thanks!
Hi,
Thanks for reply!
No, the whole question as in the book is right there.
So then it must be an ommission in the answers bank of the book
Thanks for reply!
But gain on disposal is anyway parent’s item, so it should be left untouched.
They say it is included in consolidation, but should be in individual statement of P, we are trying to arrive at P’s statement by adjusting consolidation thus this gain by P (already accounted for in consolidation) should be left there…I guess we both walk away confused 🙂
Maybe tutor will reply and make things clearer
Hi,
I have the same question as in the original topic here in BPP kit, BUT the answer is that there is going to be no effect on group RE.
Do I understand correctly, that there should be an effect on group RE in a sense of S’s RE attributable to the parent (60% parent, 40% NCI)?
And then only in a situation where parent owns 100% of S there will be no effect, is that right?
Thanks!
What I do not understand in this question however, is that it is said that GAIN on disposal of S is in OPEX. And in solution it increases our OPEX thus reducing the Profit. I can’t wrap my head around it as it should be vice versa… Dr Consideration received, Cr Carrying amount of S, Cr Gain on disposal.
Am I missing something?
Because we are speaking about drawing up only the parent’s SPL and it was the parent who sold the goods.
This means that the Consolidated SPL has already considered the elimination so we adding back the Revenue of 1m earned by the Parent.
And this also means that the adjustment to the COS line is not applicable as it resides in S’s books (we are drawing up parent’s books remember).
Keep in mind, what you are doing is adjusting group statement by removing subsidiary’s PL to arrive at parent’s.
So by removing S’s revenue you are left with P’s revenue but adjustment for revenue realised by parent was already in – so add it back.
But, by removing S’s costs you end up with COS that were also adjusted BUT the adjustment relates to S, as the 1M is cost to S (and we have just removed it). The cost to the Group AND to P is 0.7M and it’s already in.Hi,
I have reached out to ACCA and they confirmed that the marks will be given for both during the learning providers’ and stundents’ transition to correct approach. Hope this will be helpful for some other unsettled minds as me.
Email response:
“While learning providers and students transition between the IAS 11 Construction Contracts approach to calculate contract assets and the correct approach applying IFRS 15 Revenue from Contracts with Customers, ACCA will award credit for either approach. The importance of showing your workings in the Section C (Constructed Response questions) cannot be over-emphasised as the marker will be able to award credit for application of either approach.”
The answer in the book is 160,000.
Which I completely agree with, since Contract Asset is pretty much an Unbilled Revenue, i.e. 38% of total costs gives us costs to be recognised of 1.52M plus 38% of 1M profit less AR; OR simply Revenue of 38% * 5M = 1.9M less AR of 1.74M gives us same answer 160,000.
Looking through other questions on forum here, it says it’s current way in standard to arrive at Contract Asset. But the book from BPP and revision kit uses both!
In one question using the the 1st method I nail the answer, but not with the other.
And my Study text and revision kit are the freshest valid for June session.
This is really frustrating as my initial understanding from work was also the second approach described above and I had to get used to the one taught for the exam.
Now, I am really confused as to what to expect on the exam, because it can cost some easy points (given it’s mutiple choice or number entry).
Is there a way to confirm with someone from ACCA what students should expect on the exam?
P.S. Just to dig deeper into this out of curiosity and scratch an itch in my brain I had with it for a month now :)… isn’t the first approach more often than not will actually give us incorrect number for Contract Asset and the books will not be in balance? Given different answers that would make sense to me, but I cannot wrap my head around it.
