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This is to help me understand why when you do a Control to Control adjustment, the treatment is different depending on which direction you go in.
If the group is increasing you holding you reduce NCI by the change in ownership (ie if NCI is 80k and the group goes from an 80 to 88% holding your reduce the NCI from 80k to 48k).
If the group is decreasing its holding from 75% to 65% you incase NCI by 10% of the Net Assets + Goodwill.
Why are those methods not interchangeable? Ie if you are increasing from 80 to 88% why can’t you increase NCI by 8% of the value of Net Assets + Goodwill?
Many thanks,
Sam
I hope you don’t mind me adding to this post because I’ve also been struggling!
In relation to your question, I think its because if you didn’t adjust you would be double counting.
The movement due to FX loss ($2.7) and impairment ($3.3) is $6 in total and the question says both expenses have been included in cost of sales. So I’m assuming the following journals are included before deriving your closing inventory value of $126.
Dr Cost of Sales $6
Cr Inventory $6If you add back the add back $2.7 and $3.3 to PBT (as these are non-cash items) then you need to remove them before calculating the changes in inventory value to avoid double counting.
What I don’t understand, is why we use the closing rate to value the inventory? I thought inventory was a non-monetary item? Is this because the inventory has been impaired therefore we use the rate when it has effectively been revalued? If the inventory hadn’t been impaired I assume we would have used the historic rate?
Sam
Probably more helpful to give a bit more info – apologies!
The answer does this:
Cost at acquisition Dinars 6,000 (translate to $ at rate on acquisition) $1,200
less deprecation Dinars (500) (translate to $ at rate on acquisition) ($100)
Carrying value Dinars 5500 (translate to $ at rate on acquisition) ($1,100)1. why is the carrying value not translated at the closing rate given its assets/liabilities are translated at the closing rate when consolidating the SOFP?
2.Presumably when calculating the deferred tax asset/liability you use the rate of tax in the jurisdiction and the rate in the parents jurisdiction is just a red herring?
Apologies,
Should have RTFQ!
“using either exchange traded March options or OTC swaps offered by Rozu Bank”
Hi John,
Thank you for your explanation.
Please can you explain under what scenario a swap party (unless it was the originating lender) would know what rate the company took the original loan up at? How would the counter party know the original fixed rate was 5.5% in order to calculate the benefit? Is it realistic for swap parties to restrict benefit participation?
In addition to this, I believe the question gives you all the information required to calculate the effective interest rate if you were to use interest rate futures as a hedge but the answer makes no reference to this? Unless I am mistaken, I believe this is an effective solution as (by my calculations) you get an effective interest rate of 4.42%.
Many thanks,
Sam