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We’d work it out manually – so each asset liability will have its own exchange difference – but not something the examiner would ask us to do.
In parent’s accounts:
Dr Investment in sub Cr Cash
being consideration for extra 20%
🙂
This is a very old question. We used to see very technical exams in those days! Life was hard 🙂
My answer:
1. Recognise at 10 at the purchase day – ‘cost’.
2. Recognise a tax liability at that date of 1. I think it might form part of the cost – you have to pay it if you buy the asset. (Dr IP Cr Tax liability)
3. Do not recognise the gain of 4 because our policy is to hold the asset at cost.The examiner at the time was looking for your discussion and knowledge rather than the specific answer.
The two 2s are in respect of separate adjustments, but I still don’t have enough information. I can see that the gain on the land would go to K’s P&L and therefore RE, but I’m not sure what the other adjustment was.
Where have you sourced Kutchen please? I know there are now several different versions.
Thanks
Steve
Apologies if lecture confused you. Stick to the rule below:
Financial assets should Initially be recognised at fair value plus transaction costs, unless classified as fair value through profit or loss , where transaction costs are immediately recognised through profit or loss.
Please use topic (e.g. transfer of assets) not numbers as thread header.
Please give sufficient detail so that I and other exam candidates don’t need to try and find the relevant question. No need to copy and paste. Just express your question in your own words.
🙂
Probably only where one company pays dividend or interest to the other. But not something to worry about for the exam. 🙂
Example of transaction that would be eliminated = inter-company dividend, removed from S’s divs paid and from P’s divs received.
🙂
Yes. Revised notes to be published in June.
For now, leave chapters 2, 7, 27 until new notes published.
🙂
Method:
1. Prepare separate cash flows for P and S in their respective currencies. Everything balances. 🙂
2. Translate S’s cash flow at average rate.Everything still balances. 🙂
3. Consolidate (i.e. add the 2 cash flows together) Everything still balances. 🙂
Examinability:
Surely not practical to examine in numbers! What a relief!
Here are your two calculations. They give different answers . Both are logical. The accounts will blalnce either way. I have read commentaries suggesting there is little consensus on this issue.
In the exam, they should mark both methods right (remember that your numbers don’t have to agree precisely to the model answer; they are really assessing your explanations).
Above all, don’t spend ages on this point. 🙂
Example 5 in Article
NA + GW at disposal = 535 + 90 = 625
Change in NCI = 10 / 100 x 625 = 62.5
PS If I had a vote, I prefer the second answer.
Adjustment in equity = 65 – 62.5 = 2.5
Dr Cash 65 Cr NCI 62.5 Cr Equity 2.5
Alternatively:
NCI at disposal = 210 + 30 /100 x (535 – 480) = 226.5
Adjustment in equity = 65 – (10/30 x 226.5) = 10.5
Dr Cash 65 Dr Equity 10.5 Cr NCI 75.5
Hessian Group PAID 80m in cash
AND
Hessian Group effectively RECEIVED 9m (the cash that Natural brought with it.
So the net OUTFLOW is 80m – 9m = 71m.
Hope that’s what you are expecting.
🙂
PS – Try and use a more helpful thread header – e.g. Cash flow
Please read our notes and watch the lecture again. Then please ask me specifically which point you need to clarify.
New material after June exam.
BUT use existing notes lectures to get to grips with groups and the accounting standards
When new notes are published send me a message here to identify changes – they won’t be huge 🙂
P sells £100 sausages to S. P has receivable of £100.
S trades in $. Exchange rate $2 = £1.
S will credit payables with $200.Assume exchange rate moves to 3 at year end.
S retranslates payable to $300.So P has receivable of £100 and S has payable of $300.
Then translate all of S at 3.
Now P has receivable of £100 and S has payable of £100.Now cancel out, and have a cup of tea.
🙂
